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What’s your price?

Is it worth the retailers to play with the “pay what you want” price? Shelle Santana explains how much, and why, customers will pay the interesting logic behind it. One finding: Sellers must dramatically change for what other customers are prepared to pay.

Santana found that by subtly influencing the atmosphere, sellers can drastically alter what certain customers are willing to pay, in a series of experiments — including a field experiment where she posed with students as snack bar employees.

Many businesses use the tactic as a campaign to attract new clients, often with a social tie-in as an additional incentive — for example , a restaurant runs a PWYW campaign and donates some of the proceeds to a charity to feed the hungry.

Nonetheless, all PWYW methods are produced equal. Santana analyzed data from a New York pet adoption service, discovering that patrons on average charged below the $150 adoption rate, some charging as much as $260. But the most common ticket price paid was a penny for a PWYW premiere of the documentary Freakonomics. “It got me wondering, why these cases are so different,” Santana says.

Borrowing from literature on social psychology, she conjectured it may have something to do with how the way consumers think about the transaction influences their actions.

Many people are “pro-social” when faced with a decision about how to distribute resources between themselves and others, meaning they are likely to seek an fair distribution of resources, while others are “pro-self,” meaning they are seeking to maximize value for themselves. She asked, will people with pro-social values pay more when presented with a PWYW situation?

Although previous research has shown that consumers are willing to pay more when a portion of the proceeds are donated to charity, research by Santana and Morwitz suggests that such a expensive tie-in may not be necessary.

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The potent strategic tool companies should not attempt to control

World Nutella Day, which took place on February 5, inspired over 40,000 Instagram posts as fans of chocolate-hazelnut spreading posted videos, memes, and jars selfies.

It was free publicity for Nutella maker Ferrero, which nearly squandered the chance when it sent a cease-and – desist letter in 2013 to the fan who began World Nutella Day. The organization backed up, and finally accepted its beloved product’s day of honor.

Organizations devote substantial resources to plan focus groups and collect customer feedback. But, according to Frank Nagle, an assistant professor of strategy at the Harvard Business School, and Sonali K. Shah, associate professor of strategy and entrepreneurship at the University of Illinois, businesses that grow, help or even just observe their fan groups stand to gain valuable insights and create loyalty at a much lower cost.

What Do User Groups Matter To Strategy in a New Working Paper? , Nagle and Shah address the benefits, disadvantages and challenges that businesses are dealing with as they forge user group connections.

User groups can distinguish deals from a company by promoting creativity, improving branding and recognizing recurrent issues. User groups may also reduce costs by offering limited product support – especially for phased-out products and services – or informal recruiting and training support.

Organizations who have yet to connect with user groups but are interested in leveraging additional sources of creativity outside their R&D should set up easy methods to leverage user input. A company may historically provide a suggestion box to engage users but this is one-way communication. In comparison, it would be more effective to create an actual group where users would communicate with each other and the business – and the business can 

interact with users.

Organizations should recognize and clearly observe established cultures, too. They may ultimately interact regularly with the culture, or even create their own, based on what they know.

Companies should bear in mind that societies are regulated very differently from companies. User groups function beyond the company’s borders except in cases where the group is organizing around the core goods of a company––and therefore companies cannot regulate groups by conventional hierarchical methods. We will set rules for attempting to manipulate behavior. Nonetheless, doing so requires that businesses understand and abide by the values of the culture.

A lack of direct control can scare enterprises — and managers in particular — but the difference between success and failure can be that.