PWYW: Honor code or fear of embarrassment?

Last week I decide to verify the hypothesis that I had put in my last month's blog entry "Pay What You Want - Is it Honor Code that makes this work, or is it something else?", which was "It is the fear of embarrassment that makes most people pay a fair price, honor codes were buried way back in school days!!"

I picked two groups of students, and gave the following problem to them:

Group 1 got the following problem:

"Let's assume Sweet Evenings is a fine dining restaurant in the Juhu area. This is a special restaurant that does not have fixed prices for its menu items. In fact, it allows the customers to pay whatever they want for the food and beverages they have consumed.

You love this place for the live music played here and the impeccable service. Today, you have taken your long time friend from work to this place, and together you consume a bottle of wine, two-entrees, salad, bowl of soup, and a dessert. How much would you pay for both of you?"

Group 2 got the same problem, except for the last statement:

"Let's assume Sweet Evenings is a fine dining restaurant in the Juhu area. This is a special restaurant that does not have fixed prices for its menu items. In fact, it allows the customers to pay whatever they want for the food and beverages they have consumed.

You love this place for the live music played here and the impeccable service. Today, you have taken your long time friend from work to this place, and together you consume a bottle of wine, two-entrees, salad, bowl of soup, and a dessert. How much would you pay for both of you? Sweet Evenings has a small display screen behind the bartender where they display the table number when a payment of Rs. 1200 or more is made."

Since the only difference between the two groups is that small screen behind the bartender, which just displays the table number, both the groups should be looking at paying about same amount of money to Sweet Evenings. The office colleague won't know the price paid in either of the situations. In both the situations, the person paying low price is not getting singled out.  But still, just this minor, probably irrelevant, difference lead to first group of students averaging at Rs 1,155(~$23.11), while the second group averaged at Rs. 1497(~$29.95). That's a difference of 29%. In the first group, only 36.84% of the students responded with payment of Rs 1200 or more, while in the second group this number is 75%.

Fear of Social Embarrassment at work here!!

Windows 7 Professional Pricing: No mistakes here...

I was checking out the price of Windows 7 Professional for my new laptop, and I was pleasantly surprised to see that Microsoft has put some nice thoughts into Windows 7 pricing. Microsoft has listed the following options for Windows 7 Professional on its website:

Do you think Microsoft is making some mistake here and selling the Windows 7 Professional and a 4GB pen drive for the same price as it is charging for just the standalone Windows 7 Professional? I am sure that's what Microsoft wants people to believe!!

A 4GB pen drive costs around Rs. 250 (~ US$5.6). So on a purchase of Rs. 10,690 (~US$237), it represents a small discount (2.3%). Although the discount is so small, I can guarantee that majority of the people looking to buy Windows 7, after looking at these options will opt for the fourth option, which is Professional + Pen Drive.

Microsoft is doing an amazing job of putting the pricing best practices at work. By striking off Rs 14,760, and putting Rs 10,690 instead, Microsoft is implying huge discount. Notice, they are not using the term 'Sale' or 'Discount' anywhere, but this option gives an impression of discounted price. Did you notice the Red color and the bold font? Did anyone get an impression that this must be a limited time option, although Microsoft is not saying it is?

Next, Microsoft is using the powerful term 'FREE' in the best possible manner. 'Get a 4GB pendrive, absolutely Free'. Also in the display, the pendrive's size has been zoomed to make it appear big (if you are using the box size for reference). Although, a free 4GB pen drive represents a very small price discount, but here this discount will appear as big enough for customers to spend Rs 10,690 vis-a-vis spending Rs. 6,590 on Home Premium, or Rs. 5,690 on Home Basic. Prospect Theory too is at work here. Prospect Theory says that customers have a tendency to exaggerate, be it rewards (as with lottery tickets) or penalties (which makes them spend money on insurance).

Customers have a tendency to purchase between the top (advanced) two options available to them. By creating a variation in the top option, making one variant of the top option appear markedly better, Microsoft has increased the customer likelyhood to purchase the top option.


Nice job Microsoft!!