Pay What You Want

It’s worked for hotels, restaurants, rock bands and the Urban Canine Doggy Day Spa (“Chicago’s hippest dog walking and dog grooming salon”), but only now has anyone from the university press world decided to experiment with the “pay-what-you-want” pricing model.

On Tuesday, May 15, readers in the United States can make an offer for any title in the Cornell University Press catalog and probably get it. “We’ll take a look at your offer,” the press’s announcement explains. “If we can do it, we’ll send you a special discount code to use online or by phone.” The one-day offer is being promoted in part via YouTube.

A technical literature exists on “participative pricing mechanisms” such as this. Strictly speaking, it defines pay what you want (PWYW) as the vendor offering to provide its goods or services even if the customer proposes to pay nothing. Cornell UP is not going quite that far out on a limb. Its offer is closer to the “name-your-own-price” (NYOP) model, in which the vendor reserves the right to reject a bid.

“We have an in-house algorithm we’ll use,” Martyn Beeny, the press’s marketing and sales director, told me by email, “but I would rather not share that publicly, obviously. Still, the bar is low and I would expect almost every offer will be accepted.” The press is prepared to be extremely flexible with a lowball bid: even if the offer isn’t acceptable, the customer has the option of receiving either “free digital access to the book or the chance to make a new offer.”

That such pricing experiments are viable -- indeed, that PWYW did not put the first enterprise attempting it out of business immediately -- violates common assumptions about consumer behavior. A paper from 2009 in the Journal of Marketing, based on three case studies of PWYW pricing, reported that “none of the buyers chose to pay a price of zero during the experimental period.” That finding seems in keeping with experiments with “ultimatum games” in which two individuals make an all-or-nothing determination about how to split up a fixed sum of money. One party makes an offer; if the other rejects the proposal, neither side receives any of the money.

“Neoclassical economic theory,” the paper’s authors note, “which assumes that people maximize utility, would suggest that the proposer offers the responder the smallest amount possible and that the responder always accept because even a small amount of money is better than no money at all.” In reality, “responders often reject proposals of less than 20 percent,” with 50-50 splits proving common. Even in laboratory conditions, between people with no social ties or affective bonds, behavior seems to be governed more by a sense of fairness than by maximum utility, narrowly conceived.

Subsequent research on PWYW or name-your-own pricing suggests that the fairness effect is also conditioned by “external impact factors,” including the consumer’s awareness of a commodity’s normal price, the reputation of the seller and the degree of social distance between those involved in the exchange. One study of the dynamics of repeat PWYW business found that “prices paid at the first transaction are not representative of future prices paid,” which show a significant decrease over time.

“Accordingly,” the researchers warned, “sellers need to be aware that implementing PWYW for frequently purchased good and services does not insure profits over repeated transactions.”

Much recent scholarship on participative pricing mechanisms is published by Elsevier, known for developing what might be called the “pay-what-we-want-and-nobody-gets-hurt” (PWWWANGH) model. Thus, I am lamentably behind on many developments in the field. But an interesting article on the use of PWYW pricing in open-access publishing appeared late last year in the Association for Computing Machinery journal Communications of the ACM. Instead of setting article processing charges for papers accepted by journals, some publishers have made payment voluntary.

Researchers might be willing to pay such charges “for reasons of fairness and reciprocity -- because they want to compensate the publisher for his costs or to reciprocate his generosity, as well as for strategic considerations, that is, because authors understand the journal will not be sustainable if the production costs are not covered … At the same time, authors with limited funds are not excluded from publishing because they can adjust their PWYW payments to their available means."

By contrast, scholarly print publishing seems to have played it safe by sticking to established protocols. Beeny and his colleagues at Cornell University Press seem to be the first academic imprint to try participative pricing, at least this once. I assumed it was probably a way to clear some shelves in the warehouse, perhaps in lieu of remaindering books. Not so, however.

“This isn’t a stock-clearance effort at all,” Beeny told me. “In fact, in the modern publishing world of print on demand and reduced inventories sitting around in warehouses, remaindering is becoming less common. I’m not a big fan of remainder sales in general, but this sale isn’t meant to replicate or replace such efforts, anyway. The sale was triggered by us wanting to make a push for extra sales, yes, but also for brand recognition and awareness. We’re hopeful this sale will bring in a good return, obviously, but the impressions on Twitter, the reads on our blog and now the views on YouTube have all already made this sale a big success.” He says that a number of marketing directors at other presses have expressed interest.

“It’s a big experiment,” he says. “I’m intrigued to see what people think is fair value for any given book.”