It’s Astonishing That Pay-What-You-Want Policies Ever Work

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Photo: Scott Olson/Getty Images

A restaurant owner in Guiyang, China, recently received a rude awakening about her fellow humans: To mark her establishment’s grand opening in early October, Liu Xiaojun and her partners — believing in the “inherent goodness of human beings,” according to Shanghaiist — instituted a weeklong “pay what you want” system, encouraging customers to leave whatever they felt was a “rational and fair” price for their food.

The idea promptly blew up in their faces. Just a week after opening, Liu’s restaurant had already lost the equivalent of $15,000. More surprising than the promotion’s spectacular failure, though, may be the idea that it would work in the first place: Why in the world would you expect anyone — let alone lots and lots of people — to pay more than they had to?

On its face, pay-what-you-want is kind of a bizarre concept. And yet it’s also a concept that’s alive and well, and in some places even reasonably successful. One of the most well-known examples may be Radiohead’s 2007 album In Rainbows, which fans could buy online for whatever price they chose. But even within the restaurant industry, some have managed to do okay: Panera, for example, operates Panera Cares cafés in St. Louis and Boston, both of which run on donations; next to each item on the menu is a suggested price, the amount of money the company says it needs to recoup food costs and have funds left over to feed the customers who can’t afford to pay. According to the Panera Cares website, the stores bring in “about 70-75% of what would otherwise be the retail value of the food,” which, by Panera’s estimates, means “that about 60% of people leave the suggested donation, 15-20% leave more and 15-20% leave less or nothing.”

So why are the Panera Cares cafés staying afloat while Liu’s restaurant, and others like it, have floundered with the same strategy? In Panera’s case, having a larger company to absorb any potential loss doesn’t hurt — the nonprofit Panera Foundation subsidizes the cafes during lean times — but the charitable aspect likely has something to do with it, too. Linking the pricing scheme to a cause turns the act of paying the check into a way to consciously project a certain image, or what psychologists call impression management. “People who wish to be perceived positively (i.e., kind, generous) by others would pay, even if they don’t have to,” Ayelet Gneezy, a professor of marketing and behavioral science at the University of California, San Diego, wrote in an email.

Closely linked is the idea of adhering to social norms. If you believe everyone else is paying a certain amount — and that paying less, by extension, is socially unacceptable — you’re more likely to match that price. It’s why pay-what-you-want tends to be more successful when it requires face-to-face interactions. “It is much easier for a customer to pay a low price or zero when they are making a purchase online,” said Jennifer Wiggins Johnson, said a marketing professor at Kent State. “When customers are interacting with an employee in a brick-and-mortar setting, they are likely to pay more due to social pressures to appear fair” — and to avoid judgment.

To put it in Panera-specific terms: If you’ve purposely gone to a café that makes it a mission to feed the needy, you’re going to look like a real jerk if you skimp on the check. Meeting the suggestion puts you in the clear; surpassing it makes you a standout. In that situation, paying a little extra in a pay-what-you-want setup is also the lazy man’s altruism, a virtually effort-free way of doing some good — you’re already opening your wallet to pay for whatever it is. “Customers can experience the same feelings of ‘warm glow’ that typically accompany making a charitable donation by choosing to pay more in a pay-what-you-want context,” Johnson said. (Though that’s not necessarily true of cases where the do-gooder message is less overt: At the Metropolitan Museum of Art, where the suggested donation is $25, the average visitor pays around $11. And even that amount may have been skewed upwards by unclear signage — in 2013, the Met was the target of two lawsuits alleging that the museum misled patrons into thinking they had to pay.)

Open-ended pricing also gives customers the chance to feel more invested in the company, particularly when said company can prey on its customers’ consciences. In a 2010 paper in Science, Gneezy and her colleagues argued that pay-what-you-want, in certain contexts, can actually be a more profitable approach. Purchasing a product from a socially responsible company, they wrote, doesn’t do enough to make the customer feel connected to the cause: “Buying a pair of shoes from an ecologically friendly company sends a signal (to self and to others) that the customer cares about the environment, but it also sends a signal that the customer simply likes the shoes,” they wrote. “What part of the purchase reflects style consciousness, and what part reflects social consciousness?” Allowing customers to choose how much they pay for those shoes, though, gives them agency and makes them feel like they have a stake in the company’s mission, a strategy that the authors termed “shared social responsibility” (as opposed to “corporate social responsibility”).

That’s not to say that tying a product to a good cause necessarily guarantees the success of pay-what-you-want, or that there’s some reliable formula to predict when it will work. Pay-what-you-want is always a gamble, a fact exemplified by a 2012 study in Proceedings of the National Academy of Sciences. In the study, a team led by Gneezy set up shop at an amusement-park stand selling photos taken on a roller coaster, offering two options: Patrons could pay what they wanted for their photo, or they could pay what they wanted and have half the money go to charity. To the researchers’ surprise, people were less inclined to buy the photo when it included a donation, even though, as they put it, the customers “were offered an essentially superior product — an equally good photo, along with an opportunity to support a good cause.”

Their theory for the discrepancy: Socially speaking, donating to charity is a higher-stakes act than just purchasing a souvenir photo, with more power to boost or tarnish their image; donate too little, and you can come off looking worse than if you’d declined to donate anything at all. Steering clear, then, is less risky than paying up and possibly doing it wrong. “When people believe that the ‘right’ price is high, they simply prefer to forego the opportunity to buy the product (and benefit the charity) rather than to appear cheap by paying too little,” the authors wrote. “When someone is willing to pay little but cares about maintaining a positive self-image, the best option is to not buy at all.”

And even when charity is taken out of the equation, companies running pay-what-you-want programs still run the risk of turning their customers off entirely. As my colleague Melissa Dahl has written, people feel guilty about ripping off a seller by paying nothing or next to nothing, but also have a hard time stomaching the idea of overpaying. The solution? Just don’t buy at all. Look at Radiohead’s pay-what-you-want album: It was generally considered a success, but according to NPR, in the months following the album’s release, “‘In Rainbows’ was downloaded from unauthorized sources at 10 times the rate of new releases from other top artists.” Let’s take a second to think about that: People who could legally get the album for zero dollars still chose to avoid the whole thing and steal it instead. If Liu needed any more proof that humans aren’t “rational and fair” after all, this would probably be it.