Results Of The 'Pay What You Want' Tangible Goods Experiment

from the sorta,-almost-worked dept

We recently wrote about an interesting experiment with a "pay what you want" business model for an iPad stylus. While I tend not to be a fan of "pay what you want" for tangible goods (since there's a significant marginal cost), the two designers behind the device decided to combine it with Kickstarter's "threshold" setup. Basically, they asked people to pay what they wanted for the stylus, but also only left open 3,000 spots, and said they needed $50,000. Well, the 3,000 slots went quickly -- in just about a day. But the funding didn't quite reach the necessary level. Instead, it came out at just around $45,000.

While this is just a single data point, it probably isn't that surprising from a psychological standpoint. I would imagine many people went through the thought process of realizing that they could try any price, but if they went too low... it might not get made at all. So, for people who want to be cheap, perhaps the "logical" price point is just a bit below the necessary average, hoping that some others will overpay and subsidize you. And that's what happened. As some in our comments noted, perhaps a much more interesting (and possibly better) model would be if there were a way to take the 3,000 highest bidders. In that scenario, if you bid too low, you wouldn't get the stylus at all... but others who bid slightly more would. I'd be fascinated to see how something like that worked out.

Either way, with a few weeks left, and the ability to change bids, many expected that enough people would change their bids to hit the necessary threshold. However, rather than wait for that, the designers just added some new fixed-price tiers, that priced the item at the $25 they plan to officially market it at, and a whole bunch of people have paid up, so the overall project did end up going well past the threshold. Definitely an interesting business model experiment, which, once again, highlights one of the risks with a pure "pay what you want" model especially with tangible goods. It can work, but there are pressures to keep in mind.


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    Mike42 (profile), Mar 31st, 2011 @ 3:37pm

    Not really a "pay what you want" model...

    I think this model should be named, "pay more if you want", since "pay what you want as long as it's more than this amount" is kind of long and tedious.

     

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    Squirrel Brains (profile), Mar 31st, 2011 @ 3:48pm

    Tragedy of the Commons

    I don't have a device that the stylus would have been useful for, but I went to the page because the idea intrigues me. I calculated the amount of money each person was required to pay to make it to the goal. It turns out to be $16.67, well under the $25 dollar ultimate price. When I went there, over half the 3000 slots were taken, but the goal was less than half met. It turned out that the average person was giving $15.50 at that point. It makes you wonder. If I was interested, I would have put in $17ish because if I thought it was cool, I knew the minimum amount required and it would still have been a good deal. I guess my engineering background does not prepare me to deal with the irrational whims of humanity.

     

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      Jay (profile), Mar 31st, 2011 @ 3:54pm

      Re: Tragedy of the Commons

      I'm always interested in other engineers. It seems that engineers and copyright go together like oil and water.

      Copyright is woefully inefficient and if anything, most engineers would look at ways to maximize that goal.

      OT - I'm not surprised you came to that amount, it just takes a little more to understand the incentives placed for a person to give X amount and adjust accordingly.

       

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    Anonymous Coward, Mar 31st, 2011 @ 8:48pm

    The market spoke, the value was pretty consistent through the full experiment. If anything, the average slipped towards the end, as they were slightly over $15 before, and now they are dead on it.

    50k to produce 3000 plastic stylus seems like an incredibly high price. Unless there is some true magic in them, it would appear to be a "pennies a piece" item.

     

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    RyanMPLS (profile), Mar 31st, 2011 @ 9:04pm

    Do it right

    Try it this way instead...

    The concept of a second item auction (http://en.wikipedia.org/wiki/Dutch_auction#A_second_item_auction) is somewhat similar to a Dutch auction but better applied to a multi-item action. It's the way Treasuries are sold and some IPOs have even been sold this way including GOOG (Google).

    An interesting, if not old, article on the process can be found at the Fool's site: http://www.fool.com/investing/general/2004/05/26/going-dutch-with-google.aspx

     

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    Anonymous Coward, Mar 31st, 2011 @ 10:10pm

    "you wouldn't get the stylus at all"

    Wait, how would this be enforced without copy'right'. Not that I support such laws.

     

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    Robert P (profile), Apr 1st, 2011 @ 8:44am

    They got their funding

    I'm one of the backers (I bid $20) and the latest update indicates they dropped the 3,000 backer limit. They're now sitting at over $80K in funding.

    I like Mike's idea (highest bidder) but it might be challenging to implement. When you bid, you actually pay that amount. How would they work getting the money back to you if you don't bid high enough? I know this wouldn't be insurmountable, but it would mean a change in how they deal with the funding. I think it would essentially convert the process to a pledge method, then you have to worry about people bailing on the pledge when it's done.

     

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      Anonymous Coward, Apr 1st, 2011 @ 10:03am

      Re: They got their funding

      How does it feel to offer to pay $20 for about a $1 piece?

       

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        Squirrel Brains, Apr 1st, 2011 @ 3:14pm

        Re: Re: They got their funding

        You are missing several key points. Anyone with manufacturing experience would know that doing a small run with a specialize material is very expensive. Most of the initial cost is a setup fee. On top of that, it is probably being made in the US. Obviously, people want it and it is different enough from everything else on the market.

         

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