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Thread September 24, 2011 editorial: comments

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Topic September 24, 2011 editorial: comments

Dear Fellow Audiofanziners:

http://ripremix.com/images/rip/pay_what_you_want_purchase.pngThis week Propellerhead Software announced that for limited time owners of its Record–Reason Duo product will be able to purchase the Reason 6 upgrade at whatever price they want.  So it's not the first time we see the pay-what-you-want pricing model, which has become trendy in recent years being embraced at one point by Radiohead for its new album launch back in 2007.  I myself remember going into an Indian restaurant which just opened up which used this model.  I ended up paying more than what I would have, as at first, I thought - wow great this will really save me money.  Then you start to feel guilty and decide to pay what is the market price, plus a little extra for the restaurant embarking on such a lofty initiative and trusting its client base.

In a pay-what-you-want world there will always be the freeloaders, for which we must account for on the balance sheet even if preventive measures are in place (suggested pricing, minimum price etc.).  But there will always be those who will applaud such efforts and give extra.

In Smart Pricing (Raju and Zhang, Wharton School Publishing, 2010) it is suggested that for this model to be successful you need:

  1. A product with low marginal cost (no pay-what-you-want BMWs ;-)
  2. A fair-minded customer (in other words- nice people)
  3. A product that can be sold credibly at a wide range of prices (it would seem strange to purchase a house under this pricing model- like where's the catch is the house haunted?)
  4. A strong relationship between buyer and seller
  5. A very competitive marketplace.

Under this pricing model, the customer is in effect participating in the pricing decision.  But don't we already with the good old forces of supply and demand?

I for one, would be happy to see more of this pricing model when it comes to downloadable goods which are cheaper to begin with when there is no store front, marketing, shipping, fancy packaging etc costs built in.  Music, movies, software, books are perfect candidates for such as system.

Just thank god, this pricing model has not worked out so well in restaurants- otherwise we will all have to go back to the gym to pay-what-we-want for a service we definitely don't want.