Lowering consumers’ price image without lowering their internal reference price: the role of pay-what-you-want pricing mechanism

Retailers often use monetary promotions (e.g., discounts) to sell excess capacity, increase short-term revenue, and create a low price image. However, the frequent use of discounting may lower consumers’ internal reference price, until consumers are not willing to pay anything above the promotional price. This issue can be solved by the use of participative pricing mechanisms, under which the retailer does not set an explicit price to be paid. The results of this experimental study indicate that participative pricing mechanisms, such as pay-what-you-want pricing, create a price image that is as low as the traditional posted price mechanism with discounts.