In the last decade, several sellers have experimented with participative pricing, i.e., pricing mechanisms in which the buyers directly influence the price of a transaction. Pay What You Want (PWYW) is the most rigorous participative pricing model. The buyer can set any price, including zero, and the seller cannot refuse to serve the buyer for that price (Kim, Natter, & Spann, 2009). For the seller, PWYW can be advantageous if the buyers pay differentiated prices that are higher than posted prices. However, the profitability of the pricing model is limited to specific situations (Gerpott, 2017). We introduce a modification of PWYW labeled Multi-Tier Pay What You Want (MTPWYW). In MTPWYW, the seller offers different quality levels of a good. The lower-quality version is available under pure PWYW conditions. The higher-quality versions are only available to customers who pay at least a predefined threshold price. Nonetheless, customers can still pay more than the threshold price for the higher-quality good. Therefore, MTPWYW allows the seller to exclude customers who pay low prices for the higher-quality good. We run a field experiment comparing MTPWYW to PWYW by setting up a waffle stand with two quality levels: the basic version consisted of plain waffles only, the higher-quality version included waffles with toppings. In the case of PWYW, the buyers could choose any price they wanted to for both quality levels. In the case of MTPWYW, waffles with toppings were only available after paying at least the threshold price. The results indicate that MTPWYW can be more profitable than PWYW and that it can achieve two forms of price discrimination: endogenous price discrimination and second-degree price discrimination (i.e., self-selection into different quality levels).

This study contributes to the limited literature on the innovative pricing method of Pay-What-You-Want (PWYW) in the context of a high-value service. PWYW is a participative pricing approach that takes away all the power from the seller allowing customers to decide what price they want to pay. As such, the customer is free to set any price (even zero) and the seller has to accept it (Kim et al., 2009). Existing research on PWYW examines the impact on customers fairness perception (Haws et al., 2006), willingness to pay (Spann et al., 2004), and purchase intentions (Chandran et al., 2005). Studies also provide insights into which factors (e.g., price or value consciousness) impact on the PWYW price people pay, and on its profitability (Kim et al., 2009). PWYW is more effective than traditional pricing approaches for services that follow an economy pricing strategy (Schons et al., 2014) but not for luxury goods (Balan, 2014). A notable omission in the literature is the lack of studies that directly compare the profitability of PWYW for potential, new, and repeat customers in a high-value priced service setting. The high-value strategy is defined as positioning a high quality service sold at a medium price (Kotler et al., 2001). Another lack in literature is the use of natural experiments to examine whether groups of customers will pay different prices in comparison to traditional price setting methods. In marketing research, natural experiments have been used to examine price-quality trade-offs with the conclusion that consumers pay more for better quality (Bertini et al., 2012). Using the natural experiment of the biggest dance festival in Europe (ImPlusTanz) where different customer groups pay different prices, the study compares the applicability and profitability of the PWYW pricing method. Specifically, the minimum, maximum, and PWYW prices are compared to traditionally set prices. Results from the secondary data analysis reveal that ImPulsTanz uses a pricing structure based on demographics mainly. Survey results show that the PWYW prices differ between three natural customer groups. Repeat customers are prepared to pay the highest prices compared to new and potential customers. Despite all customers indicating they will pay for the service generally, PWYW prices paid are lower than traditional list prices from the secondary data analysis. Findings also confirm differences between customers with diverse price perception/consciousness, perceived quality and value of the services offered.

Pay-What-You-Want (PWYW) is an innovative participative pricing strategy in which consumers determine the price they want to pay for a product or service. Past research mainly focuses on individual variables as antecedents of consumers’ willingness to pay under PWYW pricing and ignores the role of situational factors. We address this gap by investigating the effects of three situational factors, perceived crowding, involvement level and time pressure, on consumers’ PWYW pricing decisions. Pay-what-you-want (PWYW) is an innovative pricing mechanism that gives consumers maximum control over the price setting process, and thus allows buyers to entirely determine the price for their desired product or service (Schmidt, Spann & Zeithammer, 2014). The buyer has the authority to choose any price to pay for the offered product or service and there is no minimum price to protect the seller (Kahsay & Samahita, 2015). Such increased perceived control on the final price induces consumers to greater purchase intentions (Chandran & Morwitz, 2005). Hence, a growing number of firms in different industries such as music, museums, software, and charity sales are using PWYW pricing (Schmidt, Spann & Zeithammer, 2014). Internal reference price (IRP) is defined as a price in the buyers' memories that serves as a basis for judging or comparing actual prices (Monroe, 1973; Monroe, Grewal, & Compeau, 1991). In the context of PWYW involvement has a negative effect on prices paid. Involvement is the level of personal relevance consumers possess regarding a product or a purchase decision (Zaichkowsky, 1985). Involvement is conceptualized as both, an individual difference variable representing an “enduring interest” in a given product (Roy, 2015; Bloch & Richins, 1983). It is also posited that the negative effect of involvement on IRP will be further moderated by perceived crowding. Perceived crowding is often described in negative terms as a confined, constrained, and restricted physical setting; and it has two distinct dimensions, spatial crowding and human crowding (Machleit et al., 2000; Byunn & Mann, 2011). A crowded shopping environment is also incompatible with the consumers’ shopping desires and goals; hence consumers exhibit unfavorable shopping behavior such as spend less time in the store (Machleit et al., 2000; Li, Kim & Lee, 2009). Perceived crowding should therefore negatively influence consumers’ involvement and IRP, thereby affecting the money they are willing to pay in PWYW situation.