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JOHN ZHANG: One of the most important things you need to
pay attention to when you use the pay-as-you-wish pricing is
the fact that you have to use it in a marketplace where you
have a lot of what we call the fair-minded customers.
For instance, if you sell music, you're
selling to the fans.
Fans are the people who are actually very supportive of
what you're doing.
Even if in fact your marginal cost is not zero-- of course,
in the music case, the marginal cost is zero.
But even if it's not zero, if there are some fans out there
who are willing to give you $10 and $20 to keep you going,
obviously, then you could still use
pay-as-you-wish pricing.
Notice that, in fact, when you use the pay-as-you-wish
pricing, you actually do two things.
Number one, in fact, you can achieve maximum market
penetration.
In a lot of cases, why we don't want to buy a particular
product is simply because we don't want to pay that price.
If you remove that price, obviously then you have no
reason not to buy the product.
So that will help you to achieve maximum penetration in
the marketplace.
And so that's why, all of the sudden, for Radiohead, you
have fans from Asia, fans from US and UK, all kinds of
different places.
They begin to get online and buy your product.
So that's number one.
Number two, you notice that, in fact, when you use the
pay-as-you-wish pricing, you can achieve price
discrimination.
Different people are willing to pay a different amount.
If I really like your music and I'm really a die-hard fan,
obviously I'm willing to give you $10.
And if I'm not really a big fan, I just want to sample the
music a little bit, I'll probably just
download it for free.
And in the future, if I really like it and if you go around
and take a music tour or something like that, I may
actually pay something there, which actually means that
using that particular pricing mechanism, you will be able to
achieve price discrimination, so that different people are
paying different amounts for exactly the same thing.
Not only that, there is a lot of very, very interesting
effects in using this particular pricing mechanism,
which is that if you let the consumers pay whatever they
wish, essentially what you are doing is to surrender your
pricing discretion to the customers.
Customers are the ones who would decide on the price that
they're willing to pay for your product.
So what this means is that you don't have to engage in any
kind of price competition with anybody.
Because you don't set the price.
How are you going to compete on price?
You can't.
So given that, in your very competitive marketplace,
pay-as-you-wish pricing might be a good thing to do.