What is my advice worth to you?
Pay-What-You-Want and charity donation in the banking industry
Author: Silver de Bruijn Student-ID 11175745 Course Master Thesis
Study MSc. Business Administration – Digital Business track Institution University of Amsterdam
Date 29-06-2017 Supervisor R. de Bliek
Statement of originality
This document is written by Silver de Bruijn who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the
Abstract
Pay-What-You-Want (PWYW) is a relative new pricing mechanism where the customer is in full control over the price setting. The seller has to accept every price, even zero (Kim, Natter, & Spann, 2009). Because of the financial risk, it is not remarkable that the PWYW application has mainly focused on low-cost products and services. However, literature from the last decade showed some interesting findings and combinations on PWYW. The
combination of PWYW with charity turned out to be successful for an amusement park (selling photographs from a roller-coaster ride) in terms of price paid per photograph and total items sold. In this case, 50% of what the customers paid was donated to charity (Gneezy, Gneezy, Nelson, & Brown, 2010). These findings show interesting perspective for other companies.
This study aims to 1) investigate if PWYW can be used within the banking industry. No earlier research has been done within the banking industry. 2) If adding charity to PWYW will provide similar findings in the banking industry. This might be particularly interesting because Corporate Shared Responsibility is a primary focus of almost every bank and 3) if the application of PWYW results in higher customer satisfaction.
A field experiment was conducted with 20 customers at a local office from a Dutch bank. These customers were offered PWYW for advice- and handling costs. From the 20 customers, 10 were offered PWYW and 50% of what they paid was donated to a local charity. Measurement existed of the amount paid, customer satisfaction (through Net Promoter Score) and a follow-up interview to receive insight on what was on their minds when deciding which price to pay.
Results show that customers paid on average 44.59% of the regular price which is significantly lower. No significant difference was found between the PWYW group and PWYW plus SSR group regarding the price paid and customer satisfaction. Results from the follow-up interviews showed that customers who had earlier experiences (internal reference price) with requesting a form of finance, paid more than customers who did not have an internal reference price. Also, the customers who named the internal reference price as a payment factor gave the highest NPS.
Table of content
1. Introduction ... 5
2. Theoretical framework ... 7
2.1 Pay-What-You-Want ... 7
2.2 Customer Satisfaction ... 10
2.3 Shared Social Responsibility ... 11
3. Methodology ... 13
3.1 Sample & Setup ... 13
3.3 PWYW ... 14 3.4 Customer Satisfaction ... 14 3.5 Advisor ... 14 3.6 Amount of financing ... 15 3.7 Content analysis ... 15 4. Results ... 16 4.1 General results ... 16 4.2 Hypothesis testing ... 16 4.3 Follow-up interviews ... 20
5. Conclusion and recommendations ... 23
5.1 Conclusions ... 23
5.2 Limitations ... 24
5.3 Recommendations ... 24
6. References ... 26
7. Appendices ... 28
7.1 Appendix 1: Informational PWYW letter ... 28
1. Introduction
Price is one of the most important factors within the traditional marketing mix and has potential to deliver competitive advantage (Balan, 2014). However, price is also one of the marketing mix elements that has been innovated the least (Hinterhuber & Liozu, 2014). One way to innovate on price is the use of participative pricing models like Pay-What-You-Want (Kim e.a., 2009). Pay-What-You-Want (PWYW) is a participative price mechanism that allows customers to decide how much they pay for a product or service. The seller has to accept every price, even zero (Kim e.a., 2009). PWYW is becoming more popular in the recent years, especially in restaurants, museums, holidays, hotels and on digital services like books,
games, CD’s and newspapers (Greiff & Egbert, 2016; Kunter, 2015).
PWYW has shown different results and contradictory findings (Stangl, Kastner, & Prayag, 2017) PWYW works well in terms of revenue for restaurants (Kim e.a., 2009; Riener & Traxler, 2012) playing golf (Machado & Sinha, z.d.) and charity (A. Gneezy e.a., 2010). The combination of PWYW and charity showed to be successful in terms of highest revenue per sold item in an amusement park. Also, the addition of a charity gave realization to a form of corporate social responsibility named social shared responsibility. This is a form of corporate social responsibility where the customer is actively involved by deciding how much he or she wants to contribute to a charity cause (A. Gneezy e.a., 2010). PWYW has shown to be less successful for movie tickets (Kim e.a., 2009), holidays (León, Noguera, & Tena-Sánchez, 2012)and high valued priced services (Stangl e.a., 2017).
