Let Your Customer Be King: The Impact of Participative Pricing on Monetary and Behavioral Outcomes and Mediating Effects (An Extended Abstract)

Abstract

Companies empower customers more than ever, and reversely customers increasingly demand more control. Even pricing mechanisms show an increasing level of customer participation (Kim et al. 2009). While traditional fixed pricing models do not contain any interaction with the customers (buyers), in participative pricing models companies (sellers) offer customers the opportunity to participate directly in the price-setting process. Hence, companies delegate a certain level of control to the customers (Chandran and Morwitz 2005). These pricing strategies have become increasingly important over the last decade for three reasons: (1) Opposed to fixed prices, participative pricing mechanisms enable companies to address consumers’ individual willingness to pay (WTP), (2) to differentiate themselves from competitors due to their unconventional, innovative character, and (3) to create a rather balanced win-win relationship between companies and customers (Kim et al. 2009). Therefore, it is not surprising that auctions, reverse auctions, price negotiations, and other participative pricing mechanisms have gained increased attention, both in practice and in scientific research (Spann and Tellis 2006). The most progressive form of participative pricing is Pay What You Want (PWYW) as it gives the buyer full control over the transaction price (Kim et al. 2009). From a seller’s perspective, the obvious risk of PWYW is that customers might exploit their control in order to maximize their utility in line with rational choice theory. However, practical examples and scientific studies provide evidence that consumer behavior in PWYW pricing is not completely opportunistic (Kim et al. 2014; Kim et al. 2009).