Can Allowing Customers To Pay As They Wish Increase Profits?
Inspired by Radiohead's "pay what you want" release of the album "In Rainbows," a group of researchers from the University of California wanted to test how letting people pay what they want could work for other businesses. The researchers took photos of over 100,000 people on a roller coaster ride at an amusement park. Then they split people into two groups. Group A could buy the photo for a fixed price, and Group B could pay what they wanted.
The results -- people who paid what they wished bought more photos-- 8 times more, and these same people also spent more money per photo.
Then, the researchers added a second-dimension, charity. Half of the participants in each group were told that some of the revenue would go to charity. Although the number of sales in both group A and B remained roughly the same, purchasers who paid as they wished spent much more money when they were told charity was involved.
As for what they want people to take away from the study, the researchers point to company ethics, "our study suggests a method in which the pursuit of social good does not undermine the pursuit of social good does not undermine the pursuit of profit."
(H/T: The Economist) Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.