Perceived Fairness and

Willingness To Pay for Sustainable

Products in Pay What You Want

Pricing

Tessa Simone de Leede | 10016341 | Words: 11,666

Supervisor: dr. A. el Haji

Second reader: dr. J.J. Ebbers

June 21th, 2016

Final version

MSc. in Business Administration | Entrepreneurship and Management in the Creative Industries | ABS, UvA

This document is written by Student Tessa de Leede who declares to take full responsibility for the contents of

this document. I declare that the text and the work presented in this document is original and that no sources

other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics

and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

Ethical consumerism is a rising movement. Among consumers there is a growing trend of

interest in ethical aspects associated with product consumption. As a result, today an

increased demand to legitimate its practices to society is experienced in every industry.

However, an intension-behavior gap still exists. Even though consumers want to buy in an

ethical manner, they often do not practice what they preach. They are expected to pay

premium prices while they experience a lack of information about these products. In previous

literature Pay-What-You-Want (PWYW) was presented as a mechanism to overcome this

problem. Some research argues that consumers perceive PWYW as more fair compared to

fixed prices. It was found that although consumers have the option to pay nothing, most of

them pay above zero. In this study, a field experiment was conducted at a Dutch sustainability

platform. The manipulation was designed according to a 2x2 design. It was found that a

perceived fairness of PWYW positively affected WTP. Contrary to what was expected, there

was no effect of underscoring the fairness of PWYW on the perceived fairness of PWYW. An

exception was the youngest group of participants, they were negatively influenced. Also,

participants in the charity treatment actually had a lower WTP, compared to other treatments.

This could partly be explained by the credibility of the product, brand, and pricing

mechanism. As expected, brand credibility had a positive effect on WTP. Some additional

effects were found and discussed.

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Table of Contents

1. Introduction 4

2. Literature Review 6

2.1 Ethical consumerism 6

2.1.1 Corporate Social Responsibility

2.1.2 Ethical consumption intention-behavior gap

2.2 Pay what you want

2.2.1 Willingness to pay in PWYW

2.2.2 Perceived fairness of PWYW

2.2.3 Cause-related marketing

2.2.4 Brand credibility

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7

8

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10

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13

3. Methodology 15

3.1 Data collection 14

3.2 Research design 16

3.3 Sample 17

4. Results 19

4.1 Descriptive statistics

4.2. Hypothesis testing

4.2.1 Hypothesis 1 – Perceived fairness

4.2.2 Hypothesis 2 – Underscoring fairness

4.2.3 Hypothesis 3 – Donation to charity

4.2.4 Hypothesis 4 – Brand credibility

4.3 Other effects

4.3.1 Controlling effects of perceived fairness of PWYW

4.3.2 Regression analysis for perceived fairness of PWYW

4.3.3 Interest and sustainability

4.3.4 Perceived fairness of price

4.3.5 Alternative explanations effect charity on WTP

4.3.5 Gender

4.3.6 Age

4.3.7 Regression analysis for WTP

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5. Discussion 37

5.1 WTP in PWYW

5.2 Perceived fairness

5.3 WTP for charity in PWYW

5.4 Credibility in PWYW

5.5 Limitations and implications

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38

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41

References 45

Appendices 49

Appendix 1: newsletter Goodclub

Appendix 2: survey flow

Appendix 3: treatments

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59

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1. Introduction

Interest in ethical products is becoming more prevalent. Nowadays, some consumers are not

only seeking for quality and esthetics while purchasing a product. They explicitly look for

products with social or environmental elements (Pelsmacker, Driesen & Rayp, 2006).

Retailers are aware that customers increasingly evaluate them according to their socially

responsible behavior and acknowledge their intermediary role in the marketing channel

(Schramm, Morschett & Swoboda, 2015). At the same time, there is evidence that suggests

that consumers are not willing to pay a premium price for these social or environmental

elements (Pelsmacker et al., 2006). This seems paradoxical since for example the high prices

for Fair Trade products are directly related to guaranteeing producers a fair wage (Araque-

Padilla, Montero-Simó, & Aragón-Gutiérrez, 2015). According to Nicolls (2002) this

unwillingness might partly be due to skepticism about the organization’s motives. To inform

consumers, organizations should therefore communicate about their ethical elements in such a

way that it is perceived as credible.

Moreover, Mendoza-Abarca & Mellema (2015) argue that organizations with a social

aim need to implement mechanisms that simultaneously can create social value and an

appropriate amount of economic value. They expect Pay What-You-Want (PWYW) to be a

promising mechanism. With PWYW, consumers themselves decide what price to pay for a

product (Kim, Natter & Spann, 2009). Because the consumer has full control over the price,

PWYW could be perceived as more fair than fixed prices (Kim et al., 2009; Mendoza-Abarca

& Mellema, 2015). However, the effect of the perceived fairness of PWYW on willingness to

pay (WTP) has not been measured yet.

This study measures to what extent the perceived (relative) fairness of PWYW could

be manipulated. Moreover, it examines the effect of these manipulations on WTP. Lastly, the

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study measures the influence of brand credibility on WTP. First, participants are explicitly

told why the organization thinks the pricing mechanism is fair. They might therefore feel

socially pressured to pay a fair amount of money (Gneezy, Gneezy, Riener & Nelson, 2012).

Second, participants are promised that a donation to charity is given. Consumers seem to be

willing to pay more for products when the seller promises to donate to charity (Gneezy et al.,

2012). However, it is not clear if this is still the case when the offered product itself has an

ethical element. Implementing PWYW for ethical products or social organizations has

received little attention in the literature. Gneezy et al. (2012) examined the effect of charity on

WTP at PWYW. In this study a combination is examined, i.e. the effect of perceived fairness

of the pricing mechanism and donating to charity for ethical products in PWYW. This leads to

the following research question: What is the effect of donating to charity and underscoring the

fairness of Pay-What-You-Want Pricing on the willingness to pay for ethical products under

Pay-What-You-Want Pricing?

By examining its potential in The Netherlands, the organization of this study – and

potentially others as well - might get motivated to implement PWYW. It is examined to what

extent consumers pay a higher price when a donation to charity is done and fairness is

underscored. Moreover, this experiment shows whether the credibility of the seller influences

the WTP. Therefore, this study provides implications in the PWYW field as well as in the

field of business ethics. Results might give organizations that consider to invest in business

ethics more insight about how to implement it.

This study is structured as follows. In the next section, previous research in ethical

consumerism and PWYW is outlined. Based on this literature, three hypotheses are

formulated. These hypotheses present potential conditions influencing the WTP in PWYW.

Then, the method and data collection of the online field experiment are described. The results

are outlined and discussed. Finally, a conclusion is presented.

