Does allowing consumers to pay what they want make any kind of sense?
It's been hit and miss, but an increasing number of newsbrands are introducing paywalls to access their digital content - but what if the consumer was given the option to pay what they wanted? It's not madness says GfK's Colin Strong - and the evidence from other digital businesses suggest it's worth a closer look...
How do you go about getting consumers to pay for something that was previously free? That's the dilemma facing many content providers as they seek to generate revenue for digital content, and many brands are starting to implement subscription based models, given the harsh reality that online advertising revenues alone often won't cut it.
The Washington Post and the Daily Telegraph are the latest to release their paywall - or subscription - details, now meaning that the majority of newspapers will soon have some kind of subscription or usage based pricing in place - and there are some real success stories. The Financial Times is a hugely effective example, totalling 316,000 digital subscriptions in 2012 - easily surpassing their 286,000 print subscribers.
But all pricing models have their own challenges. Get subscription pricing wrong and the readership can fall off a cliff, taking much needed advertising revenue with it. The torrid example of Variety magazine is a case in point, closing its daily edition after 80 years but just 28 months after introducing a subscription model.
And subscription only access, such as that used by The Times, can arguably reduce reach and influence as it makes it more difficult to share links over social media. Content providers, such as newspapers, desperately need to find ways of getting customers to pay for expensive-to-produce quality content.
Creative approaches are clearly needed to find ways to get consumers to part with their cash, and all brands are thinking about this long and hard. We are still in relatively unchartered territories and there will inevitably be successes and failures to learn from; but one area that appears to have gone relatively unexplored is the concept of asking consumers to 'Pay What You Want' (PWYW).
Now this might at first glance seem like the road to madness as, surely, consumers have been paying what they want to access online content - which is precisely nothing. But the evidence suggests that this is worth a closer look.
Radiohead are perhaps the most famous PWYW case study, offering their 2007 album 'In Rainbows' for any price that fans were willing to pay. Unsurprisingly, 62% chose not to pay anything but 38% paid an average of $6 each.
Whilst this may seem like modest sums, the huge increase in sales volumes and the reduced number of people they had to pay (as there was no revenue sharing with record companies and retailers) led Thom Yorke to claim that they had made more money out of this record than out of all the other Radiohead albums put together.
When you start looking, there are plenty of successful PWYW ventures. Humble Bumble uses PWYW to sell bundles of music, games and e-books; US restaurant chain Panera Bread allows customers at 48 of its 1,300 stores to pay whatever they choose; Stephen King also used it to sell his serialised story 'The Plant'. There are many more such examples.
The experiences are generally found to be positive ones with these ventures generating a much greater volume of customers than would otherwise be the case, typically off-setting those that choose not to pay. And there are plenty of ways to gently 'nudge' customers into paying.
Of course, suggested donations help to determine the amounts actually paid, even if, as is frequently the case, they are then discounted by the customer. Combining the payment with a donation to charity has been shown to work well, enhancing the reputation of the brand in the process.
Showing the customer how what they are paying compares to others helps too - social-image meets self-image, which generally has a positive effect on price paid. And a brand can potentially switch between PWYW and other forms of charging such as subscriptions.
So a customer may be willing to pay under PWYW if the alternative they face is a relatively high fixed price. The 'threat' of higher prices means consumers have an incentive to pay.
But could a national newspaper, for example, seriously implement a PWYW policy for their content? It would certainly be a brave proprietor to be the first mover but the evidence does seem to merit some serious considerations.
The experience to date appears to suggest that it does not reduce customer numbers - quite the opposite in fact. The examples cited above typically reflect that PWYW encourages volumes, which, for newspapers, would have the additional benefit of retaining the all-important online advertising revenue.
It certainly works well in a category such as newspaper content where there is a high initial capital outlay but a negligible variable cost. It would not work when selling smartphones, for example, where the variable cost of production remains high.
And perhaps the most important side effect that PWYW presents is a positive uplift in the perception of the brand. This is driven by the way readers would avoid the purely financial transaction of a subscription to one which is governed by social norms and therefore governed by a sense of reciprocity and fair play - which certainly plays to the increasingly common aspiration of brands to have a more meaningful relationship with consumers.
So to elaborate on this, as news content becomes more commoditised through developments such as 'people journalism' and the proliferation of online news aggregators, newspapers need to find innovative ways of engaging with their readers to reflect the unique attributes that they bring to the market.
If one accepts that a newspaper is increasingly about delivering opinion, argument and evidence along editorial lines that reflect the readers' perspective of the world, then a PWYW model starts to make more sense. It provides the consumer with a direct means for supporting their perspective on the world, less about the pure financial transaction and more about that all important meaningful relationship.
So it's perhaps almost more akin to a donation to a cause that reflects their principles such as a political party or a campaigning organisation such as 38 degrees.
A natural extension of this is that PWYW models don't necessarily have to be simply for an 'all-in-one' subscription, but could be designed to provide access to individual writers or indeed sections of the newspaper.
This helps to make payment something that is more personal and meaningful for the customer, again encouraging participation, which can even turn the payment mechanism into a form of co-design between the newspaper and the readers - nothing gives better guidance about preferences than looking to see where consumers put their money.
As such, PWYW is perhaps a backdrop in a wider move to what has been called The Intention Economy by Doc Searls in a book of the same name. In the impending Intention Economy, consumers take greater control in their relationships with brands which in turn find they need to respond to the actual intentions of customers, instead of simply vying for customer attention in hope of selling them what they might want.
And maybe this is at the heart of the discussion of how we get consumers to pay for quality content. Brands need to recognise that the Internet now means less control in their relationship with the consumer - the nature of the value exchange has been fundamentally altered. It's in this context that a payment mechanism which reflects a more personal relationship between brands and their customers might just be worth exploring.