Using Charity to Increase Voluntary Payments

If a busi­ness is exper­i­ment­ing with vol­un­tary pri­cing (‘pay-what-you-want’ pri­cing), to increase sales and profits give a por­tion of vol­un­tary pay­ments away to char­ity (and advert­ise the fact, nat­ur­ally).

That’s the con­clu­sion from a study by research­er Aye­let Gneezy com­par­ing a num­ber of pri­cing plans involving–in vari­ous combinations–voluntary pay­ments, fixed prices and char­it­able dona­tions:

At a theme park, Gneezy con­duc­ted a massive study of over 113,000 people who had to choose wheth­er to buy a photo of them­selves on a roller coast­er. They were giv­en one of four pri­cing plans. Under the basic one, when they were asked to pay a flat fee of $12.95 for the photo, only 0.5% of them did so.

When they could pay what they wanted, sales skyrock­eted and 8.4% took a photo, almost 17 times more than before. But on aver­age, the tight-fis­ted cus­tom­ers paid a measly $0.92 for the photo, which barely covered the cost of print­ing and act­ively selling one. […]

When Gneezy told cus­tom­ers that half of the $12.95 price tag would go to char­ity, only 0.57% riders bought a photo – a pathet­ic increase over the stand­ard price plan. […]

But when cus­tom­ers could pay what they wanted in the know­ledge that half of that would go to char­ity, sales and profits went through the roof. Around 4.5% of the cus­tom­ers asked for a photo (up 9 times from the stand­ard price plan), and on aver­age, each one paid $5.33 for the priv­ilege. Even after tak­ing away the char­it­able dona­tions, that still left Gneezy with a decent profit.

The research­er calls this “shared social respons­ib­il­ity” (in com­par­is­on to plain old cor­por­ate social respons­ib­il­ity).