Pay What You Wish
By Nicole Perrault
A new business model lets customers decide how much they want to pay depending on how much they can. Is this choice effective or a bad business move? Companies want you to decide.
In 2007, the alternative rock band Radiohead severed a contract with its record company just before the release of its new album “In Rainbows.” The band members, who wanted more control over their own work, instead sold the album on their website for whatever fans wanted to pay. The result: record sales climbed and the band’s sales did not suffer. In fact, the band entered the Billboard chart at No. 1 because more people had access to its music.
Panera Bread Co. used this same idea when it opened its first pay-what-you-want restaurant in Clayton, Mo. The company ended up making over $100,000 in revenue in the first month alone.
For a business model that might seem counter-intuitive to sales, it’s becoming more popular. Companies around the nation are adopting the idea that allows the customer to decide how much he wants to pay for a service or product. Many employers think giving consumers a choice of how much they want to pay for a yoga studio, for farm goods, or at a business retreat makes both the buyer and the provider happy. And they’re turning out to be right.
Jeffrey Mcpherson, a professor at a North Carolina community college and an honor system marketing entrepreneur, has spent years researching the motivation behind pay-what-you-want services. “Companies are opening up an air of trust in their clientele,” Mcpherson says. “Even though they are also giving thieves a chance, they are still making more money because of the good folks.”
These businesses ask consumers to pay what they think their services are worth — and results show they’re worth a lot.