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What are the effects of offering pay-what-you-want (PWYW) pricing on consumer behavior and theater revenues?

Image courtesy of interviewee. December 1, 2024

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This video recounts an anecdote about the speaker's experiences with the "pay what you want" pricing model, particularly during a dinner with a former doctoral student named Ari and his wife Stephanie. While dining at an Indian restaurant that had a "pay what you want" system with a $5 minimum, the speaker and Ari analyzed their payment choices based on economic and fairness principles. The speaker expresses curiosity about how much others would pay and notes that their efforts to gather data later were hindered by the restaurant's reluctance to share information.

The narrative continues with the speaker's involvement in a local playhouse that introduced a Saturday matinee "pay what you want" event. The speaker collaborated with colleagues to collect data on attendees’ payment behaviors, but their research was disrupted when a new director took over and lost the collected data.

The speaker discusses various motivations for adopting a "pay what you want" approach, such as managing excess capacity in theaters or performing a social service for the community. They also note the prevalence of this pricing model in industries like restaurants and museums and highlight the idea of fair pricing as influenced by individual social responsibility versus economic self-interest.

Ultimately, the text reflects on the complexities of the model, the audience’s perceptions, and the broader implications for various organizations considering similar pricing strategies. The speaker emphasizes understanding the audience's behavior and the delicate balance between ensuring fair pricing while maintaining economic viability.

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It had a rather strange motivation for academic research.

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My wife and I, were having dinner

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with a former doctoral student.

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Uh, we were back in Minneapolis

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where he was teaching at the university.

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And Ari, whenever we were there,

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would find a good Indian restaurant, one

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that either he liked

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or was going to, thought heard good things about.

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And we went and we arrived.

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And the menu had a little clip attached to it, saying,

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tonight we are having pay what you want, $5 minimum.

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Okay, well, you can guess you've got two people,

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both behaviorally oriented, a fair amount of econ.

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Ari and I were very taken,

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this was the late 1990s,

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so you weren't seeing much about pay what you want.

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We, we, we had the meal.

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The check came, Ari looked at me

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and he said, well,

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I think the economic person would probably pay about $5 an

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epsilon, you know, a little bit above.

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Uh, and I said, yeah, but there's a, a fairness.

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And what's the meal worth? We looked for the check.

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My wife, who was Stephanie, who was with us

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and who'd been a market researcher,

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probably gotten disgusted with us and went off and paid it.

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She wouldn't tell me what she paid.

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Uh, when I asked her now, which is, you know,

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30 years later, almost, she said she didn't remember.

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Well, you know, wives, if you're married, if you aren't,

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let me reassure you, I can guess she probably paid something

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approximating the, the price, because she enjoyed the meal.

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We didn't have any, we, we never ran into another.

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Pay what you want. We tried to get the data from them,

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and, he wouldn't provide it.

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I think he had an advantage,

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and he was liked that it was working,

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and he didn't wanna give it up.

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Time passed, we started going to a, a playhouse here,

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and the playhouse, had announced, in,

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2 0 0 9.

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They were going to do a pay

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what you want on Saturday matinees.

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We, we didn't start there in 2009, A couple of years later,

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they were right down the street from the University

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of Pittsburgh, a plug for my university.

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Uh, and, I sorted it around The, faculty,

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found,

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a very bright young graduate doctoral student, whoops,

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faculty member, across the hall.

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And we'd talked about doing something,

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and he said, this sounds good.

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He talked to Willie Choi, who was equally young

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and equally bright, and I wanted them

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because they had graduate students who were GSAs

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who could collect the data by interviewing the people.

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I didn't wanna do it all the time. Okay?

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So we did, we walked down the street, talked

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To the people in the box office.

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I think they were interested

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because they would get some contact information.

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They said it, could we get this without

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jeopardizing the study?

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We said, we knew how we did, and they did.

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Therefore, from our two as day years

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of, work did get contact information on the people,

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I don't know what happened.

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Uh, with the follow up, that will come out as we go

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through it, it turned out that the director,

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of the, plays

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and so on, the person who scheduled them, he was about

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to retire when they moved downtown.

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And when he left,

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the new director fired the box office, man.

