Pay-what-you-want in Cultural Institutions: Top Managerial Tips
Pay-what-you-want in Cultural Institutions: Top Managerial Tips
The following is a blog post entry from the blog Economists Talk Art on our research on Pay-What-You-Want payment schemes for cultural institutions.
Managers of cultural institutions, looking for a way to make your institution more accessible, while still remaining profitable? Consider a “pay what you want” admission policy! Our research on PWYW for cultural goods has shown us clear ways the payment scheme could be best implemented.
New York’s Metropolitan Museum of Art recently announced that it would partially abandon its “pay what you wish” admission policy. While the Met’s decision may signal that new generations of visitors are not generous enough to sustain public, non-excludable access to cultural goods, this is far from the truth. In New York City alone, more than a dozen cultural institutions continue to operate using pay-what-you-want (PWYW). Why? Because of its benefits to art-lovers. Under PWYW, individuals can not only name the price that is appropriate for their perceived value of the cultural good, but they can also adjust the cost to a level affordable for them. For the last three years, our team at GRAPE has conducted PWYW research on a wide array of cultural goods: from theatre performances, to eBooks, and walking tours. While we can’t say for sure whether PWYW is a viable option for your particular cultural institution, we can surely say that admission based on voluntary payments can be practical. It is just a matter of implementation and context. From our experience, we have come up with a couple of lessons that will increase the likelihood that implementing PWYW at your institution is a success!
Lesson 1: Let people pay after the visit
If you want the “I just saw the most amazing performance/piece, I have to support this institution” effect, let visitors see everything your institution offers before charging them. Our recently published paper shows results of an experiment in which spectators were randomly assigned to groups that paid what they wanted either before or after a theatre performance. It was worth letting them see the show before they made their choice on how much to pay, as payments made after the show were significantly higher than those made before.
Many factors support the long-term feasibility of letting visitors pay what they want after experiencing the cultural good. For one, there could be a natural desire for reciprocity. Furthermore, already experiencing the good reduces uncertainty over its value. The experience may also evoke certain aspects of an individual’s decision-making process that one might not have considered when making the payment beforehand. An individual might make a payment only to avoid unpleasant moral costs for not paying anything. Alternatively, they might make a payment based on option value (“I might come here again, so I should probably pay something”), the institution’s bequest and existence value (“I want this cultural heritage to be preserved”) evoked by the experience.
Lesson 2: Take notion of the norm
Before you introduce a PWYW scheme, ask yourself three questions: “who are your visitors?”, “what is their norm for a ‘fair’ price?”, and “what is the environment in which they make payment decisions?”. The answers to these questions will help you determine whether the environment in which your institution functions caters to PWYW.
It is important to remember that payments made in the PWYW systems are pro-social behaviours. Even though such payments are not obligatory, they may feel like it. People feel bad for violating social norms, and thus will often pay a ‘fair’ price to avoid psychological discomfort. Most people pay at least enough to eliminate these unpleasant feelings. Social norm is a multidimensional concept, which differs across cultures. Where somebody comes from determines not only their set of values, but also how familiar they are with voluntary donations and charitable giving. In our analysis of the cross-country differences in the size of PWYW payments we observed higher payments within societies which are more involved in charity, are guided by fairness, and are satisfied with their finances, thus suggesting that in PWYW schemes, consumers choose to pay a “fair”, socially accepted, price adjusted to their financial situation.
Lesson 3: Keep your anchor high
If possible, provide your visitors with a posted reference price. When visitors are asked to pay for the cultural good before experiencing it, they may have no fair way to assess its potential value for them. Suggested prices act as an indicator of how much the good is generally assessed to be worth. If no reference prices are suggested, visitors should rely on internal reference prices – a price they think a given cultural good would cost if offered in a traditional payment scheme. In our recent research on eBooks, we show that the size of the individual PWYW payments may increase with the suggested price, even if the expected quality of the product remains unchanged. However, an external reference price lower than the consumer’s internal reference price reduces consumer’s voluntary payments which would be made without the suggested price. Therefore, when setting up a suggested price, consider what your visitors’ internal reference price might be, and make your posted reference price at least a bit higher than that.
Finally, if the voluntary payments are the main source of income for your institution, then make your consumers aware of it! If PWYW is introduced then the rules of service or good remuneration should be clearly explained: the payment is not a tip, but rather a key driver of revenue for your institution. When visitors are reminded that the voluntary payments they make are important for keeping your institutions operating, they are less likely to pay nothing (Kukla-Gryz et al. 2018). Do your best to provide individuals with the opportunity to educate themselves about how your institution operates and how it is funded.
This article is based on:
Kukla-Gryz, A. and K. Zagórska (2017). “The strength of the anchoring effect on Pay What You Want payments: Evidence from a vignette experiment”.
Kukla-Gryz, A., P. Szewczyk and K. Zagórska (2018). “Do cultural differences affect voluntary payment decisions? Evidence from guided tours”.
Kukla-Gryz, A. and K. Zagórska (2018). “‘If I can set my own price for tonight’s show I will pay more after watching it!’ – evidence from Pay What You Want experiment.”