Last editedNov 20223 min read
The pay what you want (PWYW) pricing model has been both massively successful and absolutely disastrous. Here are the key points to consider before you decide whether or not it could work for your business.
The basics of pay what you want pricing
Pay what you want pricing (PWYW) is exactly what the name suggests. It's a pricing strategy that allows customers to choose how much, if anything, they pay for a merchant's products or services.
Sometimes, merchants offer guide pricing. This can help to prevent customers from becoming confused about what is expected of them. At other times, merchants will just state that payment is entirely at the customer's discretion.
The psychology of pay what you want pricing
The psychological basis behind pay what you want pricing is the principle of reciprocation. Essentially, most humans have an innate instinct to ‘play fair’. If person A provides person B with something they want, person B feels an obligation to reciprocate. Person B will therefore aim to provide person A with something of equivalent value.
This approach has served humanity well throughout its long history. People can feel confident about providing resources for those in need. They are not just providing for someone in need, but effectively storing up equity that they can use if they are ever in need. It also means people can feel confident about asking others for resources when they need them.
The key point to note is that the principle of reciprocity only applies when person A and person B have a reasonable expectation of meeting each other again. And it helps if there’s a reasonable level of trust between them.
Even if there is no real expectation that person A and person B will meet again, person A may still choose to assist them out of general cooperation. There would, however, usually be a higher bar for person B to jump. In other words, person A would probably perceive a higher level of need and be more confident that they could manage without the resources.
The business reality of pay what you want pricing
The key to understanding when pay what you want pricing works well is that it is based on connection. The higher the level of connection between the merchant and the payer, the more successful it is likely to be. Here are some pay what you want pricing examples and why they do – or don’t – work.
Honesty boxes for local produce
There are numerous places where we still find honesty boxes filled with local produce. Technically, these are not pay what you want pricing examples because there is usually a price list. Practically, however, they are because there is no way for the merchant to enforce payment, hence the word honesty.
These work on the principle of reciprocation. The regular buyer understands they need to pay the producer for them to keep on producing. Not paying would ultimately hurt the customer too. They also work partly on the basis of social pressure. Tourists generally pay even though they may never return to the area, because they understand the implication of not paying.
Successful entertainers build up a connection with their audience. In the real world, they make eye contact with them or smile at them. In the digital world, they like comments and respond to them. Depending on the situation, the bond between the entertainer and their audience may be brief but it is enough.
Special offers are an example of where pay what you want pricing can be both massively successful and where it can fail miserably. There are two ways you can make special offers a success with pay what you want pricing.
The first is to use it as part of an overall strategy to form a bond with your customers. Do not rely on pay what you want pricing to do the work for you, unless you want to be taken advantage of. The second is to use it when you want to clear goods or services quickly. In this situation, you’ve little to nothing to lose.
The practicalities of pay what you want pricing
As with any sort of pricing, getting your pricing strategy right is only a starting point, albeit a good one. You then need to make it easy for the customer to pay. With GoCardless, you have a choice of traditional Direct Debits and Instant Bank Pay. Both of these were created with simplicity in mind.
With traditional Direct Debits, you are in full control of charging the payment according to the agreement with the customer. You create the payment through the GoCardless dashboard or through a partner integration.
With Instant Bank Pay, you create the payment for the customer to approve. The customer can approve the payment with just a few taps and their bank will confirm the funds instantly. GoCardless will usually pay out the funds to you by the end of the next working day at the latest.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.