My experiments with pricing

I participated in the IIMB Alumni art show, Niram on the 30^th of April, 2012. The event was held as an adjunct to the annual convocation function. The exhibition was organized well but in my opinion, there was no clarity on who the intended audience were both on the part of the participants and on the part of the organizers. The graduating students were, understandably, more interested in enjoying the last few hours with their friends and in indulging the nostalgia coursing through the very buildings. The other major intended targets, the parents and significant others of the graduating students, did not arrive until 4:30. Even then, their hearts brimming with pride, they were focused on ensuring that they get a good seat to view their graduating offspring or friends and not viewing some art exhibition. At best it was a distraction and at worst, it was an impediment. Existing students and professors, stayed well way from all this highfalutin (sic) nonsense! I am not too sure that the show is commercially viable unless it focuses on servicing the nostalgia and pride.

That, partially, may explain the relative success I had in selling my photographs. I had put up about 30 standard sized images, printed on textured paper and unframed. As an experiment, I had decided that people could pay whatever they felt the photographs were worth, no questions asked, to buy it. The motivation for this was that the available marketing literature indicates that in most situations where this Pay-what-you-want (PWYW) method was adopted, the yield was higher than what they would have got if they had set a price dictated by micro economics.

I felt that Niram was a good place to try this admittedly uncontrolled experiment as there were other people exhibiting photographs to prime the price in the minds of the target audience and due to the nature of the occasion, a homogenous set of customers could be expected. (There was a surprise in this assumption, as you will see!) I felt fairly confident that I would be able to replicate the results that other PWYW experiments had indicated.

First, let me put you out of your misery and give the statistics. I will later try and explain what I saw from my limited knowledge of the processes that could have been at work.

The good news is that I sold 11 prints out of the 30. The not-so-good news is that I only got about 5000 rupees for the lot, representing an average of Rs. 450 per print. The lowest price was Rs. 30 and the highest was Rs. 1000. My prior experience had pegged the price at around Rs. 1000 for similar prints. My own expectation, from reading the literature, was an average of around 1250 or 1500.

I also was privileged to observe some interesting behaviour:

Most people were flummoxed by the idea. The struggle to be fair versus not overpaying was palpable. Each assumed a bargaining mode and hesitantly offered a price, expecting to be either rebuffed or to hear a counter offer. The arena of a fixed, customer determined price was completely new with no prior cues for behavior. Frankly, it was a new experience for me too. It was heartening to note that the start point was clearly an attempt to be fair and necessarily low because they expected it to devolve into a more familiar ‘bargain’ situation. Since I accepted whatever was offered, the price point, I believe, dipped. With education with the model, I am certain that it would be higher. Whether it would be higher than my ‘fair price’ is still open. (It would be an interesting exercise to get into an implied bargaining if the artist were to point out nuances of the work after the price is offered. Or before!)

While the number of copies sold were too low to draw any conclusions, most prints were purchased for gifting. At least one was sold for spot gifting. Therefore budget aspects may have also affected the price decision as opposed to a pure ‘value’ driven price.

The counter point was unintentionally provided by a couple staff of IIMB. They first thought it was a prank when they saw the PWYW sign. On being assured that it was indeed intentional, they thought it is an auction where they had to enter a bid for a print (I had a visitors log which may have prompted this thought.) and at the end of the day, the highest bid for a print will get it. (On second thoughts, this may be a very interesting way to structure this for non-perishable, non consumable goods). When it was clarified that they could indeed pay whatever they, it devolved into pure greed. One person started pointing out four or five prints and said he wanted to buy them for Rs 50 each. Another person pointed to a specific print and unbelievingly offered Rs 30. In a spirit of further experimentation, I limited the deal to one print each. Interestingly the first person chose a print that was not in his original list but did not change the price. To assure them that I will give the two prints for the price offered, I put the magic ‘Sold’ sticker on the prints and they went away very happy. I made it a point to tell them that they should not divulge what they paid to other staff.

Couple of observations on this entire transaction: (a) the first person did not amend his offer even after hearing his friend’s lower offer being accepted. (b) When this 15 minute drama was being played out, another person among the spectators informed them that such prints normally cost about Rs. 150. This information was assimilated but the offer did not change.

The after effect of this transaction was equally interesting. The first person brought along another colleague and told me “She did not believe me when I told her that there was this … person who was giving away prints at throwaway prices. So I brought her along.” (I distinctly got the impression that only decency considerations prevented him from using the word ‘fool’ instead of ‘person’!) They spent about 10-15 minutes to select a print. Once they made a decision I asked the purchaser what price she would offer. She said “Rs. 50”. I asked her if it is the price she thought the print was worth . She answered that the offer came because the other person got his print for Rs. 50. (Interestingly, she did not offer Rs. 30. Why, I don’t know!) I asked her if she knew what it cost me to print it. She said her colleague had told Rs. 100. So, I asked her if she thought it was fair to offer me 50 after knowing that I will make a loss. She blushed and both of them went away. None of the other staff came after that. I don’t know what to make of this and I wouldn’t dare to draw any conclusions but the price points still showed a twisted kind of fairness, in my opinion.

One of the other exhibitors made me the subject of his own experiment. He picked a print and said “No other person can evaluate an art’s worth. So, I will offer you one of my own works in barter.” When I said OK, he took a print and walked across to his stall and gave me two of his pieces, each priced at about Rs. 200. Interestingly he neither offered to let me choose nor did he give me his best or median works. I believe what he gave me was slightly above the lowest priced items in his stock. I think he basically gave whatever was cheapest to make for him. So, I infer that he valued it about Rs. 100. The approach was interesting.

The entire day was exceedingly interesting and enriching for all these experiences. I am intrigued by this gross difference in expectation and actuality. While it is impossible to conclude with any certainty without controlled experiments, I offer below my thoughts on the various factors influencing the price point.

In my opinion, and I need to verify this, a PWYW would only work for experience goods. Pricing for art in general and photos in particular, depend on factors which even experts find difficult to articulate. My expectation was that in the case of such credence goods, customers would start at a price higher than the market price due to uncertainly and fairness considerations.

Obviously, customers are cannier than that! Either that or they started a point lower than their budget to allow negotiation room, in case of people who were buying it as a gift. Impulse purchasers went from a base of their assessment of component costs and a reasonable margin, I think. The price of similar goods in the show had no effect on these prices as those pieces never entered their consideration set for a gift purchase due to their high cost. After the experience, I don’t think having to make the offer publicly has much impact on the price.

Essentially, I think for credence goods since they have no reference pricing mechanisms; they reached for the closest reasonable reference point in their experience.

I am also wondering what effect the standardized sizes had. I wonder if I had varying sizes of the prints customers would have risked a higher per unit price on a smaller print since they are not experienced in either the model or in art prices in general.

The behavior of the staff was the most interesting of all, in my opinion. I honestly think that they were of the opinion that I was a fool and should soon be parted from my money. There was a kind of fairness in their offers, a sort of internal consistency. I am struggling to explain it in any other terms. I am not sure it is actually culturally driven; more like the scent of a good deal blinding them to all other considerations. I have been there myself – purchased useless, expensive stuff because of the excellent deal. Saying it is ‘culture’ is, I think, being lazy.

In summary, if I had priced the prints at the Rs 1000 that experience indicates is the correct price, I think would have made the same money; may be I would even sold the same number of prints. It would have certainly been more familiar ground for my customers! On the whole, it was a very interesting experience!