Exploring the interactions among external reference price, social visibility and purchase motivation in pay-what-you-want pricing

Abstract

Purpose: The purpose of this paper is to investigate the direct and indirect effects of social visibility (private vs public), purchase motivation (intrinsic vs extrinsic vs altruistic) and external reference price (ERP) (absent vs present) on consumers’ pricing decisions in pay-what-you-want (PWYW) context. Design/methodology/approach: Two empirical studies with a fitness gym as the research setting were used to test all the hypotheses; first, a lab experiment with undergraduate student participants and, the second, an online experiment with a consumer panel. Findings: Both studies show that consumers allocate a higher share (RATIO) of their internal reference prices (IRPs) to the prices to be paid (PTP) in PWYW context, in private under intrinsic purchase motivation and in public under extrinsic or altruistic motivation and this effect is more pronounced in the absence of ERP. Research limitations/implications: Future research may validate and extend the findings of this paper with other product or service categories, different manipulations for the key variables, other research methods such as field experiments and expand our model by including other relevant variables. Practical implications: The findings of this paper will help managers understand how individual customers’ purchase motivation and the social visibility in the PWYW setting affect their pricing decisions and how providing external pricing cues may moderate these effects. Originality/value: Prior research on PWYW shows mixed findings about the direct effects of many variables on consumers’ pricing decisions, but it ignores the differences in consumers’ purchase motivations and offers mixed evidence about the influence of social visibility and ERPs on payment decisions. The authors address all these gaps in this paper.