The University of California conducted a fascinating study at a theme park, analyzing how pricing strategies and charitable giving impact consumer behavior and profitability. Over the course of the study, 113,047 people rode a roller coaster attraction, during which their photos were taken and made available for purchase. By experimenting with four distinct pricing models through A/B splits, researchers uncovered intriguing insights into the balance between pricing, charity, and consumer willingness to pay.
The Pricing Models and Results
1. Control Price ($12.95):
- This was the standard price for the ride photo.
- Profit per rider: $0.063.
- The control served as the baseline for comparison against other pricing strategies.
2. $12.95 + 50% to Charity:
- Riders were informed that 50% of their purchase would be donated to charity.
- Profit per rider: $0.036
- This represents a 43% decrease in profit, showing that while the charitable incentive may have encouraged some purchases, it wasn’t enough to offset the reduced margins.
3. Pay What You Want (PWYW):
- Riders could pay any amount they wanted for the photo, including $0.
- Profit per rider: $0 (bankruptcy 😊)
- Unsurprisingly, this model resulted in significant losses, as many customers opted to pay nothing, leaving no room for profit.
4. Pay What You Want + 50% to Charity:
- Riders could pay any amount they wanted, with the added incentive that 50% would go to charity.
- Profit per rider: $0.078
- This approach generated a 23% increase in profit compared to the control. The charitable component likely motivated customers to contribute more, even under a PWYW model.
Key Takeaways
- Charity Enhances Perceived Value:
Incorporating a charitable component significantly influenced customer behavior. Even under a pay-what-you-want model, pairing it with a charitable incentive resulted in higher profits compared to a fixed price. - PWYW Alone is Risky:
A pay-what-you-want approach without any additional incentive led to zero profitability. While it may seem appealing for attracting customers, it fails to generate sustainable revenue. - The Power of Reciprocity:
When customers know their money is contributing to a good cause, they’re more likely to pay—even voluntarily. This reflects the principle of reciprocity, where people feel compelled to give when they perceive their contribution as meaningful. - Balancing Profitability and Purpose:
Businesses can successfully incorporate social good into their pricing models without sacrificing profits. In fact, a well-designed charity-based pricing strategy can enhance both customer satisfaction and bottom-line results.
The Big Picture
This study highlights the importance of creative pricing strategies and the psychological impact of charitable giving on consumer behavior. For businesses, combining generosity with smart pricing can not only drive engagement but also boost profitability.