One factor of influence on PWYW is reference price. Two forms of reference price derived from the literature; external- and internal reference price (Gerpott, 2016). External reference price are forms of price suggestions like “other people paid …” and form an anchor for buyers to decide on a fair price. A majority of literature suggests that external reference price has a positive effect on PWYW. However, most of these studies are conducted among students and based on hypothetical payments from students were as most research in field studies show no correlation between the external reference price and PWYW (Gerpott, 2016). Internal reference price acts as an internal benchmark based on an earlier purchase of the good or service or some other kind of internal reference that is related to the same good or service (Gerpott, 2016).
The current research on PWYW within banking has been very limited. Go Bank, located in the USA and acting like a start-up subsidiary of Green Dot Bank, is the only known bank who adopted PWYW (Groening & Mills, 2017). However, the adoption of PWYW was only considered because their potential customers did not trust their free-of-charge offer. The clients of Go bank were offered to set the monthly fees back to zero at any time (Yaqub, 2013). Different studies show that customer satisfaction has a significant positive effect on PWYW. An important note is that the customers pay the PWYW after consumption. If the customers pay before consumption, the internal reference becomes more important (Gerpott, 2016). In their article about customer satisfaction within retail banking, Jamal & Naser (2002, p. 146) write “Customer satisfaction can be considered the essence of success in
today’s highly competitive world of business." Thus, the conclusion that customer satisfaction has a positive impact on PWYW can be made. The opposite, however, has not been studied. Does PWYW have a positive impact on customer satisfaction?
To this end, in this mixed-method study, a field-experiment within the local branch of a Dutch national bank has been conducted. 20 business clients (Small- and medium
enterprises) who received a business loan, were offered to use the pricing mechanism PWYW for the advice- and handling costs of a business loan. The sample of 20 business clients was divided into two groups of 10 (control and experimental group). The
experimental group was also offered PWYW, with the additional information that 50% of what they paid was sent to a local cause, similar to the study of Gneezy e.a. (2010).
Measurement consisted of the actual PWYW amount. In a period from 3 to 5 working days after the PWYW decision, the business clients were contacted by phone to conduct an NPS for customer satisfaction measurement. Additional was asked what was on their mind when deciding what to pay to conduct a content analyze on reference price and other motivational payment factors (Stangl e.a., 2017).
Based on earlier research, it is not expected that business clients will pay zero (Balan, 2014; Kim e.a., 2009; Stangl e.a., 2017b). However, it is also not expected that business clients pay equal or more than the regular costs (which are approximately 1% of the total amount of the loan) based on Stangles (2017) findings that a lack of knowledge about the service cost structure will cause lower payments. It is expected that if the business client requested a business loan before, and therefore has an internal reference point, the business client will pay close to the amount of the reference point.
2. Theoretical framework
The theoretical framework provides an overview of relevant research on Pay-What-You-Want, customers satisfaction including its different measurements and social shared responsibility. The hypothesis are constructed based on the literature review and followed by methodology and results.
2.1 Pay-What-You-Want
Pay-What-You-Want (PWYW) is a form of participative pricing mechanism (Kim e.a., 2009) which delegates the full power of price determination from the seller to the buyer (Balan, 2014; Kim e.a., 2009). The research from Kim et al. (2009) was the first study on PWYW and offered a solid base for further research on PWYW. Kim et al. (2009, p. 49) defined PWYW as following:
"…a participative pricing mechanism that delegates the whole price determination to the buyer. The seller offers one or more products under PWYW conditions, whereas the buyer decides on the price."
Balan (2014) gives three main attributes for the PWYW pricing mechanism. First, there are no set prices, the seller has to accept the offered price by the buyer and cannot reject this. Second is the empowered customer who experiences full authority on price setting and third, there are no fixed prices which means that every customer is likely to pay a different price and price discrimination will appear automatically since the chance that buyers are willing to pay the exact same price as others are small.
The price framework on PWYW from Kunter (2015) offers a distinguish in low-, medium- and high valued prices. EUR 0 – EUR 5 is considered low valued. EUR 5 – EUR 20 is considered medium valued and everything from EUR 20 is considered high value.
From an economic perspective, it could be expected that economic rational buyers tent to pay zero (Kim e.a., 2009). However, various studies show that only a tiny portion of the buyers choose to pay zero (Balan, 2014; Kim e.a., 2009; Stangl e.a., 2017)
Application of PWYW
Most studies on PWYW has been primarily focused on food & beverages goods from restaurants and cafés. Other applications were focused on leisure like museums, flights, hotels and digital services like books, games and newspapers (Gerpott, 2017). Since PWYW is a relative new field of research, six articles are reviewed on their successful and unsuccessful PWYW applications and research.
