Question

1. A recent business trend is participative pricing, which allows customers to participate in setting the price of goods and services. One form of participative pricing is “pay-what-you-want” (PWYW) which allows a customer to pay whatever they want, including $0. In one relatively well-known example, the band Radiohead sold its In Rainbows album on the band’s website, and allowed fans (customers) to pay as much (or as little) as they wished.

1. Suppose you worked for the band, and wanted to figure out how many units of the album needed to be sold in order for the band to break even. How would the pay-what-you-want pricing strategy complicate the break-even analysis?

2. Another form of participative pricing is “name-your-own-price” (NYOP), made popular by Priceline. With NYOP, sellers can set a minimum price, below which they will not sell their good or service. Typically, sellers set a minimum price that is greater than $0. (Note that if seller sets the minimum price at $0, then NYOP is the exact same as PWYW.) Suppose Radiohead used NYOP instead of PWYW for its In Rainbows album. Would this change your answer to part a? If so, how?

Answer 1

Pay what you want is the latest new business model.

There are three rules generally acceptable by the human being. If we consider the above model then 1^st category will be if you can’t pay what you think then it will be ok and pay it forward somewhere else. The 2^nd category is if you can pay what you think its worth pleases doing it, it is a business opportunity. The 3^rd category is if you can pay more than what you think its worth please give generously. It will make a difference.

1. Suppose I worked for the band, the breakeven points will be after 2^nd category. It means if we sold 100 units of the band and cross 2^nd category we will achieve the breakeven. If we divide in 3 categories then it comes to 33 units each then after 66 units we will achieve the breakeven and balance 33 units will be our growth.

b. Name your own price model. In this case, the sellers fix the minimum price. If it sells more than the minimum price then it will be growth of the business entity. It generally depends on the various factors the demand aggregation, the knowledge worker productivity, Networks, Connectivity, Value innovation, Empowerment and self-leadership, Continuous learning, Quality, and brand.

If Radiohead used Name your own price model then growth will be slow because the price will not change. If the product is in high quality the demand is more than the price may go up for the customer need and it will increase the growth.