Business in dialogue

In 2007 Radiohead introduced their new album In Rainbows online and made it directly available for anyone to download it for free. Instead of letting their fans pay $9.99 for the album on iTunes or $14.99 they asked them to pay whatever it was worth to them. On average people paid $6, in the US even $8. Radiohead became the school example for a successful pay-want-you-want pricing strategy. Yet, with the introduction of their new album The King of Limbs they choose not to use the pay-what-you-want strategy anymore.

Pay what you want (PWYW) is defined by Kim, Natter and Spann (2009) as an innovative pricing model in which buyer’s control over the price setting is at a maximum level; that is, the buyer can set any price above or equal to zero, and the seller cannot reject it. Their research showed that people were willing to pay 86% of their internal reference price (what they think the product  normally costs). Personally I am a big fan of type of strategies such as PWYW and NYOP (Name-Your-Own-Price) where there the power is no longer just at the sellers side. And it makes sense. Why not take the risk giving something away instead of throwing it away. A small return is always better than nothing, like they know very well in the tourism industry.

I couldn’t find any good data to really dig into the Radiohead case but I wonder why they have chosen for another pricing strategy. One argument could be that many people didn’t pay anything at all when they downloaded the CD but you have to ask yourself whether these people would have bought the album in the first place. Kim et al. (2009) show that some sort of relation seems necessary in order for this strategy to be profitable. I think the music industry is one industry where these strong ties are there and where this strategy should be able to flourish. The artist has a much bigger range when he offers his album for free, reaching people that would otherwise might not have bought the album (creating potential fans) and building a relationship of trust with their loyal fans that are willing to pay for the artists effort and creativity. When anybody knows a good business case on this please share it with us!

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