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The Price Is Right

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NEW YORK These days, new concepts arrive at warp speed. No sooner did consumers start choosing which ads they wanted to engage with than they began to actually create the ads themselves. And now, in a hot, Web 2.0 minute—the one when "doing a Radiohead" entered the lexicon—consumers, at least in a handful of cases, are deciding how much they actually want to pay for the products being marketed.

Most marketers know that "doing a Radiohead" is shorthand for allowing consumers to name their own price for a product, as the indie Brit band did when it released its latest album In Rainbows on the Internet in October. Paste, a thinking fan's music magazine that comes with a CD, followed suit later that month, offering a pay-what-you-want annual subscription for a limited period of time. (New and niche artists, such as Issa, the Canadian singer-songwriter formerly known as Jane Siberry, have used the model for several years.)

Yes, questions, big ones, remain over the effectiveness of these and other similar experiments. However, it's safe to say the consumer-pricing model has piqued interest among the public and marketers alike. For consumers, it levels a playing field long ruled by the marketplace—at least, in theory. (Real buying power! At last!) For brands, such models have the potential to generate a gold mine of rich personal data as consumers, willing to give in order to get, register to pay whatever their wallet desires. It's also a far-reaching marketing tool to help sell other products, usually with a higher, fixed price, such as Radiohead's $80 In Rainbows multi-CD boxed set.

Consumer-generated pricing, of course, has a long history. Pay-what-you-want museum admissions, public radio and TV fund drives, the till at houses of worship, even unattended farm stands with their baskets for cash registers are all based on trust and/or creating a sense of obligation.

Central to this model is the notion that people are willing to pay for something that wouldn't exist unless they contribute, or feel the need to do the "right" thing. Perhaps it is the public broadcasting example that is baldest. If you don't send in a check, the programs you like could—poof!—just disappear.

But for which other categories, if any, will pay-what-you-want become a viable option? Experts and experience so far suggest certain shared characteristics come into play: products with an identifiable fan base that's loyal and vocal; digitizable products (though other categories might be viable as well), meaning think beyond music to videos, film and games; and carefully defined circumstances, e.g., number of units offered, the period of a product's availability and/or the creation of a special edition.

Sucharita Mulpuru, a Forrester Research e-business analyst who covers online retail and who sees this pricing model working mostly in the digital realm, says, "If you do it effectively, if you have a story to tell, and this is a way for you to reach out directly to consumers, [consumer-generated pricing] is something a manufacturer could tap into." She sees it as a marketing method suited to reaching "real brand enthusiasts."

Mulpuru's colleague, James McQuivey, a media analyst with Forrester, suggests the model could work well with gamers because of the pre-release hype and frenzy typically associated with the category. By making a full version of a game available for download prior to the official release, he envisions fans paying much more than the list price. To avoid a backlash and charges of fan exploitation, he suggests contributing the excess income to a charitable effort such as providing game consoles for hospitals. "The fan base might get mad at you, but they would buy it," he says.

Would fans actually pay more, though, when a hot game like Halo 3 costs $59.99 for the basic release and $129.99 for the "legendary edition"? Gamers are not so sure. Jesse Brukman, the game reviewer for Maxim, says although he can afford to pay extra, "I can understand [why] other people would not." But he's quick to credit online game developers for their willingness to experiment with different pricing models.

In general, game developers build successfully on a key element of consumer-generated pricing: passion. According to Nancy Baym, an associate professor of communications studies at the University of Kansas who studies online fandom, that factor is the assumption or reliance on "an audience that cares about you enough to pay for something they can get for free." It's a dialog, she says, that "melds a commercial relationship with a social relationship. There's something more than commerce."

The Internet fosters this allegiance because it allows artists unmediated access to fans, and vice versa. Fans then feel obliged that when a band releases an album online, the least they can do is pay something for it in exchange for access to remixes, regular online updates on band activities and/or live blogging from tours.

