Consumers Deciding Prices? What's This Anti-Capitalist Craziness?

You probably heard all about Radiohead's decision to allow fans to download their latest release In Rainbows and pay what they want for it. You might even have been one of the 1.2 million to download it legitimately from their Web site, or one of the other half-a-million to download it illegally. So why would the Band be crazy enough to offer it's brand new release for $0-$whatever? Well, it's not just because their one of the greatest bands of all time. Behind all the glory of the decision was marketing genius. In return for downloading the album from Radiohead's Web site, fans submitted personal information that the Band can now use to promote tours and merchandise (where most of their money is made). They now have data for 1.2 million of their fans. And on top of it all, 144,000 fans paid between $8 and $12 for the 10 tracks.

So where does this model of commerce fall into the realm of doable and not? Adweek pointed out the obvious that this kind of "pay what you want" model would create chaos in a Wal-Mart or Best Buy setting (60" Plasmas for free! Hell Yeah!). However, This sort of exchange has been taking place in other genres of trade besides music.

The Tera Bite Lounge in Kirkland, Wa is an upscale voluntary payment cafe/deli where you can get a sandwich, coffee, pastry, and pay what you wish - maybe you need caffeine, but you think their coffee sucks, you can just put in a $5er at the end of the week(I don't really know how their coffee taste). I never carry cash, and I'm always hungry, so it works out well for me. If you want more info, you can check em out at Terabite.org
As far as the marketing goes for this type of transaction, there is no data like Radiohead gets. But that's the plus - you pay what you want, no prejudice against you, no data gathered.

It appears the Radiohead model works best for digital commerce as far as marketing is concerned. Aime Street, an online music store, allows it's customers to decide prices in a different way - popularity. Artists can sell their music on the site, but everyone starts at the same low price of 49cents. The more the song is downloaded, the higher the price goes. It gives true value to the product; the price is truly determined by the market and not by the industry. It's also a great way to tell if your band sucks or not.

I think the "pay what you want" model is also a great way to understand the consumer on a deeper level. You can see how much they would be willing to pay for different kinds of product. You can then target them in a way that best enables you to milk them for all their worth. For the 12 percent of people who paid $8 to $12 for the Radiohead album they could have downloaded for free, what's to stop marketers from targeting that 12 percent with high priced/fixed priced merchandise. And for the 62 percent that downloaded it for free - hit those cheap bastards up with discounts/savings/etc.

So far Tera Bite Lounge has been able to stay in business, and Radiohead successfully disseminated their music and gained a bunch of valuable, marketable data.