FROM THIS SECTION YOU WILL LEARN WHAT IS GOING TO HAPPEN IF A CLIENT IS OFFERED TO PRICE YOUR PRODUCT AS HE WISHES SAYING "PAY WHAT YOU WANT" AND HOW TO MAKE SALES MANAGERS INTERESTED IN USE OF THE CRM SYSTEM BY 100%

General Director (Moscow), December 2013

 

FROM THIS SECTION YOU WILL LEARN WHAT IS GOING TO HAPPEN IF A CLIENT IS OFFERED TO PRICE YOUR PRODUCT AS HE WISHES SAYING "PAY WHAT YOU WANT" AND HOW TO MAKE SALES MANAGERS INTERESTED IN USE OF THE CRM SYSTEM BY 100%

Question

Will the sales strategy in which a client prices a product as he wishes be efficient on the Russian market?

 

Answers of

Anders Liljenberg

Dean of Stockholm School of Economics Russia, Moscow

 

Answer

Not only restaurants and cafes but also cinema theaters, hair studios and even some hotels work according to pay what you want scheme in European countries. German supermarkets started charging the clients exactly as much as they consider it necessary to pay lately too. For some companies such concept is an advertising move and for some others this is an ideology. In Russia this practice is little developed yet.

For the first time an experiment with such scheme was conducted in 2003 by "Pragmatics of culture" fund of scientific research in 2003. If offered visitors of theaters and cinema theaters of Moscow to pay for a ticket after the séance evaluating how interestingly and usefully they spent their time.

This was done in a not quite usual way. Every viewer was given an envelope with 60 rubles (with six 10-ruble banknotes) under condition that if he liked everything he should add from 10 to 50 rubles to the envelope (at his own discretion). On the contrary, discontent visitors could take a part of the amount given to them. As a result, 38% of the viewers paid additionally, 47% decided that impressions were not worth of additional remuneration (they did not take money but did not put anything into the envelope too). Only the remaining 15% took the money but such envelopes were not taken into account because having taken their entire content the viewers breached the stipulated conditions. As a result, the fund failed to earn money but it managed to carry out a marketing research and an advertising campaign simultaneously.

Advantages of pay what you want approach. Receiving many diverse proposals, the buyer grows demanding and tries to find the most beneficial price to quality ratio. Pay what you want system enables both the buyer and the seller to win.

■ The buyer receives a financial guarantee (he is free not to pay if he is not satisfied with quality).

■ The seller is under control and is interested in production and sale of high-quality product (service).

 

Information

Stockholm School of Economics Russia

Year of establishment: 1997 (Russian division; in Sweden Stockholm School of Economics has been working since 1909)

Territory: representative offices in Moscow and St. Petersburg

Programs: Executive MBA. Corporate programs of business education

Quantity of graduates: 820 according to Executive MBA program and 600 according to public and corporate programs (during the time of existence of the Russian division)

 

The seller has a possibility to attract even those who have been ready to pay only for an already known product before. For example, against the background of the entire diversity of fast food in shopping centers the biggest queue usually gathers near the counters of McDonald's chain because the brand is well known to consumers. The seller of fast food who permits the buyers to price the food as they wish could entice the clients. Drawbacks of the approach. It is impossible to rule out that your company may be visited by a greedy buyer who does not pay anything. But, as a rule, this probability does not exceed 20%. Besides, potential clients are the first to come and those who simply strive for profiteering come only after them.

There is also another nuance: it will be possible to achieve a better effect if the action is limited in time. For instance, some restaurants work according to these rules in certain hours or days.

In which conditions the approach works. For obtaining of the effect it is necessary to observe two conditions.

1. The institution is located in a prestigious place and is surrounded by competitors. A research conducted in Frankfurt am Main has shown that 89% of the buyers pay an average price according to their standards for a product or service. In other words, wealthy clients pay more money than necessary and less wealthy people pay less. That is why it is better to place the points of sale in the places of accumulation of wealthy and cultured public closer to libraries, universities, places of culture festivals and business centers: buyers there are more honest and generous.

If you propose visitors of a store located in an outskirt of a city to pay as much as they think necessary you cannot expect significant profit. An illustrative example is Terra Bite Lounge cafe (State of Washington, US). The institution survived without fixed prices for slightly more than a year and afterwards dishes became paid. According to the owners, they failed to resist the inflow of teenagers living in the neighborhood. A similar experiment was organized in Russia a few years ago in Tsiferblat chain of anti cafes.

The client was proposed to pay (the amount was at his discretion) only for the time spent in the institution (tea and simple sweets were given without limitations). However, later the owners did set a fixed price for a minute of stay in the anti café because not wealthy youth (the main part of the clients) paid mere kopecks. It is necessary to bear in mind that surroundings influence the actions of people. In one experiment a banknote of five euros protruded from a street mailbox. If everything was clean and neat around the mailbox money was appropriated by not more than 13% of pedestrians. But as soon as the mailbox was covered with graffiti and garbage was thrown around it the quantity of thefts grew to 25%.

2. Low product costs. A store of Gap (fairly expensive brand of clothes) proposed the visitors to decide independently how much trousers of a certain color should cost. If a client named an excessively low price the store offered a price of its own. But the visitor could reject it and may as much as he thought necessary. The idea evidently did not justify itself because the store did not conduct such actions anymore. A more successful example is Russian Internet community Kroogi.com that proposes legal downloading of music and payment as much as clients wanted to the author if they wished. The biggest single-time payment amounted to 20,000 rubles and an average receipt reached 195 rubles in April of 2012.

If Russian consumers were taught to pay for Internet content the project would be more profitable. For instance, pay what you want approach works the best of all in inexpensive public catering points. For instance, transparent boxes for donations are installed instead of cash registers in American chain Panera Cares and a recommended size of payment is indicated on them. According to statistical data, 20% of the visitors put more than the indicated amount into the box, 60% put exactly the same amount and 20% leave extremely little or nothing.

The first café of this chain was opened in 2010. There are already five institutions in it. In Frarosa bar in Berlin a visitor should pay 2 euros for entrance and the payment already includes the costs of the first glass.

Further it is possible to drink as much as you want and nobody counts. Guests pay when they leave and they determine the amount independently. It is possible that efficiency of pay what you want approach in public catering is associated with the fact that people often go to have a snack in a company. In the aforementioned research in Frankfurt it was shown that when not one but several people paid an average receipt grew because nobody wanted to get reputation of cheapskate among the acquaintances.

 

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