Pay what you want consumer behavior

You want your next big idea to be both creative and profitable. Who doesn’t? Striving to “wow” consumers with your brilliant, original tactics means very little if you don’t have the numbers to back them up.

This’s why I looked into the genuine value of a strategy known as “pay-what-you-want.” Made famous by Panera Bread and other socially-conscious cafes, this marketing idea has potential. The real question, of course, is whether it can actually work for you.

Create a Suggested Price

The big idea in “pay-what-you-want” strategies can be summed up in two words: suggested price. You give consumers the freedom to choose how much they pay for your product.

Will they pay above or below the suggested price? That depends on the customer. Of course, common sense dictates that no one is going to pay above the suggested price. Who would want to pay more when they can pay less? Some popular cafes are showing us how this strategy can be successful.

Since 2010, Panera Bread cafes have been implementing this strategy in many of their stores throughout the U.S. Their goal is and always has been to fight hunger by making their products more affordable for the poorest of their customers.

So the more people pay above the suggested price, the more people are able to pay below it (at a price they can easily afford).

This strategy is not limited to companies with tangible products.   Susan Graham from Susan G IT Consulting claims that the strategy is almost solely responsible for her growth in the past year.  By leaving the first month’s consulting fee up to the customer, Graham claims she was able to established a heightened level of trust with her clients.  Previously, Graham would have to justify every action or opinion she held, and as a result, clients were much more on their guard.  But knowing that at the end of the month they could determine what the service was worth to them, they realize how priceless her consulting was.  As a result, many end up long term clients ongoing for the future.

What About Long-Term Profits?

Again, common sense gets in our way as we attempt to applaud such a “pay-what-you-want” scheme. Where are we going to get the good Samaritans necessary for paying into this “community cafe?”

Kate Antonacci, a Panera Bread spokeswoman, claims that the locations utilizing pay-what-you-want are profitable. She admits, however, that they only bring in 70-80% compared to traditional stores. This might come as a red flag to those of us who understand marketing costs. Why would we want to pay 20% of our store’s income if it’s not increasing long-term profits?

It’s important to note that Panera approaches this model cautiously and quietly. Pay-what-you-want stores are not advertised, and the goal isn’t rooted in dollars and cents. This is because pay-what-you-want is an integrated marketing campaign idea if exercised correctly. It borrows from both the advertising and public relations playbooks, rather than just one.

Most businesses would agree that Corporate Social Responsibility as it relates to your public relations is important, but what if your business has nothing to do with food service? Can this tactic really find success in any industry?

Give Your Customer Buying Power

The truth is that while pay-what-you-want is still a relatively young idea, we have several case studies to refer to. One of the most famous examples is Radiohead’s album “In Rainbows.”

The 2007 record sold copies through the pay-what-you-want model and eventually outsold the one before it. Since then, many other artists have successfully used this idea to increase brand recognition. In 2011, Louis CK sold his comedy special at the outrageously low price of $5 (compared to the typical $20). But this motivated fans into becoming advocates for Louis CK.

The word got out, and the special went on to sell 50,000 copies in 4 days.CK claims that he made more money than he would have if he had charged the $20, and fans were able to keep a little more of their money in the process.

In the same way, your business benefits when you give consumers buying power. It’s not just about giving them an opportunity to pay more for the sake of donating. You’re carefully explaining to them how their purchase transcends the product itself.

You’re selling an idea to them on top of what they’re paying for, and that creates a purchasing experience worth sharing.

Research What Motivates Your Customer to Spend

It’s crucial to note that using pay-what-you-want requires ample research and planning. The model is no good if you’re in a market saturated with too many people that can game the system.

For example, coffee shops that attempt to use an “honor system” are typically met with failure. Understanding what motivates a consumer to spend more for your product takes longer than an afternoon to figure out, after all.

The most important thing to consider when dabbling with pay-what-you-want isn’t what you’d expect. If your goal is to increase sales in the short-term, then I would stay far away from this idea.

But let’s say you’re in the business of standing out among competitors and cultivating a loyal consumer group. Pay-what-you-want could be a highly effective and resonating first step.

Overall, pay-what-you-want is an effective tactic for capturing your audience’s attention and turning customers into influencers. If a group of people who have bought your product are excited about what’s behind their purchase, then you’re in.

Consumers will start having conversations about your brand, extending its reach. It all starts with a willingness to give back in a unique, head-turning way.