In the first empirical research by Kim et al. (2009) on PWYW, the authors found an increase in sales for buffet lunches and an increase in revenue for hot beverages. For the buffet lunch, the number of sales increased with 32.35% while the average price paid decreased with 19.37% to an average of EUR 6.44 per lunch. The increase in sales made up for the lower payments. For the hot beverages in the same study, the actual price paid with PWYW was 10.62% higher than the regular price. The number of units sold decreased fractional although not significant. The application of cinema tickets was unsuccessful; both fewer tickets were sold and the prices paid were lower than regular. The authors found that customers were unable to estimate the cost-price for a cinema ticket. Although most
customers were convinced they paid a fair price, customers paid significantly lower. Reiner & Traxler (2012) performed a longitudinal experiment at a restaurant in
Vienna. For two years, guests had the option for PWYW. The results of the study (n = 80.000) showed that the mean of the payment decreased slowly in the two years period. Starting at EUR 5.65 and decreased to EUR 5.00 by the end of year two. On the other hand, the number of customers increased by 50% over these two years. The total revenue of the restaurant increased by 40% at the end of year two which made the implementation of PWYW to be considered successful.
Gneezy e.a., (2010) added a variation to the PWYW pricing mechanism. In a field experiment at an amusement park, photos taken from a roller-coaster ride were offered with either regular prices or PWYW. As a variation, charity was added to both pricing
strategies. Results show that revenue of the PWYW with charity almost tripled compared to PWYW without charity.
Only a few studies have been done on high-value products and services. León, Noguera, & Tena-Sánchez (2012) describe an application of PWYW from El Trato, a Spanish holiday provide. In their offer, El Trato offered different packages which consumers could buy. After returning, customers were asked what their package was worth based on PWYW.
Results showed that customers only paid a mean of 7.9% which makes the experiment, sales-wise, unsuccessful.
Gautier & Van der Klaauw (2012) performed a field experiment based on PWYW data performed by different NH Hotels in the Netherlands. The participants consisted out of two groups; voluntary (participants who booked a room with the knowledge they could pay what they wanted) and involuntary (participants who already booked a room before the
management decided to apply PWYW). The involuntary participants paid twice as much as voluntary participants. This showed that promoting the PWYW pricing mechanism attracted participants who had a financial motive. Another study on high-value services was
conducted by (Stangl e.a., 2017). The study made a distinction between different customer groups; potential, new and repeating customers. The high-value services in the research from (Stangl e.a., 2017) consisted of workshops at an outdoor festival with fixed prices from EUR 30 to EUR 130. Results from the study showed that the different customer's groups paid less with PWYW compared to regular prices. Stangle (2017) argues that the lack of an
internal reference price from the customers has a considerable influence on the price paid. Kim e.a.,(2009) also confirms that buyers of cinema tickets pay less for tickets even though the buyers think they pay a fair price. One of the reasons that buyers pay less is because the buyers have trouble to estimate the cost-price for a movie ticket.
In case of food & beverages, buyers can estimate much more efficient the fixed costs and relate this to a fair price. Groening & Mills (2017) describe the PWYW application for a bank (Go Bank) briefly. Go bank introduced PWYW as an alternative for free products and services. Go bank, a start-up subsidiary of Green Dot Bank in the USA, first offered their products and services for free. This was changed to PWYW because customers did not trust the free offer since every bank have different kinds of costs (Yaqub, 2013). For advisory costs within the banking industry, I assume that buyers face a similar lack of internal reference price as found by Kim e.a., (2009) in cinemas and Stangl e.a., (2017) for workshops at a festival. The fixed costs for a bank (staff, offices, ICT, regulations etc.) are, presumably, hard to estimate. Therefore, I expect that the paid price with PWYW will be lower than the regular fixed price.
While I do expect that the price paid with PWYW will be lower, I do not expect that buyers (significantly) pay zero based on earlier research (Balan, 2014; Kim e.a., 2009; Stangl e.a., 2017).
H2 Advisory costs paid with PWYW are greater than zero.
2.2 Customer Satisfaction
Customer satisfaction is considered to be one of the most important factors in today’s competitive business world. Companies are aiming for more quality in their products and services to obtain higher customers satisfaction (Jamal & Naser, 2002).
The first serious discussions and analyses of customer satisfaction emerged during the 1960s with Cardozo’s (1965) classic article. Cardozo (1965) found that the amount of expectations and invested effort from the customer side influences the customer satisfaction. Based on the Festinger (1962) cognitive dissonance theory, the customer with large expectations or contributed a significant amount of effort to obtain the product or service, would likely try to close the difference between the expected and perceived satisfaction.
On the definition of customer satisfaction, however, is less consensus (Giese & Cote, 2000; Caruana, 2002). Literature defines two types of conceptualizations on customer satisfaction: transaction based and cumulative. Transaction specific customer satisfaction is based on post consumption judgment of the product or service were cumulative is based on a more general judgment of the firms past, current and future performance (Anderson, Fornell, & Lehmann, 1994). Because the focus of this research is on customer satisfaction after
consumption, this research treats customer satisfaction as transaction based. A widely used transaction based definition of customer satisfaction is the difference between expectations and satisfaction by Tse & Wilton (1988, p. 249):
"…consumer's response to the evaluation of the perceived discrepancy between prior expectations (or some other norm of performance) and the actual performance of the product as perceived after its consumption."
