Pricing: Should You Allow The Customer To Decide?

by Sean D'Souza

Pricing: Should You Allow The Customer To Decide?

In the year 2007, the rock band Radiohead did something really unusual. They gave their customers the chance to pay whatever they wished for the album. If you wanted it free, it was yours to have. If on the other hand you wanted to pay a few bucks, well, that was your prerogative as well.

And guess what happened next?

Radiohead fans went wild, despite the fact that the downloads weren’t CD quality. So how much did Radiohead make from the ‘pay as you like’ concept? Radiohead won’t say. So why won’t they say? We don’t know the answer for sure, but this much we know: Without a price tag, you’re giving a customer more stress than that customers needs or wants.

And here’s why a lack of a price tag drives customers crazy

Imagine you’re in the supermarket. And you have five thousand items to pick from. And every item has a ‘pay as you like’ tag. So how do you decide how much to pay?

Immediately confusion sets in, because prices are impossible to gauge. So as you head through checkout—and if you’re kinda ethical about your purchase—you’d have to work out every single price in your head. Then the check out person would have to punch in every single price. And the lines would extend forever.

Products without price tags set off a dilemma in our overtaxed brains

Are we paying more for a product or service? Or are we paying too little? If we pay too little, the company producing our favourite brand will soon go out of business and we won’t get our favourite stuff.

So that’s not much good. But what if we paid more? That’s kinda stupid too, isn’t it? So the best recourse would be to pay the right price.

But what’s the right price?

It’s impossible to tell, isn’t it? So incredible as it sounds, the customer does what most Radiohead fans did. They just downloaded the product absolutely free.

And we know this for a fact, because despite the product being freely available on Radiohead’s own site, the downloads were largely through the bit torrents. Ironically downloaders were stealing free music. The ‘pay as you like’ experiment didn’t seem to be working so well, after all.

But surely ‘pay as you like’ prices work

They do, but is it profitable enough for you as a service provider to keep playing this game of pricing roulette? You’re not only confusing the customer, but now have the hassle of working out when at which point the customer should pay.

Should they pay before they use your products—or after? And what if they don’t use the products at all, simply because they feel it was ‘free’? Do you still nudge them to pay, or leave them alone?

Pricing exists for a reason

It saves us the mental burden of having to calculate value—and hence pricing. It helps us make reasonably quick decisions. And it helps you stay profitable—if you price your products and services correctly. And even Radiohead had a plan that involved pricing.

Right after they gave away their product, they also put out box sets, CDs, vinyls and high-quality digital downloads. And there was a specific price on every product, some products ranging as high as $80. They sold 100,000 (or more) of the box sets and did over three million product sales—all with a price tag.

You’re no Radiohead.

You don’t have a huge following.
You can risk the ‘pay as you like’ concept, and for the most part you’ll find that it buys the beer, but won’t pay the bills. And certainly won’t get you the three-month vacation.

Pricing exists for a reason. Bite the bullet and charge the price. It’s a far sounder strategy for you—and your over-taxed customer!

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{ 8 comments… read them below or add one }

Todd Smith November 22, 2011 at 12:45 pm

I changed my price from “pay as you like” to yes-yes grid last week, thanks to your inspiration! :)

Reply

Brian Morris November 22, 2011 at 3:06 pm

I teach writing courses by correspondence. http://www.nzibs.co.nz
Each course has a ‘course fee’ which is fixed. This takes all the guesswork out of deciding what a course of training is ‘worth’.
However, we are happy to extend the normal 12-month life of a course for people who are time-challenged. This could be construed as giving more ‘value’ to a student who is a slow worker.
However, I believe it is far better to see a student graduate than say “Sorry, you took too long. You must pay another fee.” [Which is exactly what universities do.]
Our NZIBS students enjoy the benefits of knowing the financial fixed-fee of their study programme when they begin.
Brian Morris, Principal

Reply

Jason Wittman, MPS November 22, 2011 at 3:37 pm

I once experimented with letting new clients choose their own price for my coaching services. My only provision was that they had to pay something or that would be the last call. It didn’t work. I didn’t attract any new clients.

Reply

Joyce November 23, 2011 at 6:18 am

A friend of mine had a 12-piece place setting of Bavarian china left to her by her mother-in-law which she hated. I loved it and offered to buy it from her. She just said take it as she was going to get rid of it anyway. I did pay her for it but later found out it was actually worth much more. My friend really didn’t care but I felt like a schmuck.

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Gregory Lowrey November 23, 2011 at 7:01 am

I usually charged $100 USD for healing sessions and never had any trouble getting paid. Since part of my promotion was that I only wanted to be paid for results, I tried making patients wait till after 3 sessions to pay. They always got better and always paid. But I got complaints that paying for three sessions at once was difficult and they would rather pay as they went. When we moved to Utah, the economy was so depressed that I let patients decide what they could afford to pay which generally was between $5 and $40 instead of the $100 but generally even then I wouldn’t get paid. I found myself for three years working about 65 hours per week and only bringing in about $40/wk. When the payments on the sale of a previous business ended, I was suddenly broke and lost both my office and home. Since I generally only see patients 3 to 5 visits I considered a one time up front payment but since I have moved back to Michigan I have not found any satisfactory way to acquire new patients, except for family and friends of family who pay nothing. Anyway, even though I was sympathetic to my patients being out of work, which by the time they see me most are, I think having some kind of set price is best.

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Mike November 28, 2011 at 1:15 am

In the early 70′s I taught highschool English. One of my classes was made up of ‘low achievers’ as they were described. For one grading period, I experimented by telling the students that they could pick the grade they wanted, develop a list of what they would do to earn the grade and then spend their time achieving the plan. I did review the plans and with slight moderating suggested minor changes.

Everyone in the class picked an “A”. Not sure if everyone achieved the plan to get the A. In a similar fashion to Radiohead, during the next grading period grades were determined by me based on the students ability to ‘master’ the topic. The result was a significant interest in the sugject and improvement in the overall grades.

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Ron Bloomquist November 29, 2011 at 12:13 am

What Radiohead did was a great way to get their music and name out. Enabling web users to download their work was inexpensive. It created a “need” in those that liked what they did. Results speak for themselves. My point is that without need–there can’t be price.

Reply

Ninefish November 29, 2011 at 12:00 pm

Sean, I have to agree with the main body of the article, I’ve tried similar strategies with my clients without too much success. However, with regard to radiohead specifically I think there’s data that suggests they made eight million pounds in a short time. Certainly hearsay suggests that many pay what you will shareware authors of quality software have and continue to make substantial incomes from optional costing.

Adrian

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