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Pay what you want: does it work?

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This article also appeared in Finweek Magazine in their 09-May-2013 issue

Dave was in the market for a new car. One afternoon he happened to be driving past the Ferrari showroom when he thought: “Why don’t I take one for a test drive?” An hour later he returned from an exhilarating drive in a Ferrari 458 Spider, with the top down and the engine roaring like a caged panther. Dave was sold. He asked the manager: “So, how much will this one set me back?” The manager responded: “Tell me how much you want to pay….”

If you were like Dave, you probably would have also done a double take. Pay what you want for a brand-new Ferrari? Seriously?

As much as we wish it would, Pay What You Want (PWYW) has not penetrated the luxury sports car industry, at least not yet. But worldwide, more and more business people are experimenting with this controversial new business model across many industries: from restaurants, the music industry, to gaming and movies and free online services like Mozilla Firefox and Wikipedia. So far all of these industries centre around goods and services that don’t cost a lot. Could PWYW spread to industries with big ticket items like cars and property? More importantly, does the PWYW model work? And do the numbers make business sense?

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