Different studies show a positive effect of customers satisfaction (post consumption) on the price paid within PWYW (Gerpott, 2017). Kim e.a. (2009) and Machado & Sinha (z.d.) both
argued that the more satisfied the customer is, the more he or she was willing to pay for low-priced products. However, no study has been found that indicates whether the application of PWYW on itself resulted in higher customer satisfaction. Hermann et al. (2007) showed that perceived price fairness (in the context of negotiating for a car) has a considerable influence on the judgment of customer satisfaction. Voss et al. (1998) showed that post-purchase price perception has an almost equal positive effect on customer
satisfaction as performance perceptions. Based on the findings of Hermann et al. (2007) and Voss et al. (1998), I expect that PWYW has on positive effect on customer satisfaction.
H3 PWYW results in higher customer satisfaction than prices paid with a fixed fee. Reichheld (2003) argued that, instead of using complex measurement on customer
satisfaction, a simple question (i.e., "How likely is it that you would recommend our company to a friend or colleague?" (page 1)) results in an index, named NPS, that better predicts future growth of the company. NPS is based on the word of mouth principle that satisfied customers tell their experiences to other which increases sales. The use of NPS is widespread around the world by a large number of companies with different business models (Artz, 2017).
Another customer satisfaction approach is the CES score, first introduced by Matthew Dixon, Karen Freeman & Nicholas Toman (2010). The CES matrix is defined as a measure to examine how likely it is that the customers keep doing business with the company. The logic of
reasoning behind CES is that how easier it is to do business with the company, how more likely the customer will return to do business.
2.3 Shared Social Responsibility
Gneezy e.a., (2010) have performed a field experiment where consumers were able to buy souvenir photos from the rollercoaster ride. In the 2x2 setup of the experiment (fixed price, fixed price plus charity (50% of the price), PWYW, PWYW plus charity (50% of the price)) the authors found that participative pricing model PWYW plus charity enhanced the turnover almost three times. Beside the upstream in revenue, the authors propose a new Corporate Social Responsibility (CSR) strategy which they term Shared Social Responsibility (SSR). The motives for SSR are twofold: first, charity given is applied and second the demand for the
goods is increased, making it more profitable for the seller. The success of SSR is explained by the transfer of the financial risk to the seller. The consumer has to take action to buy a good, the seller takes the financial risk. The willingness for this financial risk seems to be rewarded by the customers by paying more (U. Gneezy, 2014).
Elfenbein & McManus (2010) confirms the finding that adding a charity cause increases turnover. In their research on identical items sold on E-bay, the items with charity were sold with a 6% higher price.
PWYW applied to products and services with unclear cost-prices, are more likely to achieve lower paid prices (Kim e.a., 2009). However, Gneezy e.a. (2010) argues when PWYW is combined with SSR, higher prices are paid by customers. Based on the research from Gneezy e.a. (2010), prices tripled if PWYW plus SSR was applied. Thus, therefore I expect that prices paid with PWYW plus SSR are higher than the regular fixed fee.
H4 Advisory costs paid with PWYW plus SSR are higher than prices paid with a fixed fee.
No prior research has been done on customer satisfaction while PWYW plus SSR is applied. However, SSR is a derivative of corporate social responsibility (A. Gneezy e.a., 2010). The relationship between corporate social responsibility (CSR) and customer satisfaction has been widely researched. The findings on CSR includes positive relations on customers
satisfaction, loyalty and trust (McDonald & Rundle-Thiele, 2008). Thus, based on the positive effect of CSR on Customer satisfaction, I do expect higher customer satisfaction with SSR applied.
H5 Advisory costs paid with PWYW and SSR results in higher customer satisfaction as compared to prices paid with PWYW
3. Methodology
This paper will use a classic experiment (cross-sectional) to test the stated hypothesis. The experiment consisted of a field experiment, which is seen as the golden standard within science (Field, Miles, Jeremy, & Field, 2012). Also, the external validity of a field experiment is considered to be high (Field e.a., 2012).
3.1 Sample & Setup
The study was conducted at a Dutch national bank with a local office in Nijmegen. The sample consists of 20 small- and medium-sized enterprises (SME) with a turnover from 0 (starting company) up till 5,000,000 euro and were located in the area of Nijmegen. In scope were companies with a maximum loan (or other forms of debt) request up to a maximum of 1 million euros (minimum 5 thousand euros).
