Radiohead- Adopting Pay What You Want Pricing Strategy
9 min readFeb 28, 2018
Was the Pay What You Want (PWYW) strategy a good decision for Radiohead? Why or why not?
Pay What You Want (PWYW) strategy worked in favor of Radiohead for the reasons mentioned below:
- Back in 2007, very few companies had experimented with a PWYW pricing strategy. It was highly innovative, fraught with risks and relatively new, so it created a huge buzz in the media when Radiohead opted to release the album ‘In Rainbows’ on their own, exclusively through their website. Radiohead allowed its fans to download this album at any price they liked, even for free. As a result, according to ComScore data, it showed 1.2 million people visited the website in the first 29 days, itself.¹
- If Radiohead had sold this album through a recording company, price of this album would be about $14.99 and Radiohead would receive about 15% of this total ($2.25). Radiohead’s share would be even less ($1.40) if this album was sold via iTunes. Since, they opted with PWYW pricing strategy, 38% who downloaded the album paid something, at an average payment of $6.² This resulted in an average payment of $2.26 across everyone who downloaded this album. 62% people opted to download for free.
- PWYW pricing strategy would not be an ideal marketing technique in the long run. It works only when the offer is for limited period of time. Basically, it creates a sense of urgency inviting audiences to grab the offer while it lasts. In case of Radiohead, the band rolled out their album ‘In Rainbows’ for a limited period and they did not replicate this experiment in any of their subsequent album releases.
- Their profit margin increased as there was no middle man. Radiohead mentioned that they had made more money through this album as against all prior album put together.
- If seller is well known then it can influence the buyer through the PWYW pricing strategy. Here, Radiohead was a well-known band and it was taking a risk by letting the customer choose the price for its album ‘In Rainbow’. The risk taken was well worth as more people had downloaded the album free than had paid for it, but it had still generated $3m in total sales.³
- PWYW pricing strategy worked for Radiohead as it had a loyal fan base and it was globally known band. It becomes difficult for an unknown or relatively new company to get success immediately unless when there is some exclusivity or some unique value proposition attached to it.
- With the PWYW pricing strategy, you will be able to increase your reach if your product clicks with your customer base. The word of mouth catches speed if we as a customer get something ‘Free’. We like to share about it and let our immediate circle of people know about it.
- PWYW pricing strategy fits better for relatively low cost items as against luxury items. Reason being, majority can afford it, so they will share the news about it. By removing the price barrier, other factors remaining favorable, Radiohead was about to increase its reach drastically.
What could Radiohead have done to make this strategy more effective?
- From the numbers shown, it is clear that majority of people, that is around 60% opted for free downloads. Who doesn’t like when they get something free or if they have to pay minimum amount. We see these deals as steal deals and it makes us very happy. However, if you put up a suggested price, the chances are that people would pay a price near the suggested price. This way the company can make some more revenue. For example, if a restaurant adopts this strategy, then the customer can compare and set a reference point in his mind what would they pay for similar food in a comparable regular restaurant. This will help the restaurant cover its basic cost at least.
- If the customers are happy then they will definitely refer it to their friends and family which will make this strategy go viral, especially in this era of social media.
- Normally, PWYW strategy works on the principle that the company is confident with its product and now it is giving the customer the freedom to choose what they would like to pay. In this case, Radiohead knew that audiences will not undervalue because it had a strong fan following. It is risky otherwise to attempt this strategy.
- Past research have shown that when contribution part is optional then majority of people contribute more generously for PWYW pricing than fixed pricing, resulting in higher revenue.
- People are generally willing to pay generously if they know the payment is going for good cause like charity. It makes them feel good as they are sharing the responsibility for a good cause. PWYW is also influenced by what you see others doing. For example, when you see others in your office environment are paying something towards the charity or as donation, you tend to follow such peer behavior. Out of a feeling of social obligation also, many people end up paying more. Radiohead could associate itself with charity. It becomes easier for audiences to shell out a little more out of their pocket without any hesitation as Radiohead was well known band. The reason is that they know that money will definitely go for a good cause and they also see that their favorite artist is supporting a particular NGO for a good cause.
- With PWYW pricing strategy, one has to be careful while designing it as the word ‘free’, also has some negative connotations attached to it. ‘Free’ gives a general perception that the product may be of lower quality and could also give an impression that you want to get rid of the product, at the earliest. These adverse perceptions definitely can affect the revenue.
- With PWYW pricing strategy, revenue per purchase goes up drastically as you are empowering the customers to value your product themselves, based on their own individual variable criteria, of which we have no clue. It means that if the customer is clear about what could be the average price of the product, then the possibility of the customer paying roundabout the average price is high. What it also means essentially is that giving people the trust, confidence and the opportunity to shell out or contribute; they would do it positively and more generously.