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2. Literature review

2.1 Ethical consumerism

Ethical consumerism is defined as “the conscious and deliberate choice to make certain

consumption choices due to personal and moral beliefs” . More business oriented it means

that individual consumers can promote ethical corporate practices through their daily purchase

decisions (Auger & Devinney, 2007, p.362). With ethical consumerism both environmental,

business practices, and social justice are incorporated (Chatzidakis, Kastanakis &

Stathopoulou, 2016). Among consumers there is a growing trend of interest in ethical aspects

associated with product acquisition and consumption (Araque-Padilla et al., 2015). These

'ethical consumers', are concerned for both the product itself and for the possible effects of its

consumption. They feel responsible toward society and express these feelings with their

purchasing behavior, i.e. by buying products for their positive qualities or boycotting products

for their negative qualities (Pelsmacker et al., 2006). Shopping in alignment with their ethical

consumption values provides these consumers a sense of connection with who they are and

where they come from (Carrington, Neville and Whitwell, 2014).

Products with ethical attributes refer to those with explicit social elements (e.g.

protecting human rights, questioning world trade rules, or the promotion of social enterprises)

or environmental elements (e.g. reducing humans’ ecological impact, combating

environmental pollution, objecting genetically modified food, fostering animal welfare or

biodiversity). Two typical examples are Fair Trade and organic products (Araque-Padilla et

al., 2015).

2.1.1 Corporate Social Responsibility

Sustainability had been defined as "meeting the needs of the present without compromising

the ability of future generations to meet their needs" (WCED, 1987, p.43). Today there is

virtually no industry that has not experienced increasing demands to legitimate its practices to

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society at large. Companies have responded to this agenda by advocating Corporate Social

Responsibility (CSR) (Crane et al., 2013), in which context-specific organizational actions

and policies take into account stakeholders’ expectations and the triple bottom line

performance (i.e. economic, social, and environmental) (Aguinis & Glaves, 2012).

Also retailers are aware that their customers are increasingly evaluating them

according to their socially responsible behavior (Schramm-Klein et al., 2015). They are not

only held responsible for their own CSR activities. They also have to guarantee the

responsible behavior of all parties in the supply chain towards their consumers. Therefore, the

retailer acts as an intermediary in the marketing channel (Schramm-Klein et al., 2015). Biong,

Nygaard and Silkoset (2010) describe retailing as a ballot box for ethical decisions, in which

consumers ‘vote’ with their shopping carts. Moreover, customers may rely on the retailers

reputation to confirm that a product is ethical, since they do not have the resources to examine

this themselves. Hence, the credibility of the retailer is important in the marketing of ethical

products (Pearson & Henryks, 2008).

2.1.2 Ethical consumption intention-behavior gap

Despite the ethical consumerism movement, ethically-minded consumers rarely purchase

ethically (Carrington et al., 2014). Consumers’ buying behavior is not consistent with their

positive attitude toward ethical products (Pelsmacker et al., 2006). Carrington et al. (2014)

call this the 'intention-behavior gap', a misalignment between ethical intentions and actual

behavior. They identified the following obstacles: (1) alternative personal values, (2) extant

habits, (3) inability to form plans, (4) unwillingness to sacrifice, (5) lack of available

information and an unwillingness to conduct effortful searches for information, and (6) the

distraction of the situational environment in effortful and spontaneous shopping modes.

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According to the fourth reason, one of the major sacrifices consumers have to make is

financially. They are required to pay a premium price to contribute to what is supposed to be a

valuable social cause. It assumes that their purchase is more due to a desire to make socially

responsible choices than for price reasons (Araque-Padilla et al., 2015). Pelsmacker et al.

(2006) found in their experiment in Belgium that a mere 10% of participants is prepared to

pay a price premium for Fair Trade coffee. In addition, Schmeltz, Bishop, and Gruen (2014)

found in their experimental auction that 30% of participants bid significantly more for pro-

environmental wine (i.e. high premium price group), compared to regular wine. More

interestingly, 28% bid significantly less for the pro-environmental wine, compared to regular

wine. Those participants saw low social or emotional benefit in the pro-environmental

product. Araque-Padilla et al. (2015) found in their study that that the perceived value of a

product decreased as the price increased. In order of importance, the perceived ethics, quality,

and healthiness of the product attenuates this relationship.

This highlights the importance of informing consumers about ethical (as well as

quality and health) aspects of the product, in line with the fifth reason of the intention-

behavior gap. Araque-Padilla et al. (2015) argue that due to lack of information, skepticism

and a lack of perceived utility of ethical products exists. Nicolls (2002) state that

communication of the human element of sustainability should allow the individual consumer

to give them the feeling that they make a difference. Consumers then make the commitment

of regular purchase behavior and develop brand loyalty.

2.2 Pay what you want

Pay-What-You-Want (PWYW) simply means that the buyer decides on the price of an offered

product. Regardless of the amount paid (even zero), the seller accepts the buyer's price and

the transaction automatically proceeds (Kim et al., 2009). Long-existing examples where

PWYW has been used are street music (Jang & Chu, 2012), museums and charity. Nowadays,

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the pricing mechanism is being used in several other industries (i.e. new music albums online,

lunches, theatre, and amusement parks) (Schmidt, Spann & Zeithammer, 2014).

Schmidt et al. (2014) name three main reasons why PWYW could be an attractive

pricing strategy. First, PWYW is a means of endogenous price discrimination (i.e. different

consumers pay different prices for the same products). Second, PWYW is suitable for

organizations seeking to maximize unit sales (e.g. to sell a complementary product, enter new

markets, realize experience curve gains, or achieve network effect). Lastly, PWYW can be

used as a competitive strategy (e.g. undercutting competition using posted prices by not

competing on price). Additionally, Kim et al. (2009) mention that because of its novelty

PWYW may be used as a marketing instrument for new businesses. It may increase the

chance of word of mouth and build a positive price image among consumers.

2.2.1 Willingness to pay in PWYW

Although consumers are allowed to pay nothing, recent studies on PWYW (in different

industries) repeatedly show that the price paid is significantly higher than zero (Kim,

Kaufmann & Stegemann, 2014). Gneezy et al. (2012) explain that people choose to pay

because they feel it is the right thing to do. The payment depends on social norms. In face-to-

face situations, paying in PWYW signals the morality of the person to others. Moreover, the

payment serves to maintain their positive self-image. According to the self-signaling model,

people feel uncertain about their true identity and use their actions to recall their beliefs. As a

result, people would rather avoid a situation in which they violate the norm by choosing not to

buy the product. If they do choose to purchase, they often choose to pay a fair price that does

not have a negative effect on their self-image (Gneezy e al., 2012). In addition, Kunter (2015)

found that in his empirical studies that guilt has a stronger effect on PWYW prices than

shame.

