TITLE

Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets

AUTHOR(S)
Schmidt, Klaus M.; Spann, Martin; Zeithammer, Robert
PUB. DATE
June 2015
SOURCE
Management Science;Jun2015, Vol. 61 Issue 6, p1217
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Pay what you want (PWYW) can be an attractive marketing strategy to price discriminate between fair-minded and selfish customers, to fully penetrate a market without giving away the product for free, and to undercut competitors that use posted prices. We report on laboratory experiments that identify causal factors determining the willingness of buyers to pay voluntarily under PWYW. Furthermore, to see how competition affects the viability of PWYW, we implement markets in which a PWYW seller competes with a traditional seller. Finally, we endogenize the market structure and let sellers choose their pricing strategy. The experimental results show that outcome-based social preferences and strategic considerations to keep the seller in the market can explain why and how much buyers pay voluntarily to a PWYW seller. We find that PWYW can be viable on a monopolistic market, but it is less successful as a competitive strategy because it does not drive traditional posted-price sellers out of the market. Instead, the existence of a posted-price competitor reduces buyers' payments and prevents the PWYW seller from fully penetrating the market. When given the choice, most sellers opt for setting a posted price rather than a PWYW pricing strategy. We discuss the implications of these results for the use of PWYW as a marketing strategy.
ACCESSION #
103528797

 

Related Articles

  • Promotional Bundles and Consumers' Price Judgments: When the Best Things in Life Are Not Free. KAMINS, MICHAEL A.; FOLKES, VALERIE S.; FEDORIKHIN, ALEXANDER // Journal of Consumer Research;Dec2009, Vol. 36 Issue 4, p660 

    A series of experiments examined the amount that consumers were willing to pay for products bundled together in a promotion. Describing one of the disparate products in the bundle as "free" decreased the price consumers were willing to pay for each product when sold individually. However, a...

  • Understanding Markets for Grass-Fed Beef: Taste, Price, and Purchase Preferences. Gwin, Lauren; Durham, Catherine A.; Miller, Jason D.; Colonna, Ann // Journal of Food Distribution Research;Jul2012, Vol. 43 Issue 2, p91 

    We use results of a consumer taste test conducted in Portland, Oregon, and choice-based conjoint analysis to examine consumer attitudes about grass-fed beef compared to conventional grain-fed: taste preferences, willingness to pay, and willingness to buy frozen meat in bulk. We consider the...

  • New necessities: What consumers can't live without. CARMICHAEL, MATT // Advertising Age;11/14/2011, Vol. 82 Issue 41, p6 

    The article examines research on U.S. consumer attitudes conducted by the publication and by the advertising agency Leo Burnett on which products and services consumers regard as essential to the conduct of their daily lives. The increasing importance consumers place on broadband and wireless...

  • BBDO BOUNCES BACK. PAREKH, RUPAL // Advertising Age;9/24/2012, Vol. 83 Issue 34, p8 

    The article discusses the acquisition of the advertising account of credit card company Visa by the advertising agency BBDO, noting that the agency had lost the account in 2005.

  • Determinants of Consumer Attitudes and Purchasing Behaviors on Genetically Modified Foods in Taiwan. Tongyang Yang; Ames, Glenn C. W.; Berning, Joshua // Journal of Food Distribution Research;Mar2015, Vol. 46 Issue 1, p30 

    Consumers have been concerned about the introduction of genetically modified (GM) foods into Taiwan. This study examines the public's attitude toward GM foods in Taiwan using data obtained in a nationwide telephone interview in January 2004. Logit regression was used to measure the relative...

  • A Context-Dependent View of Anchoring: The Effect of Consumer Adaptation of Incidental Environmental Anchors on Willingness to Pay. Dogerlioglu-Demir, Kivilcim; Ko├žas, Cenk // Advances in Consumer Research;2014, Vol. 42, p294 

    The article discusses a study that examined the effect of random numbers in marketing communications on the willingness of consumers to pay. Topics discussed include the context-dependent view of anchoring, the differential effect of incidental environmental anchors on the willingness to pay of...

  • What Makes Consumers Willing to Pay a Price Premium for National Brands over Private Labels? Steenkamp, Jan-Benedict E.M; Van Heerde, Harald J; Geyskens, Inge // Journal of Marketing Research (JMR);Dec2010, Vol. 47 Issue 6, p1011 

    The growing sales of private labels (PLs) pose significant challenges for national brands (NBs) around the world. A major question is whether consumers continue to be willing to pay a price premium for NBs over PLs. Using consumer survey data from 22,623 respondents from 23 countries in Asia,...

  • The Effect of Red Background Color on Willingness-to-Pay: The Moderating Role of Selling Mechanism. BAGCHI, RAJESH; CHEEMA, AMAR // Journal of Consumer Research;Feb2013, Vol. 39 Issue 5, p947 

    The authors investigate the effect of red backgrounds on willingness-to-pay in auctions and negotiations. Data from eBay auctions and the lab show that a red (vs. blue) background elicits higher bid jumps. By contrast, red (vs. blue) backgrounds decrease price offers in negotiations. An...

  • A Consumer Perspective on Price-Matching Refund Policies: Effect on Price Perceptions and Search Behavior. Srivastava, Joydeep; Lurie, Nicholas // Journal of Consumer Research;Sep2001, Vol. 28 Issue 2, p296 

    Although price-matching refund policies are common in many retail environments, the impact of such policies on consumers has largely been ignored. This article reports the results of three studies that examine price-matching policies from a consumer perspective. Study 1 shows that consumers...

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics