We recently wrote about an interesting experiment with a “pay what you want” business model for an iPad stylus. While I tend not to be a fan of “pay what you want” for tangible goods (since there’s a significant marginal cost), the two designers behind the device decided to combine it with Kickstarter’s “threshold” setup. Basically, they asked people to pay what they wanted for the stylus, but also only left open 3,000 spots, and said they needed $50,000. Well, the 3,000 slots went quickly — in just about a day. But the funding didn’t quite reach the necessary level. Instead, it came out at just around $45,000.
While this is just a single data point, it probably isn’t that surprising from a psychological standpoint. I would imagine many people went through the thought process of realizing that they could try any price, but if they went too low… it might not get made at all. So, for people who want to be cheap, perhaps the “logical” price point is just a bit below the necessary average, hoping that some others will overpay and subsidize you. And that’s what happened. As some in our comments noted, perhaps a much more interesting (and possibly better) model would be if there were a way to take the 3,000 highest bidders. In that scenario, if you bid too low, you wouldn’t get the stylus at all… but others who bid slightly more would. I’d be fascinated to see how something like that worked out.
Either way, with a few weeks left, and the ability to change bids, many expected that enough people would change their bids to hit the necessary threshold. However, rather than wait for that, the designers just added some new fixed-price tiers, that priced the item at the $25 they plan to officially market it at, and a whole bunch of people have paid up, so the overall project did end up going well past the threshold. Definitely an interesting business model experiment, which, once again, highlights one of the risks with a pure “pay what you want” model especially with tangible goods. It can work, but there are pressures to keep in mind.