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Kunter (2015) was the first to study the impact of simple textual cues on PWYW

payments. He found that participants who saw statements about satisfying the seller and

wanting to be fair towards the seller paid the highest amount of money on average. However,

most textual cues did not change PWYW payments. Contrary, Pruckner and Sausgruber

(2008) found that implementing the sign “Thank you for being honest” induces higher

payments. Yet, it did not decrease the number of zero-payments. Kunter (2015) acknowledged

that the effects of other cues might have overwhelmed the textual cue, because the field

experiments took place in a zoo. In online field experiments, participants should be less

overwhelmed with cues. Besides, the effect of text cues on the perceived fairness of PWYW

has not been researched yet.

2.2.2 Perceived fairness of PWYW

Price fairness refers to the perceived fairness judgment of a buyer about a seller’s prices. It is

part of a broader judgment of the overall merits from the transaction (Haws & Bearden,

2006). Consumers may prefer PWYW because of the level of control that is offered. When

playing a role in the price-setting, consumers have greater fairness perceptions (Kim et al.

2009). This assumption is based on the finding that prices set through bidding were perceived

as more fair than posted prices. However, bidding is quite different from PWYW, since you

do not have the guarantee that you will own the product after bidding. At PWYW the product

is yours for any price you offer. This indicates that PWYW would even be perceived as fair

when a consumer receives the product for a price below cost price.

For ethical products, PWYW could be perceived as more fair compared to fixed

prices, because of the high initial pricing of these products. Social organizations aim to realize

their social mission by selling products. This makes them financially dependent. Pricing too

low could therefore threaten the social organization’s ability to sustain its operations. Besides,

high prices are largely related to guaranteeing producers a fair price for ethical products.

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Nevertheless, most consumers are unwilling to pay a premium price for them (Araque-Padilla

et al., 2015). A price that is perceived as too high may signal to customers that the

organization is merely using the social mission as a device to maximize its own profits.

Therefore, social organizations need to implement mechanisms that can create social value

and an appropriate amount of economic value simultaneously. PWYW gives consumers the

opportunity to decide for themselves how much they want to contribute to the social mission

(Mendoza-Abarca & Mellema, 2015).

In this study it is examined whether underscoring the fairness of PWYW affects the

perceived fairness of the pricing mechanism, and whether this perceived fairness has an effect

on the WTP.

H1: Consumers are willing to pay more for ethical products in PWYW when they perceive the

pricing mechanism as more fair.

H2: Consumers perceive PWYW as a more fair pricing mechanism when this fairness is

underscored, rather than when it is not underscored.

2.2.3 Cause-related marketing

Cause-related marketing implies that linking product sales to a charitable cause can serve as a

marketing tool (Koppel & Schulze, 2013). Previous studies found that consumers who

perceive products to be highly related to a social cause also extract more benefits from the

transaction (Mendoza-Abarca & Mellema, 2015). Likewise, charity auctions in which a

percentage of the price is donated to charity increase positive feelings from supporting the

mission for altruistic consumers. Additionally, it made them willing to place higher bids

(Elfenbein & McManus, 2010). According to Gneezy et al. (2012), this also seems to be the

case for PWYW. They found that people’s WTP is higher when half of their payment goes to

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charity. At the same time, consumers are more likely to make small donations linked to the

purchase of a product rather than independently to a donation box (Koppel & Schulze, 2013).

By purchasing a product that is linked with a social cause, the customer implicitly donates

money to the cause. This is in line with ethical consumerism, where the more ethical products

you buy, the more ‘good’ you do for planet, people and profit (Low & Davenport, 2006).

It has not yet been examined if a donation to charity still provides a higher WTP if the

product has a social element as well. Purchasing an ethical product with an additional

donation to charity might increase the positive feelings from supporting the mission.

However, it could also be the case that consumer who buy an ethical product may already

perceive its purchase as a way of supporting the mission, e.g. a fair wage for everyone or

carbon free consumption. Moreover, an additional donation to charity may even signal to

customers that the seller is using the social mission as a device to maximize its own profits.

Besides, in the study of Gneezy et al. (2012) fewerparticipants chose to buy the

product when they promised a donation to charity. As Jang and Chu (2012) explain,

consumers are willing to increase the fairness of a transaction with some additional cost (i.e.

by paying an appropriate amount of money). However, they tend to give up when they

perceive this cost as too high, as already explained by the average unwillingness to pay a

premium price. Consumers would rather not receive the product than risk paying too little and

damage their positive self-image.

Therefore, the perceived fairness seems to be even more important when consumers

buy a PWYW product that is linked to a social cause. Some researchers examined the effect

of cause-related marketing in PWYW (e.g. Gneezy et al., 2012). No studies have been found

which focused on PWYW for ethical products. In this study the WTP for ethical products in

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PWYW is measured. Moreover, it is examined to what extent a donation to charity affects this

WTP.

H3: Consumers are willing to pay more for ethical products in PWYW when a donation to

charity is made, rather than when it is not made.

2.2.4 Brand credibility

A broad definition of credibility is “the believability of an entity’s intentions at a particular

time”. It consists of trustworthiness and expertise. Brand credibility refers to “the believability

of the product position information contained in a brand”. Trustworthiness of a brand has a

positive effect on the likeability of preferring the brand. (Erdem & Swait, 2004, p. 192).

This perceived trustworthiness makes organizations scared to communicate about

CSR, due to a skeptical society. When consumers are skeptical about the credibility of the

information, a negative effect may occur. When consumers have reasons to doubt the

organization’s motives for CSR, they evaluate the organization more negatively than when it

does not engage in CSR (Castaldo, Perrini, Misani, & Tencati, 2009). When consumers hear

about CSR from the organization itself and perceive that the organization obtains high

benefits from it, this backfire effect is most likely (Yoon, Gürhan-Canli & Schwarz, 2006).

At the same time, prior research suggests that there is still lack of information of

ethical products. For organizations to differentiate themselves with social attributes,

consumers must be fully aware of them. If consumers are not aware of the social attributes of

a product, they might purchase a similar product without these aspects (McWilliams & Siegel,

2001). McWilliams and Siegel (2001) state that organizations not only should do good (i.e.

actually implementing CSR), but also talk about doing good. Therefore, they state that

advertising plays an important role for ethical consumers. The rise of the Internet gives

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markets the chance to reduce the information asymmetry by using advertisement (Granados &

Gupta, 2013). Eventually, it is the perceived trust that accounts for the success (or the failure)

of a socially oriented company (Castaldo et al., 2009).

In Schmidt et al.’s (2014) experiment a significant fraction of PWYW participants

paid for the strategic reason to keep the seller in business. They assume that an effortful,

friendly seller may induce a buyer to pay more. Additionally, as mentioned above, ethical

consumers want to support retailers who act in an ethical manner. It could therefore be

expected that more participants want to keep the seller in business when they perceive them as

ethical. This is in line with Kunter’s (2015) expectation that the effect of pro-social cues on

WTP is moderated by the reputation of the seller. Therefore, in this study brand credibility is

taken into account. This leads to the following hypothesis.

H4: Consumers are willing to pay more for ethical products in PWYW when they perceive the

brand as credible, rather than not credible.