Chart-topping Radiohead, which left EMI in 2003 after 16 years with the label, had cultivated its relationship with fans over the past four years by doing things like allowing live bootlegs of its performances on a 2006 tour, blogging and selling merchandise from its Web site. Even though its last EMI release from 2003 sold only 300,000 copies, the band remained in the larger public consciousness. You might be hard-pressed to distinguish them from Coldplay—Gwyneth Paltrow's husband's band—but you probably know its name.

The attention to fans served Radiohead well. In Rainbows was downloaded legitimately 1.2 million times, according to Gigwise.com, a British Web site, and 500,000 times illegitimately, according to Big Champagne, a company that traces illegal downloads. Although 62 percent of those who downloaded the 10 songs that make up In Rainbows didn't pay, according to comScore, 12 percent paid $8 to $12 and 17 percent paid $4 or less. The poor sound quality of the downloads has been widely discussed on blogs, suggesting that to really hear In Rainbows as it is meant to be heard, fans will have to buy a CD.

Because fans surrendered personal information when they registered for the download, the band now has a valuable database it can use to plot future tours. promote them via text and sell tickets or other merchandise via special online offers.

Experts liken the model to casinos charging little for food and accommodations to make big money at the tables. The analogy works well as the music industry changes, in that bands now make more money from ticket and merchandise sales than they do from albums.

At Paste, which had 120,000 subscribers who'd paid an average of $22 for an annual subscription, the pay-what-you-want offer gained the magazine 30,000 new ones, according to publisher Tim Regan-Porter, with the average price close to $10 per subscription.

"We did not expect to get 30,000-plus new subscribers," says Regan-Porter. "That was in the dream realm," as was the attendant publicity—something Radiohead enjoyed as well—which included a feature in USA Today. Although Paste collected little data initially, Regan-Porter says his team is planning an extensive follow-up e-mail to survey the new subscribers. Regan-Porter also expects most of the new subscribers to re-up at the full price because the magazine's research has shown readers who have signed on via trial offers in the past have paid to keep it coming.

These explorations of consumer-generated pricing beg the question of whether the model would work at brick-and-mortar stores. Short answer: not likely. If you opened the doors of Target or Wal-Mart saying take what you want, pay what you feel like, hope for a mere melee, but expect chaos.

"Nobody would pay anything," says Forrester's McQuivey.

This is particularly true in the case of what Robert Thompson, a Syracuse University professor of popular culture who oversees the Center for Television and Popular Culture, calls "hard physical objects." Describing Radiohead's experiment as "delightfully utopian," he points out the obvious: People want to maximize their profits in the marketplace. "The idea of transferring this as a way of doing business in the capitalistic United States of all places … is unlikely," he says.

Or, as Gene Simmons was quoted in a recent Billboard interview: "I open a store and say, 'Come on in and pay whatever you want.' Are you on f*cking crack? Do you really believe that's a business model that works?" (Like Adweek, Billboard is a unit of The Nielsen Co.)

What's missing from such purchases is the passion that generates a sense of obligation rather than just loyalty—a feeling that can rarely, if ever, be elicited by a pillow-size bag of chips or a case of engine oil. And it's that notion of obligation twinned with trust that seems to govern consumer-generated pricing, at least in music.

At Magnatunes, an online site that allows buyers to set the price they pay for an album, the suggested range is $5 to $18. Users know 50 percent goes to the artists, and according to founder and owner John Buckman's blog, the average price is $8.20. "The people who pay less than we recommend are more than balanced out by those who pay more," he wrote. "People pay more for music they enjoy to ensure that the musician can continue to afford making the music. People want to feel good about their interaction with the commercial world."

In practical terms, Baym suggests that the Radiohead experiment will show what people are willing to pay for. And she adds that while digitizable products lend themselves to pay-what-you-want pricing, there's nothing limiting the model. "I'm not sure why it would have to be digital. It is almost a move over to a bargaining culture," she says. And if for no other reason than the data being collected, "the Radiohead experiment is being watched very, very closely."



Beth Hughes is a freelance writer based in San Francisco.