The Role of External Reference Price in Pay-What-You-Want Pricing: The Application of Nudge Theory

Abstract

I explore the role of external reference price in Pay-What-You-Want (PWYW) pricing and the application of Nudge Theory to influence consumer behavior. The literature on PWYW pricing has primarily focused on the use of anchors (e.g., suggested price) as external reference prices to influence payments. However, these anchors can lead to lower payments. This research aims to provide evidence that using a nudge instead of anchors can be effective. Two experiments were conducted to test the impact of a pricing order nudge on consumers' perceived external reference price and willingness to pay within a PWYW context. The results did not support that using the order of price presentation as a nudge can influence consumers' perceived external reference price, however, I identified that individuals with high levels of NFCC displayed a more favorable attitude towards the PWYW option in the ascending pricing order condition compared to the descending pricing order condition.