Can Pay What You Want Work For Tangible Goods? Perhaps With Kickstarter...

from the neat-to-see dept

While we're not huge fans of pure "pay what you want" business models, which often feel more like give it away and pray models rather than complete business model concepts, I do think it can be part of a larger business model when done creatively. Of course, for the most part, I had considered pay what you want not to make much sense outside of the realm of digital goods. While some restaurants have found that it can work to do a pay what you want model, it seems a lot riskier, since the marginal cost is pretty high, and you can easily lose out. That's different in the case of a digital work, where the marginal cost is zero. So, for the most part, I haven't thought too much of doing "pay what you want" for tangible goods.

However, perhaps it can work, if it's done in combination with a minimum funding goal, using the Kickstarter type model (where people pledge, but no one has to pay until a certain total is reached). Some designers who wanted to create a better stylus for the iPad are running just such an experiment on Kickstarter. They've designed a prototype and need about $50,000 to manufacture the first batch, but they're setting up a "pay what you want" system... while making it clear that they'll only produce the product if they can make that entire $50,000... and they only have 3,000 slots open. You can pay as little as a dollar, and you'll still get the stylus (which they plan to sell for $25 eventually)... but only if the other 2,999 buyers pony up enough to get them to $50,000.

Now, I can already hear the complaints, where some will point out that the "suckers" who "overpay" are subsidizing the "freeloaders" who only pay $1. And, if you're not up on basic economics, perhaps that makes sense. But the fact is that everyone in the group is paying what they feel is appropriate to get this product to market in the first place. That some may end up subsidizing others is really meaningless, if they feel what they're paying is worthwhile. As for the other argument that the freeloaders will take over, and thus the product won't get to market at all... well, that's what we're going to see, which is what makes this an interesting experiment.

I think part of the problem is that too many people are concerned about the relative issues, in terms of how much others are paying. But, that's mostly meaningless from an economics standpoint. The real question is what is it worth for you to pay to help get this product to market, and plenty of people are perfectly happy to pay a larger amount, knowing that it (a) helps these developers, (b) will make sure the product exists at all and (c) also gets them one of these styli faster than anyone else. And, to them, that's worth it... even if some others get it cheaper.
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Filed Under: ipad, kickstarter, pay what you want, stylus

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  1. icon
    Narcissus (profile), 29 Mar 2011 @ 2:31am

    I think it would probably work better if it was some kind of bidding system, as mentioned above. That way you'll get a better idea of what people are prepared to pay and will thus gain important market info. Right now it will be too easy for people to start making calculations and that will mean they'll probably end up on or around the 50.000 mark.

    I've just read a book from Dan Ariely titled "Predictably Irrational". According to his research it is relatively easy to get people to offer in the right price range, provided they have no direct product to compare it with. To do that you need to "anchor" the price. Funnily enough it can be just random numbers. He asked people to write down the last 2 digits of their social security number and then asked them to bid on certain items. People with high numbers also bid significantly higher. To anchor the price in this case they should just open the bids and mention that comparable products retail for $ 25, something like that. Right now they've anchored it at the 16.67 mentioned above.

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