Pay-what-you-want campaign: effects on/of customer behavior

Pay-what-you-want is an innovative participative pricing mechanism that has received increased attention in academic research as well as in practice during the last years. In pay-what-you-want pricing, buyer has a full control over setting the price and seller cannot reject the deal. Previous experiments have shown the pricing mechanism being profitable. Under pay-what-you-want pricing, consumers do not behave as rationally as traditional economic theory suggests, instead, other psychological factors and social norms influence the prices paid. This study investigates consumer behavior in pay-what-you-want campaign. The purpose is to find out, how new and old customers behave differently in pay-what-you-want promotion and how the promotion affects customer behavior over time. Neither of the research questions is investigated before. The quantitative data for the analysis was secondary data from the customer data file of Suomen Urheiluhierontakeskus. The pay-what-you-want pricing campaign was November 1st 2013. The campaign procedure followed the findings of previous literature aiming to maximize the paid prices. The transaction data was collected from the time period of two years and it was analyzed by an adapted RFM segmentation method, cluster analysis and analysis of variance. The four clusters were interpreted by cross-tabulations. The clusters reflect the changes in customers' purchase behavior before and after the pay-what-you-want campaign. Analysis of variance demonstrates whether the paid prices under the promotion differ between the clusters or between new and old customers. The findings suggest that the purchase behavior of a customer does not affect the paid price in pay-what-you-want campaign and further, the paid price does not indicate the changes in the customer's behavior. In average, the paid prices were about 20 % lower than the regular prices. The campaign succeeded to attract new customers, of whom 36 % visited the company again after the campaign day. The findings propose that there are no differences between the behavior of new and old customers of a company or the differences cannot be found in the transaction data. The future research could replicate the study with complementary data from survey or interviews in order to find the customers' motives for paid prices