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3. Method

3.1 Data collection

In this study a field experiment was conducted to measure the WTP for an ethical product

under PWYW. Contrary to laboratory experiments, in field experiments control is more

challenging. However, it gives a researcher the opportunity to observe its effect in practice,

and is therefore more realistic. Because of this realism, field experiments provide a lot of

practical implications (Saunders, Lewis & Lewis, 2012).

The platform adopted for this study was Goodclub. It is a Dutch platform for people

with a sustainable mindset. Goodclub sells products with social as well as environmental

elements. Although it would be relevant to find out the difference between them, in this study

different measures are done for one specific ethical product with environmental elements. It

was expected that due to the seller’s sustainable emphasis and participants’ interest in this

topic unethical behavior (i.e. paying an unfair price) was less likely. The ethical product was a

sustainable water bottle from the brand ‘MiZu’. The data were collected through a Qualtrics

survey, which was assigned for this experiment. It was conducted through the weekly

newsletter of Goodclub. The newsletter was send to approximately 45.000 participants on

March 4th

, 2016 07:00 p.m. The water bottles were sold out after twenty hours, and therefore

the survey was closed on March 5th

, 2016 01:00 p.m.

The experiment proceeded as follows. First, after reading a short introduction about

the experiment, members of the newsletter could participate in the experiment by clicking on

the invitation link (Appendix 1). Second, participants received an explanation about the

procedure of the experiment (Appendix 2) Third, participants were randomly allocated into

one of the four treatments. They were shown the product and some additional information

about the sustainable element of the product. Depending on which treatment they were in,

participants also saw an announcement about a donation to charity or a text box that

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underscored the fairness of PWYW according to Goodclub. This is further explained in the

part below, as well as shown in Appendix 3. Fourth, participants were asked which color they

preferred, what price (zero was possible) they thought was appropriate with shipping costs

included, and if they would actually purchase the water bottle for that price. Fifth, seven or

eight statements were shown, depending on the treatment. The statements contained the

perceived interest in the product, sustainability of the product, fairness of the price, fairness of

PWYW, relative fairness of PWYW compared to fixed prices, trustworthiness of Goodclub,

and (if assigned to charity treatment) additional value of charity. Participants were asked to

indicate to what extent they agreed with the statements. A five-point Likert Scale was used

(i.e. strongly agree – strongly disagree). Sixth, those participants that wanted to purchase the

product were asked to enter their personal information. They were also asked if they could

name their motivation to buy the product. The survey ended for them with a thank you note

and a confirmation that the product would be sent within ten working days. Thereafter, they

were automatically sent to the webpage of Goodclub, i.e. www.goodclub.nl. Participants who

did not want to purchase the product were only asked about their gender and age. The survey

ended for them with a thank you note, after which they were automatically sent to the

webpage of Goodclub. Thus, the survey slightly differed between participants that did (not)

purchase the product. See Appendix 2 for the whole survey.

3.2 Research design

The field experiment had a 2 x 2 design containing four different treatments. The participants

were randomly divided among the four treatments (Table 1, Appendix 3).

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Underscoring fairness

No Yes

Charity

No T1 T2

Yes T3 T4

Table 1: Experimental Design

In the charity condition the price paid by the subject went to charity, i.e.

‘Milieudefensie’. Since 1971 Milieudefensie has been working toward a more sustainable and

fair country. The association now contains 84,000 members and donors. This price was paid

in ‘Goodcoins’, an imaginary currency that can be converted into real money. Members

receive a Goodcoin as a reward for ‘doing good’, in this case buying a product from one of

Goodclub’s partners. Every Goodcoin equals one euro in the Goodclub shop. They can be

saved, traded for new ‘good’ products, or donated to charity. Participants were familiar with

Goodcoin, as Goodclub has been using this currency for years. For the underscored fairness,

the content that was communicated was written by the researcher and approved by an

employee the Goodclub.

3.3 Sample

The sample size (N) was 559. Some participants were filtered out. First, 213 participants had

missing data on the first statement. Since the statements were mandatory to fill out, missing

values meant incomplete surveys. There was no significant difference between the different

treatments for the incomplete surveys (p= .309), i.e. treatment 1: 23.4%, treatment 2: 30.1%,

treatment 3: 24.6%, and treatment 4: 23.1%. Second, from the participants who wanted to

purchase the product, some did not fill out their personal information (N= 68).

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Gender and age

The answers about gender from participants that purchased and did not purchase the product

were merged together into one dummy variable. The sample consisted of 61.4% females.

Participants were asked in which year they were born. The answers on this question from

participants that purchased and did not purchase the product were also merged together. Since

the experiment took place in the first week of March 2016, age was determined by subtracting

the year of birth from 2015. Therefore, only participants born in January or February are

shown as one year younger than in reality. The unlikely ages of 108, 114 and 115 and all

unanswered values were categorized as missing variables (N= 5). Without these missing

values, the mean age was 48 years with 13 years as youngest and 85 years as oldest

participant (SD= 13.33). When ages are categorized (i.e. <20, 20-40, 40-65, 65-80, 80+), the

category 40-65 consisted 61.9% of the sample (N= 346). As the youngest (N= 11) and the

oldest (N= 7) categories consisted of too few people, ages are redistributed with an interval of

24 years, i.e. <37 (N= 132), 37- 61 (N= 331), 61+ (N=96).

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4. Results

4.1 Descriptive statistics

Willingness to Pay

In Table 2 the descriptive statistics are outlined. The average price participants indicated to be

appropriate (WTP) for the water bottle was 11.35 euro, with a minimum of zero euros and a

maximum of 35 euro (SD= 5.06). Only 1.6% of participants were willing to pay zero euro.

When the price of zero euro was omitted, the average price was 11.53 euro (SD= 4.89) with a

minimum of 1.00 euro. The average WTP in the four treatments ended between 10.81 and

11.67 euros.

Purchase

Only 37.9% of the participants wanted to purchase the product for the chosen price.

Participants who purchased the water bottle, had a significant lower WTP than participants

who did not purchase the water bottle. This effect size was moderate and significant (F

(1,557) = 55.651, p < .000, η² = .09). The costs of the product for Goodclub were 14.52 euros

(i.e. 8.57 euros for production and 5.95 euros for sending). Therefore, on average one product

had a loss of 5.12 euros. As 81.6% of participants offered less than the costs of the product,

this experiment resulted in a loss. Moreover, the product is usually sold for 26.98 euros,

including sending. No purchasing participant offered this amount of money or more. For

purchasing participants, the average WTP in the four treatment was between 8.63 and 10.41

euros.

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Participants N % WTP (€) SD Minimum (€) Maximum (€)

All 559 100 11.35 5.06 0.00 35.00

No zero euro 550 98.4 11.53 4.89 1.00 35.00

Purchasing 212 37.9 9.40 5.05 0.00 25.00

Not purchasing 347 62.1 12.54 4.69 0.00 25.00

Base treatment 142 25.4 11.83 5.18 1.00 35.00

Charity treatment 133 23.8 11.05 4.99 0.00 25.00

Fairness treatment 143 25.6 11.67 5.00 0.00 29.00

Charity and fairness treatment 141 25.2 10.81 5.07 0.00 25.00

Table 2: descriptive statistics of WTP

Statements

Table 3 and Table 4 outline the results of the extent to which participants agreed with the

seven statements (1: Strongly agree – 5: Strongly disagree).

Statement Mean SD Purchasing participants SD

Trustworthiness Goodclub 2.03 .71 1.94 .71

Fairness price 2.17 .79 2.33 .90

Sustainability water bottle 2.06 .78 1.89 .70

Fairness pricing mechanism 2.76 .86 2.68 .87

Relative fairness pricing mechanism 2.93 .91 2.88 1.00

Familiarity with pricing mechanism 3.29 1.14 3.40 1.34

Interest product 2.72 1.16 1.79 .62

Table 3: descriptive statistics of statements

Statement T1 SD T2 SD T3 SD T4 SD

Trustworthiness Goodclub 2.00 .74 2.05 .66 2.06 .75 2.02 .68

Fairness price 2.12 .73 2.21 .69 2.22 .84 2.15 .89

Sustainability water bottle 2.10 .85 2.13 .71 2.01 .73 1.99 .80

Fairness pricing mechanism 2.68 .87 2.74 .85 2.78 .88 2.84 .84

Relative fairness pricing mechanism 2.85 .95 2.93 .90 2.96 .86 2.99 .93

Familiarity with pricing mechanism 3.30 1.32 3.41 1.24 3.27 1.40 3.17 1.93

Interest product 2.84 1.25 2.73 1.10 2.69 1.16 2.62 1.11

Table 4: descriptive statistics of statements per treatment

21

4.2 Hypotheses testing

4.2.1 Hypothesis 1 – Perceived fairness

H1: Consumers are willing to pay more for ethical products in PWYW when they perceive the

pricing mechanism as more fair.

Perceived fairness PWYW

Participants were asked whether they thought the pricing system was fair (fairness PWYW)

and more fair than fixed prices (relative fairness PWYW). The two statements have a strong,

positive correlation (r=.63, N=559, p<.001). The alpha coefficient is .772 and corrected item –

total correlation is .629. This suggests that the statements have an acceptable internal

consistency. Scale variance increases for both variables if an item is deleted. The items are not

taken together as a factor for the fairness of the system. Yet, the statements both seem to

measure the perceived fairness of the system.

Nearly half (42.2%) of the participants neither agreed nor disagreed with fairness

PWYW (M= 2.76; SD= .859). Likely, 45.4% of participants neither agreed nor disagreed with

relative fairness PWYW (M= 2.93; SD=.907). When the third value (i.e. Neither agree nor

disagree) was named as missing value, the sample size became 323. Of those participants

67.8% thought the pricing system was fair, 53.8% thought the pricing system was more fair

than fixed prices.

Effect of perceived fairness PWYW on WTP

There was a weak significant effect of fairness PWYW on WTP (F(4,554) = 4.885, p= .001,

η² = .03). Tukey post-hoc test revealed that this effect was only significant between the two

highest and lowest prices (.004 < p < .025). For relative fairness PWYW this effect is weak

and significant as well (F(4, 554) 5.203, p< .001, η² = .04), and was only significant between

the lowest price and the three highest (.001 < p < .033). Participants that neither agreed nor

22

disagreed with relative fairness PWYW paid the highest amount (M=12.09; SD= 5.00) and

participants that strongly disagreed the lowest (M= 7.44; SD= 7.75), see Figure 1.

Figure 1: perceived (relative) fairness PWYW and WTP

When only purchasing participants were taken into account, the size effect became

moderate for both fairness PWYW (F(4, 207) 5.353, p< .001, η² = .09) and relative fairness

PWYW (F(4, 207) 3.507, p= .009, η² = .06), see Figure 2. For both statements, the effect is

only significant between participants that strongly disagreed, compared to the other levels

(.002 < p < .030). Only for perceived fairness of PWYW, the difference between participants

that disagreed and strongly disagreed was not significant for WTP either (p= .081). Thus, H1

is adopted.

Figure 2: perceived (relative) fairness PWYW and WTP for purchasing participants

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4.2.2 Hypothesis 2 – Underscoring fairness

H2: Consumers perceive PWYW as a more fair pricing mechanism when this fairness is

underscored, rather than when it is not underscored.

Underscoring fairness

An additional text box which explained the fairness of PWYW (underscoring fairness) was

implemented in two treatments, i.e. only underscoring fair (N= 143) and charity plus

underscoring fairness (N= 141), see appendix 3. There is no effect of underscoring fairness on

fairness PWYW (F(1, 557) 1.791, p=.181, η² = .00) nor relative fairness PWYW (F(1, 557)

1.213, p=.271, η² < .01). This effect is also no significant effect if only purchasing

participants are taken into account (p= .115). Moreover, there is neither a direct effect of

underscoring fairness on trustworthiness Goodclub (p= .181), nor fairness price (p= .771).

Thus, H2 is rejected.

Interaction effects underscoring fairness on fairness PWYW

The interaction effect of gender on the effect of underscoring fairness on fairness PWYW was

not significant (p= .343). The interaction effect of age on the effect of underscoring fairness

on fairness PWYW was significant (b= -.013, t(550) -2.132, p=.034), but only for the

youngest third of participants (b= .107, t(550) = 2.55, p= .011). One way ANOVA showed

that participants younger than 42 years who were not in the underscoring fairness treatments

significantly stronger agreed with fairness PWYW (M= 2.70; SD= .890) than who were in the

underscoring fairness treatments (M= 3.03; SD= .835), see Figure 3.

Figure 3: amount of participants < 42 years with extend of agreement on fairness PWYW

10

20

30

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(Strongly) agree Neither agree nor disagree (Strongly) disagree

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There were no interaction effects of interest (p= .465) nor sustainability (p= .078).

Neither were there interaction effects of trustworthiness Goodclub (p= .778), fairness price

(p= .771), nor interest (p= .184) for the effect of underscoring fairness on fairness PWYW.

For relative fairness PWYW, no interaction effects were found for the above mentioned

variables, i.e. gender (p= .111), age (p= .289), interest (p= .137), sustainability (p= .248),

trustworthiness Goodclub (p= .778), and fairness price (p= .771).

There was no direct effect of underscoring fairness of PWYW on WTP (p= .617)

neither for participants younger than 42 years (p= .487). There was also no interaction effect

of the perceived (relative) fairness of PWYW on the effect of underscoring the fairness of

PWYW on WTP (p= .069), neither for participants younger than 42 years (p= .111)

4.2.3 Hypothesis 3 – Donation to charity

H3: Consumers are willing to pay more for ethical products in PWYW when a donation to

charity is made, rather than when it is not made.