The SME's requested a business loan in the period from the first of April 2018 up till 13th of May. On the 13th of May, the total sample of 20 was reached. The maximum of 20 was agreed with the management of the bank, and a higher sample was undesired based on the possible financial risk for the company. The sample of 20 consisted of two groups of 10. The first group (control group) got the option for PWYW. The second group (experimental group) got the option for PWYW plus SSR. A computer randomizer was used to assign participants to the control- and experimental group randomly. After five working days, the SME was contacted by phone for an NPS measurement and to ask three aspects which were on their mind when they choose a PWYW amount. All SME’s from whom a business loan requests were approved, were automatically part of the experiment. After the business loan approval, the SME received an official document of financing. This document consists of several aspects like amount, terms, conditions, interest rate and the amount of advice- and handling costs.
For this experiment, an extra informational letter was given for information about the experiment. The letter (see appendix 1) consisted of general information about the experiment, information about PWYW and included an (opt-out) informed consent. The experimental group received an extra informational letter about SSR (appendix 2). The client had to fill in the PWYW amount and sign the letter.
Next to the experiment data, data from 2017 on percentage paid for advice- and handling costs were added. A total of 109 approved financing requests from the Nijmegen branch were used. A computer randomizer was used to take 20 approved financing requests and labeled as ‘fixed fee’ in the total sample. The amount of 20 was chosen to equalize the amount of Fixed fee and PWYW. The n of the total sample is 40.
The control variables bank advisor and amount of loan request were added for the total sample.
One measurement was invalid; the bank advisor declared not to have followed the script and advised the SME to pay only a small amount due to competition motives. There were no other signals from bank advisors or SME’s that presume invalid measurements. One SME did not answer the question “what was on your mind” for the content analyze due to own pressure of time.
3.3 PWYW
The dependent variable PWYW was measured as a percentage. The percentage is measured as the actual price paid within the PWYW experiment divided by the regular fixed fee for advice- and handling costs (N = 19, M = 44.59%, Min 0%, Max 100% SD = 28.87). Each client received an informational letter (see appendix 1) with a basic explanation about the PWYW experiment. The group with SSR also received information about SSR and the charity cause.
3.4 Customer Satisfaction
The variable Customer Satisfaction is measured through Net Promoter Score (NPS)
(Reichheld, 2003) as a concrete number (M = 8.79, Min 6, Max 10 SD = 1.08) and based on the question: How likely is it that you would recommend our company to a friend or
colleague? The Dutch bank also measures NPS. To link the NPS group precisely to the control group, the NPS question is adjusted to the NPS question which is used by the Dutch bank: "How likely is it that you would recommend your advisor to a colleague or fellow company?”
3.5 Advisor
Advisor is added as a control variable. All eight advisors from the SME department participated in the experiment based on loan request during the experiment timeframe.
Tabel 1 shows the advisor (coded by number) and the amount of participation in the experiment. Table 1; Advisor Advisor PWYW 1,00 1 2,00 1 3,00 5 4,00 4 5,00 3 6,00 2 7,00 2 8,00 1 3.6 Amount of financing
Each finance request can consist of different kind of financing products like loans, overdraft facilities (credit), lease or other debt products. The total amount of the total request (n = 19,
M = 210.58, minimum = 20, maximum = 846, SD = 221.98) is added as control variable. 3.7 Content analysis
Additional a form of content analyze is made to understand the context of the given NPS better. Similar to the content analyze used by Kunter (2015, p. 2349) participants were asked the question: “What was on your mind when you decided on your price? Please state three
aspects which were most influential on your PWYW price decision!”. In the content analysis
from Kunter (2015), the answers are divided into motivation relation payment factors (MRPF). These MRPF’s are based on the findings from Kim e.a., (2009). However, these MRPF’s are based on payment motives from the buyer only. Gerpott (2017) found that other factors, like the financial strength of the seller, are motives as well. Based on the findings within the experiment, reference price and financial strength are added as well.
4. Results
4.1 General results
To check the difference in variance between the respondents, variance analyses were performed. The control variables are advisor and the total amount of loan. Groups are formed in either PWYW or fixed fee (n=40) and PWYW or PWYW with Charity (n=20). No significant relations have been found between PWYW, PWYW plus Charity and customer satisfaction. Neither was found variance between the separate groups of control variables. Significant relations were found when the group fixed fee was added to the sample.
