2. New Models:Somewhere Between Experimenting and Rationalization

2.1. Pay-What-You-Want

Based on demand and consumption, the pay-what-you-want model, or PWYW, takes dynamic pricing policies to the extreme. In this model, customers can choose between paying the price suggested by the company or paying the minimum, which is often a symbolic price. In some extreme cases, customers can even opt to pay nothing at all, though these are often just publicity stunts. An offline example from the United States is that of Panera Bread, a restaurant chain that let its customers pay what they wanted for each item on their menu. It should be noted, however, that this particular chain is a very active participant in hunger awareness campaigns and helps those in need. Panera Bread later decided to set a suggested price of $5.89.

The PWYW model was first used in the music sector when, back in 2007, the band Radiohead decided to let its fans pay what they wanted for its new album “In Rainbows,” even if they did not want to pay anything at all. In the end, only about 38% of the band’s fans decided to pay; the others chose to download the album for free. The average price paid in the United States was $8.05 per album, or $3.23 when all of the free downloads were averaged in. Even so, the campaign had another effect. In just 24 days, the album was downloaded 2.3 million times from BitTorrent, with 400,000 downloads the first day alone.

Amanda Palmer, a lesser-known artist, had more success with her strategy. According to her story on TED talks48, she was able to make more than a million dollars using the Kickstarter platform.

In the publishing sector in 2007, Paste, a mostly music and culture-themed magazine, offered readers a year’s subscription using the pay-what-you-want model in a campaign that lasted two weeks. The time limit was crucial to motivate its fans to take the next step and accept the magazine’s reasonable offer to become new subscribers. Paste’s efforts paid off, to the tune of $275,000 and 30,000 new subscribers, or roughly $9 per subscription. Many companies decided to advertise in the magazine because of the buzz created by the campaign, which also allowed Paste to raise its advertising rates.

Another unique example of a platform that decided to give the PWYW model a try was Gumroad. Gumroad is an eCommerce platform through which users can sell directly to buyers at very low prices. One day, an author who had put his book up for sale for $3 but was not earning much money decided to sell it for whatever the users of the platform wanted to pay, from $0 to a little over $1. In a few weeks, sales increased dramatically and his books were selling for an average of $5 each, increasing his earnings by 60%. The shock effect, coupled with the stir it caused, actually encouraged people pay a fair price, at least in this case49.

Much of the success of the abovementioned examples was due in large part to their marketing campaigns which gave the undecided a reason to buy. When the price barrier is removed, customers are compelled to spend what they consider to be a fair price, although for many sellers, this is only a way to garner attention and not a sustainable system in the long run.

Online banking has also used the pay-what-you-want model. Due to the crisis, ethical banks have come up with many initiatives to offer better and more reliable services than their conventional counterparts, which have now become the targets of angry clients after learning of their practices.

GoBank is perhaps the most prominent example of new ways to attract clients using the pay-what-you-want model. This bank lets its clients set their own monthly account service fee which can be anywhere from $0 to $9. GoBank is unique in that it was designed exclusively for mobile users. All of GoBank’s features and services can be managed through a mobile device, including person-to-person transfers. There is no charge for this service regardless of which bank the recipient belongs to.

In their book Smart Pricing (2010), Raju and Zhang from Wharton School suggest several key aspects50 to keep in mind when choosing to implement this apparently risky business model:

1. Start with a low-cost product.

2. Choose a reasonable target audience. One that is mature. One that has a certain income level and disposable income, otherwise the minimum price or free option will be chosen.

3. Choose a product that can truly be sold at a wide range of prices.

4. Make sure there is a strong connection between buyer and seller. Consider brand loyalty, affinity, or emotional bonds.

An extreme case of PWYW, or more correctly pay-what-you-CAN, comes from the performing arts. Debbie Wilson, a choreographer by trade, decided to present a draft of her new work at the Winchester Street Theatre in Toronto51. Wilson hired dancers from a nearby dance academy and asked the audience to “pay what they could.” In return, Wilson only asked them to bring their mobile phones with them so that during the performance they could tweet their thoughts on the show called “The Eyes of Helios” using the hashtag #helios.

In addition to the added publicity this initiative brought the performance, it also allowed the choreographer to see how the audience’s attention varied throughout the show. The model here was actually a mix between pay-what-you-want and a reward for audience participation/evaluation, which is beginning to gain popularity on social media sites. Though closer to a marketing strategy than a clear-cut business (and revenue) model, Wilson’s stunt is worth mentioning in this study because it is an interesting trend to watch and one which may even make its way into similar initiatives in the future.

Possibly one of the most relevant cases of PWYW in the publishing sector, apart from Gumroad’s much less well-known eCommerce platform, was when Stephen King let his readers pay what they wanted for stories from his serial novel “The Plant” back in 2000. The author later revealed that the experiment had made him $463,832. Clearly, though, King is an author who has a great deal of followers with whom he has a certain connection, as has been confirmed by both sides.

Within this sector, OnlyIndie, a bookshop that specialized in new and independent authors, also wanted to experiment with the pay-what-you-want model. Every eBook it sold started out at 0€ a copy. Only after the first 15 downloads did the platform begin to charge for their eBooks. Little by little, cent by cent, the eBooks reached a fixed sales price that ranged between 2€ and 8€. OnlyIndie has since closed its doors because, even though it had its own niche market and such attractive prices, it could not compete with the likes of Amazon.

Much more recently, leedona was created. This Chilean platform presents itself as a place where readers and writers from all over the world can share their works, read, and discuss their ideas. Its main function is providing online self-publishing services so that authors can publish their eBooks without any initial costs.

The platform offers its registered writers all of the tools and services necessary to publish their works digitally, whatever their content or genre, from novels to theses to essays and tutorials. Authors can upload as many of their works as they want in any kind of format and, once done, they can then convert them into other formats. It is quick and easy and, after providing a few necessary details, deciding on a cover image, and once the platform’s publishers have reviewed it, the book is released online, ready to be downloaded. A tried and true system.

However, the novelty of leedona’s system, which no one else has yet imitated though there are similar systems out there, is in its direct donation-based business model. Readers cannot download a second book until they have donated the amount of their choosing, from 1€ to whatever they want, to the author. The platform encourages readers to be as generous as they can in order to cover costs and to not just donate the 1€ minimum. From the donations received, leedona keeps 30%, which it uses to defray expenses such as PayPal fees, taxes, and legal costs.

Lastly, there is the case of Istoria Books, the independent publisher of mysteries, which may be the least known but one of the first to adopt this model. In fact, Istoria Books actually registered the slogan “pay what you want.” Their readers can purchase eBooks for less than $5 a copy. This platform pays authors a flat rate for their short stories, instead of paying advances, and also takes care of the cover design, the ISBN, promotion, and distribution through platforms such as Amazon and Smashwords, etc. Clearly, this proves that small businesses can in fact respond and do know how to come up with new business and publishing models to avoid going unnoticed, or worse.

In Spain, the most comparable company to Istoria Books, and the most innovative, is Lektu, a recently created eBook platform that has managed to bring together nearly 30 different publishers. The primary attribute of this new platform is the clearly open-minded effort that went into developing it, which has translated into a very user-friendly webpage that provides customers with all of the information they need during the process of buying their eBook. In addition to its transparency, Lektu is also strongly committed to selling DRM-free eBooks, which, though increasingly common in other markets, is...