Donation to charity

A donation to charity was implemented in two treatments, i.e. only charity (N= 133) and

charity plus underscoring fairness (N= 141). Participants in the charity treatments paid less

(M= 10.93; SD= 5.02) than participants in the treatments without charity (M= 11.75;

SD=5.08). However, the effect of charity on the willingness to pay was only significant on a

90% confidence interval (F(1, 557) 3.713, p= .055, η² = .01). When purchasing participants

alone are taken into account, there is a small effect for WTP (F(1,210) 4.738, p= .031, η² =

.02). Purchasing participants in the charity treatment paid a significant lower price (M= 8.66;

SD= 5.04), compared to the other treatments (M= 10.16; SD = 4.96), see Figure 4. Therefore,

H3 is rejected. More importantly, the results show that there is evidence of an opposite effect.

Consumers seem to pay a lower price for ethical products in PWYW when a promise to

25

donate to charity is added, rather than when it is not added. The results of H4 might explain

this paradoxical effect.

Figure 4: WTP for treatments with (no) charity

There was no interaction effect on the effect of charity on WTP for age (p= .527), nor

gender (p= .615), neither when only looking at purchasing participants (age: p= .570; gender:

p= .246).

4.2.4 Hypothesis 4 – Brand credibility

H4: Consumers are willing to pay more for ethical products in PWYW when they perceive the

brand as credible, rather than not credible.

Brand credibility

Participants were asked whether they thought Goodclub is trustworthy. There is a weak

significant effect of the perceived trustworthiness of Goodclub on WTP (F(4, 554) 5.605, p<

.001, η² = .04). Participants that strongly agreed paid a higher price (M= 12.58; SD= 5.67),

than participants that neither agreed nor disagreed (M=9.71; SD=5.06) and strongly disagreed

(M= 10.50; SD= 2.12). Purchase had a significant interaction effect on the effect of

trustworthiness Goodclub on WTP (b= -.127, t(555) -2.018, p= .044), see Figure 5. Thus, the

effect of trustworthiness Goodclub on WTP was stronger for purchasing participants

(F(2,209) 13.164, p < .001, η² = .11) than for participants that did not purchase the product

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26

(F(4, 342) 2.345, p= .054, η² = .03). For participants that did not purchase the product, this

effect was only significant on a 90% confidence interval. Thus, H4 is adopted.

Figure 5: difference in WTP between relative difference in trustworthiness Goodclub.

Purchasing participants that strongly agreed paid a higher amount (M= 11.30; SD=

5.65) than participants that neither agreed nor disagreed (M= 6.54; SD= 4.93). There were no

purchasing participants that (strongly) disagreed with trustworthiness Goodclub. Therefore,

Figure 5 only displays the relative high and low trust in Goodclub.

4.3 Other effects

Some additional effects were found and are discussed in the following section.

4.3.1 Controlling effects of perceived fairness of PWYW

Familiarity PWYW

Participants were asked whether they agreed that they were already familiar with the pricing

system (familiarity PWYW). Of all participants, 36.5% (strongly) agreed they were already

familiar with PWYW. There was a very weak statistically significant effect of familiarity

PWYW on variable fairness PWYW (F(4,554) 3.532, p= .007, η² = .03). Tukey post-hoc tests

revealed that the amount to which the participants agreed with fairness PWYW to be

significantly stronger in the group that strongly agreed with familiarity PWYW (M=2.40;

N=52; SD=1.07), compared to those who disagreed (M= 2.83; N= 151; SD= .80; p= .015)

and strongly disagreed (M= 2.88; N= 133; SD= .90; p= .006).

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27

Trustworthiness of Goodclub

There were only four participants that (strongly) disagreed with trustworthiness Goodclub.

Therefore, a dummy variable was made for participants that (strongly) agreed. The effect of

trustworthiness Goodclub on fairness PWYW was significant (F(1,557) 9.170, p=.003, η² =

.02). The amount to which participants agreed with fairness PWYW was significantly

stronger in the group that (strongly) agreed with trustworthiness Goodclub (M= 2.70; SD=

.83), compared to those who did not (M=2.96; SD= .92). For relative fairness PWYW, this

effect was only significant on a 90% confidence interval (F(1,557) 3.029, p= .082, η² = .02).

When only purchasing participants were taken into account, there is a very weak

significant effect for both fairness PWYW (F (1,210) 8.365, p= .004, η² = .02) and relative

fairness PWYW (F (1, 210) 4.301, p= .038, η² = .02). From purchasing participants that

(strongly) agreed that Goodclub was trustworthy (N= 424) 48.5% (strongly) agreed with

fairness PWYW and 39.4% with relative fairness PWYW, compared to 27.7% and 29.8% of

other purchasing participants.

Interest product

There is a very weak significant effect of the interest in the product on fairness PWYW

(F(4,554) 2.775, p= .026, η² = .02) and relative fairness PWYW (4,554) 2.764, p=.027, η² =

.02). Looking at the effects the other way around, relative fairness PWYW has a low

significant effect on interest (F(4, 554) 5.257, p< .001, η² = .04). Participants that strongly

agreed with interest product also stronger agreed with relative fairness PWYW (M= 2.18;

SD= 1.40).

Fairness price

There is a moderate significant effect of the perceived fairness of the offered price (fairness

price) on fairness PWYW (F(4, 554) 11.819, p < .001, η² = .08) and relative fairness PWYW

28

(F (4,554) 12.121, p < .001, η² = .08). Participants that (strongly) agreed also stronger agreed

with fairness PWYW and relative fairness PWYW, and the other way around.

When only purchasing participants are taken into account, there is a high effect size

for both fairness PWYW (F (4, 207) 8.718, p < .001, η² = .14) and relative fairness PWYW (F

(4, 207) 12.452, p < .001, η² = .19). From purchasing participants that strongly agreed with

fairness price 65.4% (strongly) agreed with fairness PWYW and 53.8% with relative fairness

PWYW, compared to 14.3% and 0.0% of purchasing participants that strongly disagreed.

Sustainability product

There is a very weak significant effect of the perceived sustainability of the product

(sustainability product) on fairness PWYW (F(4, 554) 4.330, p= .002, η² = .03) and relative

fairness PWYW (F (4,554) 4.161, p= .002, η² = .03). From participants who strongly agreed

with the sustainability of the product 44.0% (strongly) agreed with fairness PWYW and

29.6% with relative fairness PWYW, compared to 20.0% and 0.0% of participants who

strongly disagreed.

