In a cafe in Santa Monica, California, some people are getting a coffee for a dollar, while one customer paid $104. Metro Cafe is just one of the latest to try the pay-what-you-want (PWYW) business model, but it has been around for a while. In the UK, the Real Junk Food Project runs pay-as-you-feel community cafes, highlighting food waste, around the country. Radiohead memorably experimented with the optional payment system for their 2007 album In Rainbows, to mixed success – it made more money than their previous album, but it was also hugely pirated, despite people potentially getting it for nothing from the band’s site.
The model must work, however, otherwise why would businesses use it? “It depends,” says Ayelet Gneezy, associate professor of behavioural sciences and marketing at the University of California’s Rady School of Management, who researches PWYW and people’s responses to it. “It does work, but not always.”
It would be more likely to work for a small, local, independent coffee shop, such as Metro Cafe (it’s a community cafe, attached to the church), than in one of the big coffee shop chains, “because [customers] would never feel they care about [a Starbucks] too much”. The system “hinges on this notion of people wanting to do the right thing”. This is mostly motivated by self-image. Perhaps counterintuitively, when you allow people to pay anonymously (using a sealed envelope, for instance), people actually pay more than when they pay, say, a restaurant owner. “I self-signal that I’m a generous person,” says Gneezy.
It’s why you don’t see everyone bundling in and getting something for nothing. In one PWYW experiment at a restaurant, by researchers at Goethe University Frankfurt, not one person paid zero, although, on average, people paid 19% less than the previous fixed price. However, it attracted more customers and overall sales were up.
In one of Gneezy’s experiments, selling photographs of people on a rollercoaster, customers paid an average of 92 cents. When they were told half the money would be donated to charity, this rose to $5.33 – though fewer people bought one. “You could see the wheels turning in their brains, coming up with the right number that was good enough to pay.” This could explain why fewer bought it – they may have decided on a fair price, but still didn’t want to pay it, and would rather forgo the purchase altogether than look cheap.
