Why the 'pay what you want' strategy is dangerous in Singapore

Recently I came across an article about a restaurant in China trying a new marketing promotion strategy – allowing customers to “pay any price you want” for all the food and drinks consumed.

Would it be a surprise to discover the restaurant owner was suffering the pain of a great loss, from a very successful marketing promotion in attracting many more patrons and customers than the restaurant normally has?

Many of the customers paid as little as RMB5 or less (S$1 or less) for food consumed that costs many times more. Henceforth, the owner was suffering great pains of heavy losses after only one month of promotion.

I wonder if a similar promotion were to be applied at a local restaurant, would we expect a similar situation?

This begs the question – Would Singaporeans be willing to pay a fair price, if they were to be left to “pay any price you want”? Would we observe the full force of Singaporean “kia-suism”?

Consumer behavior and psychology is influenced by many factors including the social culture, environment (e.g. economic conditions), and not least pricing as well as other factors affecting demand.

I have yet to come across a product or service that is profitable and sustainable applying a pricing strategy which allows the customers to pay any price they deem fit.

Radiohead, a popular rock band, has decided to apply this radical pricing strategy for its new In Rainbows album.

In Rainbows will be released as a digital download available only via the band's web site, Radiohead.com. There's no label or distribution partner to cut into the band's profits — but then there may not be any profits. Drop In Rainbows' 15 songs into the online checkout basket and a question mark pops up where the price would normally be. Click it, and the prompt "It's Up To You" appears. Click again and it refreshes with the words "It's Really Up To You" — and really, it is. It's the first major album whose price is determined by what individual consumers want to pay for it. And it's perfectly acceptable to pay nothing at all. Source: Time.com.

This is a pretty revolutionary move that could shake-up the music industry, bypassing all the usual channels and middle-man, going through the direct digital marketing path. Direct and online marketing has certainly taken up a new form.

The ramifications of Radiohead's pay-what-you-want experiment will take time to sort out, but for established artists at least, turning what was once their highest-value asset — a much-buzzed-about new album — into a loss leader may be the wave of the future.

Another example would be PSY’s Gangnam Style video clip on YouTube that had gone viral with millions of views, and proliferate into a global fad. Apparently, there is no copyright to stop anyone from copying or any reuse.

Perhaps PSY’s goal was not to make profits from the song or video clip itself, but turn it into a marketing tool to promote his brand image and henceforth enhanced his brand value as an artist.

Contrary to popular belief that greater profits and returns comes with higher prices, these examples could foster a new mindset toward future pricing strategies, especially in the realm of online and digital marketing.

This would also give cause for a rethink of the “pay any price you want” pricing strategy.