Consumer response to design variations in pay-what-you-want pricing

Ranjit M. Christopher, Fernando S. Machado*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

Recent literature has identified consumers’ fairness and image concerns as the primary drivers of payments under pay-what-you-want (PWYW) pricing. Consequently, managers have employed a variety of design variations to invoke/alleviate these concerns to attract more customers and increase payment magnitudes. We develop a theoretical approach that combines both prosocial and self-interested motives to examine consumers’ four possible responses to design variations in PWYW exchange: (1) opt-out, (2) free-ride, (3) default to recommendation, or (4) other payment. We confirm model predictions using an empirical approach that jointly estimates the multipartite customer response. We report findings pertaining to four managerially controllable variables namely, ‘payment visibility’, ‘information on payment recipients’, ‘timing of payment’, and ‘explicit price recommendations’ using both secondary data and controlled experiments. We show that design variations have a heterogeneous effect on different types of consumer responses leading to countervailing effects on revenues. We derive several actionable managerial recommendations.
Original languageEnglish
Pages (from-to)879-898
Number of pages20
JournalJournal of the Academy of Marketing Science
Volume47
Issue number5
DOIs
Publication statusPublished - 15 Sep 2019

Keywords

  • Anonymity
  • Hurdle models
  • Pay-what-you-want pricing
  • Price recommendations
  • Pricing design

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