Question 1: Measuring consumer behavior
We are considering implementing Pay-What-You-Want (PWYW) pricing in a small café, with the objective of attracting more customers, taking into account that we have the promise to transfer 20% of our revenues directly to the coffee growers.
At first sight, this could look like a good idea: we are not a charity, but apart from offering a product –our coffee– and making a profit out of it, we are also offering a non-profit service, promising our clients that their money will contribute to the redistribution of richness among the communities where the coffee beans are grown. It could be then expected that, given the opportunity to contribute to a good cause and at the same time enjoying a cup of coffee, the possibility to pay what you want would attract more customers to our shop, either because they are willing to pay a small extra to help a good cause, or just because the will take the opportunity to pay less than usual, or even nothing, for their drinks.
However, according to the study published by Gneezy et al., when given the opportunity to contribute with part of what they paid to a charitable institution, people where less likely to buy the product (7236). According to this experiment, the consequences of implementing a PWYW pricing scheme for the café would depend of what our customers perceive as a fair price for a cup of coffee: if we had expensive fixed prices before changing to the PWYW, our customers could take the opportunity to buy our product at a discounted price (and, in their minds, more reasonable and fair), and we could be selling more coffee and there increasing our revenue. On the other hand, our clients might also think that, due to the contribution to a good cause, the necessarily need to pay a fair, expensive price, and some of they might chose not to buy at all instead of not being able to pay what they perceive as being the right price; in that case, we would sell less coffee and our revenue might fall if the decrease in volume is not compensated by an increase in the average price paid for every cup of coffee.
If our aim is to increase revenue, I would not implement PWYW pricing. As explained in the cited study, PWYW does not work as desired when combined with charitable contributions, because customers will chose not to buy rather than paying a price that they consider is not high enough. In this case, I would try and keep fixed prices but emphasizing that the customer receives both a cup of coffee and the satisfaction of helping others; I would use visual reminders, social media and periodic campaigns to make customers aware of their wonderful contribution to society.
Question 2: Consumer power
My chosen company is Mars Inc. According to the lecture slides, for a company to be transparent it needs to be “open and forthright” regarding those aspects that are relevant to anybody with an interest in that company. In my opinion, Mars Inc. is showing a transparent behavior regarding their last and most famous crisis. On February 23rd this year, Mars announced that they were recalling all the chocolate products made at their factory in the Netherlands, after one customer found a piece of plastic in a Snickers bar produced at that factory. This announcement affects a total of 55 countries (Giammona). In this case, it is difficult to be more open about a problem. The finding of a piece of plastic could have easily been ignored, denied or treated as an isolated, one-of-a-kind problem that does not affecting the rest of the production. It is, of course, an issue relevant to the stakeholders of the company, and it is clear that the company is being open about it. By recalling the production they are risking damaging the image of the company in terms of quality, but on the other hand they could add some value to their brand is this act of transparency is well resolved and clients are convinced that this is a reliable company, where the health and well being of the final consumer is more important to the company that their revenue or their popularity.
As Carter et al. conclude in their report, transparency increases value for consumers; in other words, consumers are usually willing to pay a higher price if the know how the price breaks down and specially if a higher proportion goes to the sympathetic agent. On the other hand, too much information –too much transparency– could also be counterproductive, as the disclosure of some negative information could upset consumers. In the case of Mars Inc. it is difficult to predict the result of their transparency exercise. On the short term, it seems reasonable that sales are going to drop, first because there are no Mars stock on the shops and second because such a public announcement will scare buyers away from Mars products for some time. On the long term, it depends on how well they are able to transform this weakness into an opportunity, by convincing the public that for them, the client always comes first.
Works Cited
Carter, Robert E., and David J. Curry. “Transparent Pricing: Theory, Tests, and Implications for Marketing Practice.” Journal of the Academy of Marketing Science 38 (2010): 759-774. Print.
Giammona, Craig. “Mars Recalls Snickers Bars in Europe After Plastic Found in One.” Bloomberg Business. Bloomberg, 23 Feb. 2016. Web. 24 Feb. 2016.
Gneezy, Ayelet, et al. “Pay-What-You-Want, Identity, and Self-Signaling in Markets.” PNAS 109.19 (2012): 7236-7240. Print.
