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Dog Groomer Finds PWYW Promotion a Win-Win

February 2010 Pricing

Since August 2009, Urban Canine, located in the Wicker Park neighborhood of Chicago, has been letting dog owners use washing facilities, shampoo, ear-cleaning liquid, towels, and even blow driers for self-wash dog grooming at a price of the customer’s choosing.  How has this Pay What You Want (PWYW) promotion faired for Urban Canine?  I caught up with Tony Sauer, owner of Urban Canine, to understand how the program’s performance.

Self-Wash Pricing

UC2 Cropped

In the past, Urban Canine listed the price for the self-wash service at $18.  Under the PWYW promotion, customers can do exactly that, pay what they want.  Given this kind of latitude, it might be expected that the average price paid would drop significantly.  Has it?

Urban Canine reports that the most popular price paid has been $15.  Furthermore, no customer paid less than $10 for this service and some customers paid as much as $20 for the service.

Why do customers pay when they are not obliged to do so?  Mr. Sauer believes customers understand that this service does cost money to deliver and that it would be unfair to take advantage of this small business.  When it is time for customers to visit the cash register, Mr. Sauer simply asks them to “pay what it is worth”, and they do.  It seems that showering customers with directness and kindness is a sufficient motivator to get them to pay, even when they are not obliged to do so.

While Mr. Sauer won’t divulge profitability numbers for this promotion, he does state that it was well received by customers and he does intend to run it again in the future.

Why Customers Pay

There is much academic research into why customers might pay when they are not obliged to do so.  Typical factors investigated include issues of reference price, altruism, loyalty, price consciousness, satisfaction, and fairness.  Mr. Sauer believes fairness is a key driver.  He suspects that customers, who tend to live in the same neighborhood as his store, do not want to insult him with a low-ball offer.  In fact, 9 out of 10 times they ask if their offer is “OK”.  While he always responds with the affirmative, the fact that customers ask can be interpreted as a signal that they are truly trying to strike a fair exchange.
An alternative explanation may lie in the concept of a customer’s enlightened self interest.  Dog owners need to groom their dog.  Washing one’s dog at home can be challenging in an urban environment such as Chicago.  By supporting a local business where customers can wash their dog, these customers are co-investing in an effort to ensure that the service exists.  In this manner, it is in a PWYW customer’s enlightened self interest to contribute financially towards the assurance that the service is available.  Unfortunately, little academic research has been conducted to investigate the role of enlightened self interest in the willingness to pay within a PWYW business proposition.

Promotional ValueUC1Cropped

Like any other promotion, the PWYW self-wash should be measured by its ability to improve the brand value of Urban Canine as well as its profitability.  Mr. Sauer truly believes it does.

By the measure of what it communicates, the PWYW format, in terms of customer perception, has a tendency to make customers feel more positively with respect to Urban Canine.  Through exterior signage and direct conversations, the PWYW promotion has been partially positioned as part of an overall approach to provide customers with some relief as we exit the Great Recession.  In this manner, Urban Canine is signaling to their customers a more community oriented approach to surviving challenging times.

About 25% of Urban Canine’s PWYW customers were first time customers and not all of these new customers knew about the PWYW format prior to entering.  Only about half of this 25% were aware prior to reaching the cash register.

The remaining 75% PWYW customers were retuning clients who tend to be loyal.  Although their loyalty is not exclusively driven by the promotion, as other factors such as location and service are key drivers in selecting a method for grooming a dog, the PWYW format does engender a greater sense of camaraderie with the store.

Importantly, customers who experience the PWYW self wash tend to refer other pet owners to the store.  Hence, the PWYW format, due to its genuine uniqueness in the dog-grooming market, promotes word-of-mouth marketing.  For a small business, it is hard to find a more effective means of targeted promotion than repeat customers telling to prospective new customers about the offer.

As for cannibalization, the PWYW self-wash offer is made along side full-service dog-grooming offers.  Mr. Sauer doesn’t believe that the PWYW self-wash has cannibalized very many sales since it truly is a different service than one in which a dog is dropped off dirty and returned clean and neatly groomed.

Business Appropriateness

The PWYW format was successful for Urban Canine however it isn’t appropriate for every business.  Two factors have been investigated in the issue of business appropriateness:  ownership structure and cost structure.

Urban Canine is an owner operated small business.  Mr. Sauer’s customers know that it is his business and that his financial well-being is at stake.  Moreover, he doubts that such a format would work as well for a franchise or nationally branded operation simply because the customer has only a limited personal connection with the national franchise or national brand.

Moreover, the self-wash service is a low marginal cost / high fixed cost service.  While individual customers may use only a few dollars worth of consumables, the infrastructure required in terms of equipment and floor space are not insignificant.  As such, Urban Canine has significant incentive to improve capacity utilization.  The PWYW format did improve customer attraction and loyalty, hence, it is likely to improve profitability.  If the service was associated with high marginal cost however, such as Urban Canine’s full-service grooming, the financial risks of a PWYW format outweigh any anticipated gains.

Wash, Rinse, Repeat

Mr. Sauer finds the PWYW self-wash offer a win-win.  His customers are able to clean their dogs at a price they choose to afford. He gains more loyal customers and importantly, word-of-mouth marketing.

As spring arrives and business picks up, Mr. Sauer anticipates repealing the promotion.   When he does, he will use what he learned from the PWYW promotion and likely lower his price to $15 per self-wash.  But will he try the PWYW again?  Yep.  Expect it again in the summer.

Note

Mr. Sauer tried the PWYW format at the suggestion of Tim Smith, Managing Principal of Wiglaf Pricing.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
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