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So we lost, they lost the data.

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I would say in the very early, 21st century,

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people would announce that, today,

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at the museum, at the restaurant,

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it's pay what you want.

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Radiohead did it with a, an album,

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in about 2007, I believe.

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And, they were very successful.

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Uh, they set a minimum price.

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They were sort of like the restaurateur back in Minneapolis.

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And, with a minimum, most

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of them don't have minimums.

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Uh, it's, I can give you a lot of places that,

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that have used it, ranging from religious, groups,

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synagogues and so forth to, museums.

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Uh, I don't think any business school

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tuition is pay what you want.

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I think that, the economics is,

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either about two or three possibilities,

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but one is simply, we have a theater.

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We have empty seats.

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Uh, it, we don't sell them for this performance.

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We can't bring somebody back,

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go back in time and set 'em in the seats.

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So, that's one.

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If you've got excess capacity, use it.

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The fear, of course, is that, as we will talk about,

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probably later, somebody might say, well,

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if this is a multi-tier, pricing system,

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I can buy a subscription and see everything.

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I can pick out the ones I wanna see,

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or I can do pay what you want on Saturday, mat may.

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Uh, but basically the strongest motivation is

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excess capacity.

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Sometimes, you'll get a social motivation like a museum,

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which says, well, sure, if they would join,

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we'd love it, but we feel we ought to perform a service.

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They may even get subsidy as, I have seen within,

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the city of Pittsburgh where the rad, the,

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regional asset district will provide them with funding

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to open the doors free of charge.

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It's not even pay what you want.

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And, but they do do pay what you want.

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And then finally, there are a few places,

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where they're hoping that they will add,

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maybe they'll fill empty seats,

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but maybe they'll come more often and pay a full price.

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First got involved with the Saturday matinee.

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It had been ongoing.

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So I think that it, it, there were probably a fair number

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of people that attended on pay what you want regularly.

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Uh, I wouldn't be surprised if, from we, we,

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my wife and I did the booth collect,

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giving the instruments out once,

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and, they ranged from clearly students.

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They didn't, to senior citizens,

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people younger than I am now, but not young.

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Uh, and I could see where they might see this as a way

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of working it into their budget.

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Uh, the relationship when you first

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initiated, I think is where you really feel the, the blow.

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Uh, when, when they switched it

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after the first year from a Saturday matinee

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to a Thursday night preview, the, the preview

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was cheaper than a regular, night.

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Uh, it was the first night kids were getting their,

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nerves taken care of a little bit,

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and, probably not much different quality than any other

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performance, but they priced it at 12 versus 24.

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The people who attend there, as I thought about it later,

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I realized they probably knew like me, that

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it was going to be about the same

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as the Friday night performance that followed it.

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So why not go when it's cheaper?

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There may have been some others that just canceled

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and weren't quite as forthright.

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They were a little more embarrassed.

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Uh, so I think the relationship

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later on may be more beneficial,

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but the initial installation of the system probably is

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where they take a hit.

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I think it's what we set out to find out.

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Uh, going back to, the Indian restaurant, when Ari

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and I, and by the way,

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the only reason Ari isn't involved in this is very simple.

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He died at age 38.

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He was, he was brilliant and creative,

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and I should have dedicated the paper to him,

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but I was rather stupid.

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Anyway, the point is,

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he was saying there are people who really do think

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of it for themselves.

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They're interested in their interest.

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They don't really have a great deal

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of concern about the others.

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Now, we could never have taken the time to provide,

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to give them an instrument that would've tried

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to identify them.

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So what we did is have, did you approach this decision

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as an economic one or a social responsibility?

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And I think that the, the economic people,

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and they were there, answered the one,

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you know, the seven point scale they did 1, 2, 3,

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the more socially oriented, I would say they, they were

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concerned with others.

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They had a sense of fairness.

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They evaluated the transaction in terms of what it meant

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to them, and they wanted to be fair to the other half

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of the transaction.

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That is something that goes back to the introduction

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where I said, whoops, the box office,

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when the, artistic director retired,

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and the new man came in, he thought, well, I'm going

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to bring in my own own, box office man.