4.2 Hypothesis testing
Hypothesis 1: advisory costs paid with PWYW are lower than prices paid with a fixed fee
To test H1, an independent t-test was used with payment method (PWYW vs. Fixed fee) as independent variable and percentage paid as dependent variable. The t-test showed that fixed payments (M = 78.66%, sd 37.32%) are significantly higher than PWYW payments (M = 44.59%, sd 28.87%), t(35.574) = 3.197, p = .002. On the basis of the data, H1 is not rejected: advisory costs paid with PWYW are significantly lower than prices paid with fixed prices
Regression analysis followed the independent t-test. The regression showed that payment method is highly correlated with percentage paid (r = .463, p = .003), 21.4% of the variance in percentage paid is predicted by payment method (R2= .214). When controlling the regression between payment method and percentage paid by adding the total amount of loan and advisors, 38.8% of the variance in percentage paid is predicted by payment method, the total amount of loan and advisor. Regression analysis shows that for every unit the payment method increases, which can be either fixed or PWPW, the mean value of percentage paid decreases with 34.065 units (β .-463, p = .001). This suggests that when the payment method is PWYW, the percentage paid is 34% lower.
Table 2; Regressions for percentage paid (PWYW and PWYW plus Charity vs Fixed)
Model 1 Model 2 Model 3
Variable B SE(B) β B SE(B) β B SE(B) β
Fixed or PWYW 34.065** 10.725 .463 35.387** 11.711 .481 34.831** 12.445 .473 Advisor 1 Advisor 2 Advisor 3 Advisor 4 Advisor 5 Advisor 6 Advisor 7 22.28 44.78 36.378 28.907 31.311 2.667 40.661* 37.158 37.518 19.405 19.937 19.937 21.917 19.363 .096 .192 .380 .284 .307 .024 .446 20.452 43.001 35.811 28.549 30.635 1.354 39.763 39.605 39.511 20.071 20.403 20.742 23.864 20.537 .088 .185 .374 .280 .300 .012 .436 Loan amount -.005 .032 -.025 R2 .214 10.089** .388 1.212* .388 0.24 F *p < .05. **p < .01. n = 40
Hypothesis 2: advisory costs paid with PWYW are greater than zero
To test H2 a one-sample t-test was used to test the mean of the percentage paid from the total PWYW group (M = 42,73, sd = 29,29) against the test value of zero. The Kolmogorov-Smirnov and Shapiro test were used to test for normality. Both tests rejected the null-hypothesis and indicate a normal distribution (Kolmogorov-Smirnov df(19) = .163, p = .200; Shaprio df(19) = .946, p = .339). The one-sample t-test showed that customers pay
significantly more than zero, t(19) = 6.526, p = .000. These results indicate that H2 cannot be rejected.
Hypothesis 3: PWYW result in higher customer satisfaction than prices paid with a fixed fee
To test H3, a one sample t-test is used but with great limitations. No data was available on NPS for customers that acquired a loan in 2017 (due to privacy reasons, the names of the customers are deleted after four months). The total NPS for the advisors in the sample, however, is available. The total NPS score was 8.8 in 2017 (n = 102, branch Nijmegen). The one sample t-test showed no significance difference (df(18) = -.042, p = .967). These results indicate that H3 cannot be rejected.
Hypothesis 4: advisory costs paid with PWYW plus SSR are higher than prices paid with a fixed fee
H4 was tested with the Mann-Whitney U test. The Mann-Whitney U is assumed to be more powerful when the sample sizes are unequal and the smaller sample has the larger variance (Zimmerman, 1987). Results show that advisory costs paid with PWYW plus SRR (Mdn = 37.267) is significant lower (U = 34.0, z = -2.688, p = .008) than prices paid with a fixed fee. This data shows that H4 cannot be rejected.
The regression showed that payment method (PWYW plus Charity vs Fixed fee) is correlated with percentage paid (r = .398, p = .029), 15.9% of the variance in percentage paid is predicted by payment method (R2= .159). When controlling the regression between
payment method and percentage paid by adding the total amount of loan and advisors, 43.9% of the variance in percentage paid is predicted by payment method, the total amount of loan and advisor. Regression analysis shows that for every unit the payment method increases, which means the payment method goes from PWYW plus Charity to fixed fee, the mean value of percentage paid increases with 15.754 units (β .398, p = .029). This suggests that when the payment method is PWYW plus charity, the percentage paid is 15.75% lower.
Table 3; Regressions for percentage paid (PWYW vs. Fixed)
Model 1 Model 2 Model 3
Variable B SE(B) β B SE(B) β B SE(B) β
Fixed or PWYW Charity 15.754* 6.854 .398 15.698* 6.309 .397 15.017* 6.643 .380
Advisor 1 Advisor 2 Advisor 3 Advisor 4 Advisor 5 35.462 28.373 30.777 -17.983 55.539* 18.956 19.447 19.447 27.036 21.473 .402 .304 .330 -.120 .506 33.195 27.394 28.901 -21.664 52.553* 19.695 19.963 20.360 29.042 23.116 .385 .294 .310 -.145 .479 Loan amount -.014 .034 -.071 R2 .159 5.282* .435 2.253* .439 0.16* F
*p < .05. n = 20. two advisors were excluded due to only one measurement
Hypothesis 5: Advisory costs paid with PWYW and SSR results in higher customer satisfaction as compared to prices paid with PWYW
To test H5, the hypothesis was tested with the Mann-Whitney U test. The Mann-Whitney U test showed no significant difference in customer satisfaction within the groups PWYW plus SSR and PWYW (U = 41.50, z = -.301, p = .780). These results indicate that H2 is rejected.