4.3.2 Regression analysis for perceived fairness PWYW

The predictors in Model 1 explained for 12.3% the total variance in the perceived fairness of

PWYW (p < .001). Only the statement about the trustworthiness of Goodclub did not have

significant Beta value (p=.639). After entering gender and age, Model 2 was significant as

well (p < .001) and explained 13.6% of total variance. However, gender did not have a

significant Beta value (p=.146). Therefore, both trustworthiness Goodclub and gender were

omitted from the model. The final model explained 13.1% of the total variance in fairness

PWYW. All five predictor variables (i.e. familiarity PWYW, trustworthiness Goodclub,

fairness price, interest product, and sustainability product) were statistically significant (<.001

29

< p < .031), see table 5. The more participants agreed with the statements, the more they

agreed with the fairness of PWYW.

Model 1 Model 2 Model 3

Familiarity PWYW .076 (.026)*** .081 (.026)*** .086 (.026)***

Trustworthiness Goodclub .024 (.052) .063 (.053) .

Fairness price .294 (.045)*** .267 (.045)*** .280 (.044)***

Interest product .086 (.031)*** .094 (.032)*** .099 (.031)***

Sustainability product .114 (.048)** .118 (.048)** .131 (.047)***

Gender . .104 (.071) .

Age . -.006 (.003)** .006 (.003)**

R2 .123*** .136*** .131***

dF 5 7 5

F 15.503 12.286 16.554

*p < 0.1, **p < 0.05, ***p < 0.01

Table 5: hierarchical multiple regression for fairness PWYW

Likewise, the same predictors were entered in a hierarchical multiple regression for

relative fairness PWYW. Model 1 explained for 10.0% of the total variance and was

statistically significant (p < .001). Both trustworthiness Goodclub (p= .331) and familiarity

PWYW (p= .614) did not have significant Beta value. After entering gender and age, the

model was still significant (p < .001) and explained 12.7% of total variance. Both

trustworthiness Goodclub (p=.769) and awareness (p=.340) still did not have significant Beta

value and were omitted from the model. The final model explained 12.6% of the total

variance for the extent to which participants agreed that PWYW is more fair than fixed prices.

Three out of four predictor variables (i.e. fairness price, interest product, age, and gender)

were statistically significant. Only sustainability product was not significant (p=.105). The

more participants agreed with the statements, the more they agreed with the fairness of

PWYW. Moreover, of all males 34.7% (strongly) agreed with the relative fairness of PWYW,

compared to 25.9% of females. Older participants stronger agreed as well. Tukey post-hoc

30

tests revealed the youngest group of participants significantly less strong agreed (M= 3.16;

SD= .93), compared to the middle group (M= 2.89; SD= .818; p= .010), and the oldest group

(M= 2.78; SD= 1.10; p= .005). See table 6.

Model 1 Model 2 Model 3

Familiarity PWYW .014 (.028) .026 (.028) .

Trustworthiness Goodclub -.054 (.056) -.017 (.057) .

Fairness price .328 (.048)*** .294 (.048)*** .295 (.047)***

Interest product .099 (.033)*** .121 (.034)*** .118 (.033)***

Sustainability product .087 (.052)*** .087 (.051)*** .080 (.049)

Gender . -.140 (.076)*** -.148 (.074)**

Age . .010 (.003)*** .009 (.003)***

R2 .100 .127 .126

dF 5 7 5

F 12.283 11.371 15.758

*p < 0.1, **p < 0.05, ***p < 0.01

Table 6: hierarchical multiple regression for relative fairness PWYW

4.3.3 Interest and sustainability

Of all participants 76.2% (strongly) agreed with that the product was sustainable. There was a

moderate significant effect of sustainability on interest product (F(4, 554) 12.969, p < .001, η²

= .09). The more participants agreed with sustainability the more they agreed to be interested

in the product (strongly agree: M= 2.29; SD= 1.31, strongly disagree: M= 4.40; SD= .89). Not

surprisingly, there was a weak significant effect of interest in the product on WTP (F(4, 554)

4.354, p= .002, η² = .03). Of purchasing participants 91.5% (strongly) agreed with interest in

the product, compared to 23.4% of participants who did not purchase. Moreover, there was a

significant weak effect of perceived sustainability on purchase (F(4, 554) 4.254, p= .002, η² =

.03). Of purchasing participants, 84.4% (strongly) agreed with sustainability. The effect of the

perceived sustainability of the product on WTP was weak and significant as well (F(4,554)

4.092, p= .003, η² = .03). Participants paid a higher price when they strongly agreed with

31

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sustainability (M=12.34; SD=5.74), compared to those who strongly disagreed (M=6.60;

SD=3.65). This effect was of moderate size for purchasing participant (F(4, 207) 3.593, p=

.007, η² = .07).

4.3.4 Perceived fairness of price

Participants were asked whether they thought they had offered a fair price for the product

(fairness price). WTP and the perceived fairness of the price were moderately correlated (r= -

.322; N= 559; p< .001). The higher the WTP was for the product, the stronger they agreed to

have offered a fair price. Moreover, there was a weak significant effect of the perceived price

fairness on purchase (F(4,554) 4.471, p= .001, η² = .03). The more participants agreed to have

paid a fair price, the less they actually bought the product.

Additionally, for purchasing participants, this correlation was stronger yet still

moderate (r= -.460; N= 212; p< .001). Purchasing participants that strongly agreed with

fairness price also had a higher WTP (M=13.42; SD= 6.04), compared to participants that

strongly disagreed (M= 1.57; SD= 1.62). Nevertheless, 17.9% of participants that (strongly)

agreed to have paid a fair price purchased the product for five euros or less. This price is far

below cost price. For ten euros or less this is even 57.9%. This is illustrated in Figure 6.

Figure 6: Perceived fairness of the offered price

32

4.3.5 Alternative explanations charity effect on WTP

It is remarkable that participants want to pay less in the charity conditions. When asked

whether the charity component added value for them 78.2% of participants agreed or even

strongly agreed (M= 2.05, SD=.928). Participants that strongly agreed had a higher WTP (M=

12.17; SD=5.03), compared to those that strongly disagreed (M= 8.40; SD=7.09). However,

the effect of the perceived value of charity on WTP was not significant (F(4,128)= 1.194, p=

.317). This might be due to the fact that there were not enough participants for the neutral (N=

21) or (strongly) disagree value (N= 8). For purchasing participants this effect was of

moderate size, yet only significant on a 90% confidence interval (F(1,51) 2.989, p= .090, η² =

.06). It was not possible to measure interaction effects for this variable due to the relatively

large number of participants (strongly) agreed with the statement.

There was no interaction effect of sustainability on the effect of charity treatments on

WTP (b= .08, t(555) .13, p= .895), neither for trustworthiness Goodclub (p= .179), fairness

PWYW (p= .333), nor relative fairness PWYW (p= .403).