Is the PWYW strategy something that could be employed by more traditional firms?
It can be adopted by different industries. For example, a few are suggested below:
- For products that are perishable, opting for PWYW can work. For example, it makes sense to fill in the vacant seat in a flight before it takes off. It makes sense to fill in the theater show in case it is yet to be house full. Even in case of food industry, it does fit well as many a times food can go total waste and straight into dustbin. Instead, if the restaurants have the policies where after this particular time of the day, whatever food is felt that would be sold solely on PWYW pricing. This way the restaurant wouldn’t make as much a loss as, at present when they are selling at regular pricing for the remaining part of the day and post late evening/or, a fixed time whatever they sell can be on PWYW pricing and there will be minimum wastage.
- When you are starting out your business, you shouldn’t ideally opt for PWYW pricing. Reason is that the customer hardly knows you, so there won’t be any emotional attachment, or any earlier reference point. Many customers will definitely come and try your product the first time but the moment this sort of pricing is stopped then the chances of the customer returning back is relatively low. Just think logically, put yourself in the shoes of customers, would you return back to a store or buy a product again unless you have liked it or you have any emotional attachment to that product/ store.
- On the other hand, one could argue that for example, if a new store is opened just in your locality and the store you used to visit earlier is a bit far. Where would you prefer to go? Would you prefer to go an extra mile to have the product you used to have before or will you make the new store your regular store?
- For example, would you pay more for the donuts if owner of the store adopts PWYW pricing for his store? Normally, when you as customer know the owner of the store then the chance of you paying a reasonably fair amount to the owner is higher. The reason is that you feel the emotional connection with owner and you like the product he is catering. In case of Radiohead, it was clear win-win situation for them solely because of its existing fan base and its established reputation over the years.
- Because of social norms, when you see others paying something, you too will try to match that price. This type of situation occurs more in the traditional environment when face to face interaction happens, with others of your own ilk. On a digital platform, it is easy to get away without anyone watching your action.
- By adopting PWYW pricing strategy, any new company could enhance its customer base, and make customer feel familiar with a product in the hopes that some of these customers will eventually turn out to be their regular loyal customer.
- Many a times, we as a customer do not know the right worth of a product especially if we haven’t used or experienced that product before. For example, a person has never tasted wine before and is told to try out the red wine while on his visit to the vineyard. Since he has no past experience of the taste of wine, it becomes a little too difficult for him to be the judge of your product. For such people, there is something known as suggested pricing or what is more commonly known as reference pricing. Here, the person is confused as he doesn’t have prior experience and has no knowledge about wines. So, such a person will completely stay away from PWYW pricing for the wine if the vineyard adopts such strategy.
- For example, if you are offered a headphone set of a reputed company for free but the company is running PWYW pricing on its headphone sets and the suggested price to be paid is $350. The first thought that comes to your mind is, why is this company giving the headphone free? Is it not good? As a customer, you will stay away from this totally even if you don’t have to pay nothing for it. But there will be some customer who would see this as a steal deal and grab it as it is free. In another scenario, if the headphones set are still given free but the suggested price is $100, you would see this offer as a promotional act and would not mind shelling off $100 to get it.
- People fear that they would look cheap if they contribute less, in the eyes of others. Especially in a public place, people like to be perceived as a positive person who is generous in paying. With PWYW pricing strategy, it inspires people to be a little more generous. And if the customer are happy and satisfied after trying out the product or services then they will come back and maybe do an additional contribution and/or else they will definitely refer them within their circle bringing in more referrals.
- Though PWYW works better when the seller is known to buyer but it can also give a kick start to new entrepreneur, authors, artist, salons, restaurant, museums and many more in reaching out to the mass. It grabs the attention immediately that this is a new kid in the block who is trying out something new and so they would at least come forward and try their product and services at least once.
- Many a times, people are not comfortable putting in the credit card details on unknown sites. However, when you set the minimum price to be paid as $1 then the people are forced to pull out their credit card. The initial psychological barrier is overcome for paying the minimum set price $1; you have to anyway take out your credit card. Once they feed in details of credit card, they rethink and in their second thoughts they can shell out more than $1 if they are satisfied with your product /services. This way you are not losing out any potential revenue. If the set price was ‘free’, people would for surely go with ‘free’ just like what we saw in Radiohead where 60% did not pay anything. Here, by setting $1, people end up paying something.
There are also enough real-life examples where when people are asked to pay anonymously, they end up paying more than when they pay face to face. At the very end, it makes sense to reiterate with extra care, while weighing the odds and factors, including timing, extent of offer, open to which groups etc., need to go in prior to embarking on a PWYW strategy, and the outcomes monitored closely. Use sparingly, in any case.
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