IIM-Kashipur study finds participative pricing model can make consumers shell out more

NEW DELHI: Imagine a scenario where one is asked to set a product's price, paying any amount they wished. This pay-what-you-want pricing model can be a wonderful strategy to make consumers shell out more by offering them control over the pricing, researchers at IIM-Kashipur have found.

The team, led by Indian Institute of Management (IIM), Kashipur, assistant professor Preeti Narwal, conducted a study to examine how customers lower their motivation to pay more for products offered under the pay-what-you-want model by morally disengaging from reciprocity concerns.

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In the pay-what-you-want "participative" pricing model, sellers provide individuals with the opportunity to be actively involved in the price determination process beyond accepting or rejecting the offer. In return, it is expected that the customers would reciprocate the appropriate behaviour by rewarding the seller with higher prices or at least regular market rates.

The IIM-Kashipur team found that the increasing need for creativity in business processes and proliferation of the internet has led to the extension of participative pricing to a wide range of products and services across industries such as digital products, hospitality, consulting and entertainment, among others.

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According to Narwal, the findings indicate that customers' moral disengagement via displacement of responsibility towards reciprocity concerns is negatively associated with the willingness to pay more. However, the model is likelier to be embraced more by customers who seek great, awe-inspiring happiness and a distinctly perceivable reputation. Hence, the offerings should be positioned as superior products that satisfy the ego and the status needs of individuals.