4.3 Follow-up interviews
Fig.1 shows the content analysis and table 4 a selection of the statements. The
Mann-Whitney U test was performed on each motivational factor, none of the motivational factors had a significant difference on percentage paid and/or NPS except for internal reference price. Nevertheless, the results give a direction on the motivation related payment factors (MRPF) when deciding on which price to pay and NPS.
Figure 1; Table analyze MRPF
Most customers have reference price (internal or external), customer satisfaction and fairness on their mind. The findings on customer satisfaction and fairness are similar findings to Kunter’s (2015) research. Reference price, however, seems to play a large role in the context of PWYW within a bank. The lack of knowledge on the cost structure of a bank
(“I have no idea what is normal”) and the willingness to pay an appropriated and fair price
(Gerpott, 2017) made the reference price an important factor. Internal reference price is the only MRPF that show a significance difference on percentage paid (int. reference price Mdn = 62.50%, non-int. reference price Mdn = 38.63%; U = 9.5, z = -1.977, p = .048).
Table 4; selection of statements
Reference Price
“It was easy for me, I requested a loan last year as well, so I knew what I had to pay”
“I assumed it costed the advisor three hours to finish my request. I multiplied my own rate per hour times three”
“I’ll pay the same amount that I charge for the same hours of work”
“I considered to pay zero, but choose the amount exactly in the middle that the competitors wanted to charge for the same loan request”
“I’ve done transactions with the bank before, so I knew what was reasonable” “I have no idea what is normal”
Fairness “I wanted to pay the regular price”
“I consulted my financial department. Paying zero doesn’t seem fair. So, I paid an amount of which I think Is fair”
“I already pay 10% interest, I’m not also going to pay advice- and handling costs” “The bank already makes tons of money”
“I want to pay a fair price”
"I am a loyal customer of the bank, therefore I think it's reasonable that I pay less” “My loan request could not have taken longer than an hour to process”
SSR “I like that I support a local charity”
“The charity cause had no effect on my payment decision” “The charity aspect was positive”
CS “Does my payment contribute to the bank advisor or the bank? I will pay much
more of my payment goes directly to my bank advisor”
“I’m very satisfied with my bank advisor, not with the bank itself”
“I’m very satisfied with my advisor, I already recommended him by several other entrepreneurs”
“the whole process of loan request took too long and the bank asked for too much information about company”
“I didn’t know that the bank charges handling- and advice costs next to the interest rate”
Bargain “as a starter, I have to be very cautious on spending money”
Other "I assume that the bank acts professional and therefore accept the given price for advice- and handling costs"
SSR seems to be less of a factor to the customers. Only three customers said that charity was on their mind when deciding on the price. This included one statement which stated that the charity had no impact on his decision.
The MRPF fairness reflects the attitude towards an adequate amount paid by the customer (Gerpott, 2017). The findings on fairness showed both positive fairness motivation (e.g., "I want to pay a fair price") and negative fairness motivations in term of percentage paid (e.g., "I already pay 10% interest, I am not also going to pay advice- and handling costs"). The findings on fairness showed no significant differences. The medians on percentage paid and NPS were both lower compared to the group with no fairness MRPF (NPS; fairness group Mdn = 8, no fairness group Mdn = 9. Percentage paid; fairness group
Mdn = 34.72%, no fairness group Mdn = 50%).
Although the findings were not significant, customers who stated that customers satisfaction as an MRPF (e.g. "I'm delighted with my advisor. I already recommended him by
other entrepreneurs”) showed a higher NPS (Mdn = 9, non-customer satisfaction MRPF Mdn
5. Conclusion and recommendations
5.1 Conclusions
PWYW is a relatively new phenomenon in the academic research. Former research has been primarily done in low-cost services and goods (Stangl e.a., 2017). This research aimed to explore the application of PWYW within the banking sector. Based on existing literature and experiments, it was hypnotized that PWYW on itself would make a loss in term of percentage paid for advice- and handling costs. On the other hand, existing literature shows that the addition of SSR should result in higher percentages prices paid (Elfenbein & McManus, 2010; A. Gneezy e.a., 2010). The addition of customer satisfactory in combination with SSR is new to the existing literature.
