Profiting from Pay-What-You-Want The Impact of Anonymity and Reference Price

Transcription

1 Profiting from Pay-What-You-Want The Impact of Anonymity and Reference Price August 3rd, 2013 BCSI 2013 Workshop Essi Pöyry, Aalto University School of Business

2 PWYW customer determines price Pay-what-you-want (PWYW) pricing mechanism that delegates full price control to the buyer who can pay whatever price, even zero In most cases, customers choose to pay more than zero (Kim et al., 2009; Regner & Barria, 2009; Riener & Traxler, 2012) and, in some cases, PWYW has even been seen to increase revenues (Kim et al., 2009) Customer s internal reference price and the proportion of that reference price he is willing to discharge to the seller determines the price (Kim et al., 2009)

3 Research problem Framing of price offerings have an impact on consumers attitudes and behaviors (Sinha & Smith, 2000; Tversky & Kahneman, 1981) but the existing PWYW research does not take this into account Moreover, the existing PWYW research is mostly limited to offline contexts (Gneezy et al., 2010; Kim et al., 2009; Riener and Traxler, 2012) even though online sales and digital goods provide an excellent environment to apply PWYW (Mak et al., 2010) In e-commerce, the lack of face-to-face interaction upon a purchase expected to have a negative impact on paid prices

4 Research design two studies Reference price High / Low Product demand Study 2 Anonymity of the payment Yes / No PWYW price Study 1 Promotion availability Short / Long

5 Research design - Anchoring effect of external reference price cues - Relative customer benefit of high reference price in price promotions Reference price High / Low + + Product demand Study 2 Anonymity of the payment Yes / No PWYW price Study 1 Promotion availability Short / Long

6 Research design Reference price High / Low - Altruism in e.g. Dictator games, charitable giving: Anonymity decreases altruistic behavior and increases opportunistic behavior Product demand Study 2 Anonymity of the payment Yes / No + PWYW price Study 1 Promotion availability Short / Long

7 Research design Reference price High / Low Product demand Study 2 Study 1 Anonymity of the payment Yes / No Promotion availability Short / Long PWYW price - Persuasive scarcity claims increase value perceptions and purchase intentions

8 Research design two studies Reference price High / Low + + Product demand Study 2 Anonymity of the payment Yes / No + Study 1 Promotion availability Short / Long PWYW price

9 Study 1 lab experiment 2x2x2 between-subject factorial design Context: Online game bundle sold through an online game store Humble Bundle Fictitious offering that resembled Humble Bundle s previous game sales that had used PWYW Sample: Humble Bundle s followers recruited through Twitter Conditions randomly assigned to different respondents via a web link Study 1

10 Experimental condition: high reference price, long availability, anonymous Study 1

11 Data 1861 usable responses collected Demographics of the respondents reflected the company s regular clientele Average age 25.0 years (SD = 5.91) 96% male Even spread of responses over different conditions High reference price, n = 988 Long availability, n = 909 Anonymous payment, n = 1005 Study 1

12 Density Results Density plot of customers willingness to pay Price in in dollars Euro Reference price Anonymity Availability PWYW Price in $ 20 Anonymous 5 hours Anonymous 15 days Public 5 hours Public 15 days Anonymous 5 hours Anonymous 15 days Public 5 hours Public 15 days Study 1

13 Results Regression Estimates Way Interaction Price x Time Public x Time Public x Price Time (Main) Price (Main) Public (Main) 50% and 95% confidence intervals of the Poisson model

14 Reference price had the highest effect on paid prices Estimate Std. Error z value Pr(> z ) (Intercept) Payment anonymity: Public Reference price: High Promotion availability: Short Payment anonymity: Public, Reference price: High Payment anonymity: Public, Promotion availability: Short Reference price: High, Promotion availability: Short Payment anonymity: Public, Reference price: High, Promotion availability: Short Study 1

15 Study 2 field experiment 2x2 between-subject factorial design Context: Online ticket sale to professional seminars ( morning seminar ) organized by a non-profit association Six seminars priced with PWYW, events otherwise similar to the ones held in past Sample: Customers of the association (members and non-members) Conditions randomly assigned to customers buying tickets. IP address-based recognition and memory. Study 2

16 Manipulations When buying a ticket online: For this special morning seminar, you can pay as much as you want. The normal price of the seminar is [60 / 120] euros. The price that you pay [will not be reported to anyone / will be reported to the speaker and the organizing committee]. Study 2

17 Data 138 customers (survey filled by 111) Demographics 54% members of the association 36% years old 51% female 56% held a university degree 51% paid the price personally or out of their own company for the rest, the payer was the person s employer Quite even spread of responses over different conditions Anonymous payment, n = 76 High reference price, n = 40 Study 2

18 Results: PWYW vs. regular prices Seminars with PWYW prices Event Registrations PWYW Price in Revenue in Total Average 23** 45.02* Seminars with regular prices (prior to experiment) Event Registrations Price in Revenue in Total Average 12.7** * = p <. 01. Test of deviation of prices paid from zero (one sample t-test) ** = p <.05. Test of different means PWYW and regular (independent sample t-test) Study 2

19 Both anonymity and reference price had an effect on paid prices Anonymity Reference price PWYW Price in Revenue in Anonymous Anonymous Public Public Univariate general linear model Source of variance PWYW Price F-statistic p-value Interaction (A x B) Anonymity (A) Reference price (B) Study 2

20 Discussion: Reference price In both studies, reference price had the highest impact on how much customers wanted to pay Consumers internal reference price increases due to external framing cues of a high reference price (Grewal et al., 1998; Johnson & Cui, 2013) This differentiates PWYW from NYOP and auctions where low, rather than high, reference price cues induce higher prices (Johnson & Cui, 2013; Gwebu et al., 2011) However, high reference price also decreased demand even though customers were allowed to pay whatever they wanted. This is contrary to general view on using reference prices in price promotions (Chandrashekaran & Grewal, 2006).

21 Discussion: Anonymity In study 1, public payment increased the effect of a high reference price In study 2, public payment had a positive main effect Social needs and values of consumption highlighted (Proença & Pereira, 2008; Sweeney & Soutar, 2001) Supports the speculation (Gneezy et al., 2010; Johnson & Cui, 2013; Kim et al., 2009) of the influence of social norms on PWYW Dictator game effect: feeling of obligation to give others higher when payment non-anonymous (Engel, 2011) The way anonymity is operationalized influential (study 1 vs. study 2)

22 Managerial implications PWYW can generate revenues above normal level but, if implemented poorly, it may decrease revenues understanding consumer behavior and values extremely important! Suitable especially to goods and services with low marginal cost and very large inventory PWYW can be used as a value elicitation tool to price new products External reference price cues should be used if product is new or consumers internal reference prices vary significantly The perception of anonymity should be avoided by highlighting personal liability and sense of community

23 Limitations and future research directions Other variables than the ones studied might have greater impact on prices Other ways of operationalizing anonymity could be explored Interesting research topics Group buying and PWYW Comparing PWYW before and after service consumption Using PWYW as a mean to price new products and testing the new price Using PWYW for new-to-the-world products where internal reference prices extremely volatile

24 Thank you! Essi Pöyry