Last fall, the band Radiohead released its latest album, In Rainbows, in a way that made headlines around the world. In an effort to outflank digital pirates, the group allowed fans to download 10 songs directly from its website. Users could pay any price they chose or none at all. In the first month the album was available, the band's website saw 1.2 million visitors, according to ComScore (NASDAQ:SCOR). The research company reported that the average price per download among paying customers was $6, but that only about half of all users paid at all. Factor in the half who paid zilch, and the average cost per download was just $2.26, ComScore reported. (Radiohead disputed ComScore's data but did not disclose numbers of its own.)
In view of the buzz, a number of other companies decided to experiment with their own pay-whatever-you-want pricing schemes. Among them, Inc. magazine.
In February, Inc. tested a special offer with 5,000 potential readers: They could sign up for a year's subscription, beginning with the May issue, and set their own rate. "We excluded existing subscribers from the offer and asked folks to pay us upon receipt of their first issue, which included a bill basically saying, 'Now is the time to pay as you wish,' " says Patrick Hainault, Inc.'s director of consumer marketing.
The result? The offer was a dud. The mailing produced a third fewer new subscribers than the magazine's standard direct-mail piece, says Hainault, who has two theories on why the experiment came up short. First, he thinks the mailing itself did not do a good job of emphasizing the novelty of the pitch. The envelope looked like any other subscription offer. The pay-whatever language was not set off in big lettering. "We didn't give enough real estate to the offer to give it credibility," he says.
Additionally, Hainault thinks that unlimited choice is not, in the end, a good inducement. Consumers want a buying decision to be made simpler, not more complex. "When you give people multiple choices, they freeze," Hainault says. "And we basically gave them infinite choices."
As for Radiohead, the band has said that variable pricing was, for it, a big success, though the group did eventually end the offer, leading some to believe that it couldn't have been a huge moneymaker. Whatever its limits, the stunt was a PR bonanza. In Rainbows hit No. 1 on the Billboard chart for traditional album sales, and Radiohead is now out on tour.