Customers paid an average of 44.59% (n=19) of the regular fixed price. This confirmed the expectations from H1 that customers pay less than the regular fixed price. The MRPF internal reference price was expected to be an important factor based on the work from Stangle e.a., (2017) and Kim e.a., (2009) who stated that a lack of knowledge and information about the cost structure or earlier experiences with the same product or service has a negative impact in terms of price paid. These expectations were confirmed with the content analysis. Customers without knowledge on internal cost structure or earlier experience with advice- and handling costs paid significantly less. On the other hand,
customers with knowledge on internal cost structure or earlier experience (e.g., “It was easy
for me, I requested a loan last year as well, so I knew what I had to pay” and “I’ve done transactions with the bank before, so I knew what was reasonable”) paid significantly more.
This confirms that the internal reference price is an important factor.
It was expected that customers pay more than zero even though they can pay nothing at all. One customer paid zero ("I already pay 10% interest, I am not also going to
pay advice- and handling costs") and one customer paid one euro ("I am a loyal customer of the bank; therefore, I think it is reasonable that I pay less"). The findings from this research
confirm earlier findings from by Balan (2014), Kim e.a., (2009) and Stangl e.a., (2017) that customers do not significantly pay zero.
Customer satisfaction play's an important role when it comes to PWYW. Different research has shown that customer satisfaction is an important decisive factor but only after consumption (Gerpott, 2017). This research has found no evidence that applying PWYW on
itself results in higher customer satisfaction. This is in contrary with the findings from Herman e.a., (2007) who argues that perceived price fairness results in higher customer satisfaction. A possible explanation is that customers who stated that customer satisfaction was on their mind when deciding what to pay, also had other factors on their mind. Three out of five customers who named customers satisfaction named reference price (both internal and external) as well.
The addition of SSR to this research has shown no significant effect on percentage paid and/or customer satisfaction. Possible explanations can be found in the relatively unknown local charity.
5.2 Limitations
There are several limitations considering this study. The offered debt products in the experiments have two cost components; interest rate and advice- and handling fees. This research only focused on the advice- and handling fees. This makes the finding harder to generalize to products and services with only one cost component.
The chosen charity is a new initiative from local governments and businesses
(including the bank) and founded to keep young talent from local universities in the area. It can be assumed that none of the customers knew about the charity. Different results could be expected when a known NGO was chosen as charity.
Al the customers were informed by an informational letter to make sure that every customer had the same information. The advisors were instructed to give no further additional information. Despite these instructions, it cannot be guaranteed that advisors gave additional information about the experiment and the fixed price. In one case the advisor told he had used the experiment as leverage while in competition with other banks for the deal.
5.3 Recommendations
Based on the findings, the application of PWYW seems only to be valuable when the customer has an internal reference price. In a practical sense, this could mean that the application of PWYW might be suitable for existing customers. The customers with internal
reference price on their mind paid the most (M = 65.63%) and also gave the highest NPS (M = 9.25) which is higher than the mean NPS over 2017 (M = 8.8)
The addition of charity giving and therefore applying SSR cannot be advised based on the finding. The customers did not show interest in SSR. Only two customers named SSR as a positive payment factor and one customer explicitly said that SSR was not a factor. The mean NPS was almost the same as the customers who did not receive the PWYW plus SSR option.
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7. Appendices
7.1 Appendix 1: Informational PWYW letter Beste ..,
Hartelijk dank voor uw financieringsaanvraag.
Wij veranderen tijdelijk de manier waarop advies- en behandelingskosten worden berekend. Hierdoor krijgt u volledige vrijheid in het bepalen van advies- en behandelingskosten voor uw financiering.
Experiment
Momenteel voert de Universiteit van Amsterdam samen met BANK een tijdelijk experiment uit voor de berekening van advies- en behandelingskosten. In dit experiment krijgt u als klant de volledige vrijheid zelf te bepalen wat u aan advies- en behandelingskosten wenst te betalen.
U betaalt wat u het waard vindt
Aan de achterzijde van deze brief vindt u een tekstvak waarop u het bedrag aan advies- en behandelingskosten kunt invullen. U heeft daarbij de volledige vrijheid in het bepalen van het bedrag. De bank accepteert ieder bedrag wat u bereid bent te betalen.
Opbrengsten advies- en behandelingskosten
BANK hecht veel waarde aan de ontwikkeling van de welvaart en ondernemerschap in de regio. Daarom zal 50% van wat u betaalt voor advies- en behandelingskosten worden overgemaakt op de rekening van RvN@LAB vanuit uw naam. RvN@LAB is een lokaal initiatief gericht op het
samenbrengen van studenten en bedrijven. RvN@LAB heeft als doel talentvolle jongeren te behouden voor de regio en het bedrijfsleven. Een folder van RvN@LAB vindt u bijgesloten.
Bezwaar
Indien u niet wenst deel te nemen aan dit experiment vernemen wij dit graag van u. De advies- en behandelingskosten zullen dan op de reguliere wijze berekend worden.
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