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And the, per the one that we'd been dealing with,

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who I, I think was reasonably sophisticated

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and was interested in looking at what happened,

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he was very interested in

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what we found out when he re the artistic director retired,

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they had just moved into a new facility in downtown

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Pittsburgh, a much larger auditorium.

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So you can see why the box office man was trying

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to cultivate an audience, even if it was a lower price one.

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And, I think he wanted to understand this.

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I think he really wanted to write a paper.

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I think there's, you know, there are journals for everybody,

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and there are journals about in theater.

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And we, in our research found, yes, there were other places

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that are beginning to put, dip their toe into the, pay

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what you want in theater.

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So, I think they, he was interested in

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did this move up,

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and fill some of those potential empty seats.

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And what was he, what was going on?

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He was intellectually interested.

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There was a study in Vienna, a restaurant.

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Uh, they experimented because the experimenters got to them.

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They thought they'd try it.

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Uh, on average they were getting, memory's not very good,

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but let's hope it's right.

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Approximately 10 euros for a lunch.

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They said, okay, if we can average 10 euros,

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some people more, some people less, that

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for us would be like a set price,

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and we would be getting it.

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And that's, to us, a fair price

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and a price that justifies the costs

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that go into serving a lunch.

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So, restaurants clearly are places that could do it.

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Uh, I, I think what you want

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to be looking at, is any place

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where they have a reasonably high fixed cost,

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a relatively low variable cost,

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and, the,

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open capacity.

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The what makes the theater a little trickier is that

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they have, as we see in the paper, a complex

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or a multiple price scheme, you could go there for,

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you could go to a, a play because you buy one ticket.

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You could go to the play on a season subscription,

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or you could see the play at their discretion.

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They set the time and go that day and pay what you want.

238
00:12:52.625 --> 00:12:57.405
So you can see where you, they may be someone like that with

239
00:12:57.405 --> 00:13:02.015
that kind of a price scheme, may be a little bit more,

240
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skeptical, unless they have a large capacity

241
00:13:06.475 --> 00:13:08.415
and need to fill it.

242
00:13:08.555 --> 00:13:13.265
If you've got multiple types of ticket prices,

243
00:13:13.655 --> 00:13:16.945
that, that could, you could be drawing group away.

244
00:13:17.405 --> 00:13:22.025
Uh, there was in Pittsburgh also a second theater

245
00:13:22.535 --> 00:13:27.145
that did a pay what you want on a Monday night.

246
00:13:27.605 --> 00:13:30.685
Now you're familiar with the theater. You're in London.

247
00:13:30.985 --> 00:13:35.685
Uh, Monday night is, as I recall when I lived there, dead.

248
00:13:38.055 --> 00:13:40.105
Okay. They do it on Monday night.

249
00:13:40.685 --> 00:13:44.915
Who is most likely to attend if they have a good product?

250
00:13:45.455 --> 00:13:47.795
And the person who directed these

251
00:13:47.895 --> 00:13:50.955
and produced them was someone who was very creative.

252
00:13:51.215 --> 00:13:55.235
We, we saw a lot of good English drama,

253
00:13:55.455 --> 00:13:57.555
in his, venue.

254
00:13:58.255 --> 00:14:02.315
Uh, the people who come are people from the theater? No.

255
00:14:02.575 --> 00:14:04.035
Who are the better tippers?

256
00:14:04.295 --> 00:14:07.755
People who've been on waitstaff or people like you

257
00:14:07.775 --> 00:14:09.035
and me who just walk in

258
00:14:09.055 --> 00:14:11.955
and, you know, we assess whether we like them or not.

259
00:14:12.255 --> 00:14:13.515
The answer is waitstaff.

260
00:14:13.895 --> 00:14:16.835
So what do you think happened when he did Monday night

261
00:14:17.255 --> 00:14:18.475
and got pre predom?

262
00:14:18.475 --> 00:14:22.115
Well, almost entirely, people from the industry.

263
00:14:23.135 --> 00:14:25.395
The answer is, yeah, you saw your thumb go up.

264
00:14:25.505 --> 00:14:27.115
Yeah, they did. Well, yeah.

265
00:14:27.415 --> 00:14:31.795
Uh, there was, we collected data one year.

