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!