Increasing voluntary payments through nudging
Our client, a non-profit bookstore, was interested in introducing a pay-what-you-want (PWYW) pricing mechanism for their used books. Pay-what-you-want pricing has been shown to be more profitable than fixed prices in cases where marginal costs are low, as customers can choose a price based on their valuation of the product. Too high fixed prices might deter customers from buying who would have paid more than the marginal costs of the product.
We know that social distance, the extent to which the customer feels connected to the seller, matters for sales. We wanted to understand whether increasing the salience of social distance for some customers increased the price they were willing to pay.
Over the time period of two months, we alternated between two types of price tags for the PWYW books. Customers were asked to write their voluntary price on the tag. Every second week, the price tag would include a question on whether the customer was a member of the bookstore, thus increasing the salience of the connection to the bookstore for members. We recorded the voluntarily chosen prices for all customers.
When subtly reminded of their participation in the store’s membership program through a question about their membership, members paid significantly more per book than without a reminder, while this reminder had no effect on non-members.
Increasing the salience of a social connection between the customer and seller can increase the willingness to pay of the customer in a pay-what-you-want setting.
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