To influence or not to influence: External reference price strategies in pay-what-you-want pricing

Pay-what-you-want pricing mechanisms increasingly are popular among practitioners and interesting to marketing researchers. Prior research only examines strategies in which consumers choose any price without guidance from the firm. Firms currently use several external reference price strategies to influence consumersʹ chosen prices in pay-what-you-want pricing, including minimum, maximum, and suggested prices. This research examines these strategiesʹ effectiveness to determine which one provides the highest yield and the most benefit to the firm. Four studies show these external reference prices act as anchors, biasing consumersʹ chosen prices in the direction of the external reference price. Surprisingly, study results find not using external reference prices may be the most beneficial strategy for the firm. Both minimum and maximum prices exhibit a negative influence on consumersʹ chosen prices in comparison to not offering an external reference price. However, a suggested price strategy appears to be an effective means of maximizing the firmʹs yield while giving consumers the freedom to choose their own price, especially when the suggested price is close to the consumerʹs internal reference price.