266
00:14:32.535 --> 00:14:36.195
Uh, and I had talked to him before I actually knew it.

267
00:14:36.585 --> 00:14:38.795
Strangely enough, he was an econ major,

268
00:14:38.825 --> 00:14:41.795
even though his big interest at Pitt, even though he was,

269
00:14:42.015 --> 00:14:43.755
his big interest, was theater.

270
00:14:44.415 --> 00:14:46.275
And, he knew what he was doing.

271
00:14:46.495 --> 00:14:47.595
He knew the kind of people,

272
00:14:48.615 --> 00:14:52.085
and he, he figured he would do very well.

273
00:14:52.585 --> 00:14:55.845
If worst case scenario, he'd get a lot of publicity in the,

274
00:14:56.065 --> 00:15:00.365
local theater community, most likely he would do as well

275
00:15:00.365 --> 00:15:01.765
as he would do any night.

276
00:15:02.065 --> 00:15:04.405
And he would certainly cover all his costs for

277
00:15:04.405 --> 00:15:05.685
that one extra performance.

278
00:15:05.825 --> 00:15:07.885
So, you know, that you have

279
00:15:07.885 --> 00:15:10.165
to know your audience is, is the message.

280
00:15:10.625 --> 00:15:14.565
He knew his, he wasn't taking a risk. We've talked about it.

281
00:15:14.685 --> 00:15:19.165
I even sent him a copy of the paper. Uh, but yeah.

282
00:15:19.505 --> 00:15:22.285
Uh, if you are in a community

283
00:15:22.775 --> 00:15:25.205
where you think you've got a lot of, well, you know,

284
00:15:25.595 --> 00:15:29.285
bankers, economists, those, those people

285
00:15:29.345 --> 00:15:31.445
who know about the economic man,

286
00:15:32.185 --> 00:15:34.675
then I'll shake my head.

287
00:15:34.775 --> 00:15:36.155
Uh, it doesn't say anything,

288
00:15:36.975 --> 00:15:41.375
but you, you, you know that what your audience might do.

289
00:15:41.755 --> 00:15:46.435
So, ed, I've seen it in action

290
00:15:47.255 --> 00:15:49.515
in religious institutions.

291
00:15:50.255 --> 00:15:54.035
Uh, and you know, someplace where you

292
00:15:54.725 --> 00:15:57.075
think about it, if there are dues

293
00:15:57.295 --> 00:16:01.115
or donations to finance it,

294
00:16:02.185 --> 00:16:06.835
many people would like to join, but I'm gonna use my hands.

295
00:16:07.175 --> 00:16:10.555
You are charging this and they really can afford this.

296
00:16:10.855 --> 00:16:13.395
And sometimes it says, pay what you can afford.

297
00:16:13.985 --> 00:16:17.195
Well, these organizations, you have to go in.

298
00:16:17.255 --> 00:16:19.195
You have to say, I don't think I can afford it.

299
00:16:19.615 --> 00:16:22.035
The, the people in the organization who have to listen

300
00:16:22.055 --> 00:16:23.075
to you don't like it.

301
00:16:24.215 --> 00:16:26.275
Uh, you don't like to have to do it

302
00:16:26.275 --> 00:16:28.795
because they're gonna say he's cheaper.

303
00:16:29.535 --> 00:16:32.595
Uh, so what happens? You say pay what you can afford.

304
00:16:33.095 --> 00:16:36.715
People will probably, in that kind of an institution,

305
00:16:37.025 --> 00:16:39.715
there's probably, they're probably very positive.

306
00:16:39.715 --> 00:16:42.955
They wanna pay what they can afford, they wanna be fair,

307
00:16:43.885 --> 00:16:46.945
and they don't have to, embarrass themselves.

308
00:16:48.585 --> 00:16:51.585
So, you know, there are, well,

309
00:16:51.825 --> 00:16:53.705
I wouldn't call religious groups, clubs,

310
00:16:54.085 --> 00:16:57.305
but let's say there are organizations ranging from religious

311
00:16:57.305 --> 00:16:59.985
groups to perhaps some kind of clubs that might,

312
00:17:00.205 --> 00:17:02.885
if they need members, go for it.

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