However, since the effect of charity was only significant for purchasing participants,

the mediating effect of fairness PWYW was measured only for purchasing participants. First,

the bias-corrected and accelerated confidence interval (BCA95= [-.804, -.021] excluded zero,

indicating that fairness PWYW mediated the effect of charity on WTP. The total indirect

effect of fairness PWYW on WTP was found to be significant (b= -1.127, p= .004) whereas

charity did not statistically predict WTP (b= -1.225, p= .074). Thus, fairness PWYW

mediated the effect of charity on WTP for purchasing participants. The direct effect of charity

on fairness PWYW was weak and significant for purchasing participants (F(1, 210) 3.979, p=

.047 η² = .02). Participants in the charity conditions less strongly agreed and more strongly

disagreed with fairness PWYW (M= 2.80, SD= .925), than those in other conditions (M=

2.56, SD= .810). Consequently, participants paid a lower price. Moreover, the difference

33

between the treatments with and without charity was bigger when participants (strongly)

agreed or disagreed, compared to when they neither agreed nor disagreed. This is shown in

Figure 7.

Figure 7: Mediating effect of fairness PWYW on effect of charity on WTP for purchasing participants.

Nevertheless, for all values of fairness PWYW the WTP is lower in the charity

treatments. There were no other interaction effects for age (p= .838), gender (p= .262),

relative fairness PWYW (p= .357), sustainability (p= .590), nor trustworthiness Goodclub

(p= .321).

4.3.6 Gender

It has already been mentioned that males were more likely to agree with the statement that

PWYW is more fair than fixed prices, compared to females.

Moreover, there was a very weak effect of gender on purchase (F (1,557) = 8.383, p=

.004, η² = .03). From all male participants 45.4% purchased the water bottle, against 33.2% of

female participants. More interestingly, there was a significant interaction effect of gender on

the effect of fairness PWYW on WTP (b= 1.0377, t(555) 2.049, p= .041). For males, there is

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a moderate effect of fairness PWYW on the WTP (F(4, 211) 7.052, p< .001, η² = .12), as

shown in Figure 8.

Figure 8: difference fairness PWYW for gender

For males there was an inverted U-shape effect of relative fairness PWYW on WTP

(F(4, 211)= 4.900, p= .001), as shown in Figure 9. For females, this effect is not significant

(p= .445).

Figure 9: difference relative fairness PWYW for gender

4.5.7 Age

As mentioned earlier, the youngest group of participants (< 42 years old) less strongly agreed

with the statement that PWYW is more fair than fixed prices. When the fairness of PWYW

was underscored, this group agreed less with the statement that PWYW is fair.

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Moreover, there is a very weak effect of age on the purchase of the product (F (1,552)

= 11.370, p < .001, η² = .02). Participants that purchased the product were statistically

younger (M= 45.57; SD= 14.04) than participants that did not buy the product (M= 49.47;

SD=12.68). Additionally, purchase had an interaction effect of moderate size on the effect of

age on WTP (b= .156, t(550) 4.595, p< .001), see Figure 10. The difference in WTP for

participants that purchased and did not purchase the product was significantly bigger for

young participants, compared to old participants. All other measured (interaction) effects of

age were not significant.

Figure 10: interaction effect of purchase on effect of age on WTP

4.5.8 Regression analysis for WTP

All statements had been reversed in value order, i.e. value 1 as “Strongly agree” was now

value 5 and the other way around. This was important for the interpretation of the b-value.

Thus, the higher the value of the statement the stronger the participant agreed with the

statement.

The predictors in significant Model 1 explained for 22.2% the variance in WTP (p <

.001). Statements about the interest in the product (p= .063) and the fairness of PWYW (p=

.110) did not have a significant Beta Value. After entering gender and age, Model 2 was

significant as well (p < .009) and explained 23.5% of total variance in WTP. Age did not have

8.44

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36

a significant Beta value (p= .865), neither did interest in product (p= .074) and fairness

PWYW (p= .073). As the statements for interest in product and fairness PWYW were

significant on a 90% confidence interval, only age was omitted from the model. The final

model explained 23.5% of the total variance in WTP (p < .001). Six of eight predictor

variables were statistically significant on a 95% confidence interval, the other two on a 90%

confidence interval, see table 7. The more participants agreed with the statements, the more

they were willing to pay. The exception is the perceived relative fairness of PWYW. This

statement has a negative effect on WTP. Participants that neither agreed nor disagreed had the

higher WTP. Moreover, females had a higher WTP (M= 12.03; SD= 4.75) compared to males

(M= 10.27; SD= 5.36). As mentioned before, participants that did not purchase the product

had a higher WTP as well.

Model 1 Model 2 Model 3

Fairness PWYW .466 (.291) .524 (.291)* .486 (.289)*

Relative fairness PWYW -.592 (.274)** -.585 (.277)** -.546 (.272)**

Trustworthiness Goodclub .836 (.289)*** .636 (.298)** .705 (.290)**

Fairness price 1.60 (.263)*** 1.668 (.265)*** 1.640 (.261)***

Interest product .408 (.219) .396 (.221)* .359 (.218)*

Sustainability product .794 (.269)*** .793 (.269)*** .788 (.267)***

Purchase product -3.690 (.508)*** -3.486 (.514)*** -3.445 (.511)***

Gender . 1.235 (.403)*** 1.210 (.399)***

Age . .003 (.514) .

R2 .222*** .235*** .235***

dF 7 9 8

F 22.502 18.534 21.134

*p < 0.1, **p < 0.05, ***p < 0.01

Table 7: hierarchical multiple regression for WTP

37

5. Discussion

Consumers seem to increasingly care about social and environmental issues correlated to the

products they buy. However, for these ethical products a premium price is asked, which most

consumers are not willing to pay. Mendoza-Abarca & Mellema (2015) argue that

organizations with a social aim need to implement mechanisms that simultaneously create

social value and an appropriate amount of economic value. Herefore, they expect Pay What-

You-Want (PWYW) to be a promising mechanism.

5.1 WTP in PWYW

In line with previous literature on PWYW (e.g. Kim et al., 2009), prices paid in this

experiment significantly differed from zero. Of all participants, 98.4% paid above zero euros.

However, 77.8% of the participants that thought zero euros was an appropriate price,

purchased the product. Contrary to previous literature (Schmidt et al., 2014), 81.6% of

purchasing participants offered less than the costs of the product. Pelsmacker et al. (2006)

outline that 10% was willing to pay a price premium. In this study, no participant was willing

to purchase the product for the selling price. Although participants were not aware of these

prices, 26.9% of purchasing participants paid five euros or less, which is not a realistic price.

This assumes that these participants did not mind violating the norm, contrary to what Gneezy

et al. (2012) found. Since the perceived fairness of the paid price was correlated with the

WTP, purchasing participants that paid a very low price were fully aware of their unethical

behavior. Potentially, these participants just wanted to get great bargains and therefore paid a

very low price (Jang & Chu, 2012).

Nonetheless, the majority of participants did not purchase the product even though

someof them were interested in the product. The mean WTP of participants that did not buy

the product was significantly higher, compared to purchasing participants. This could be

38

explained with two theories from the literature. First, purchasing participants wanted to get

great bargains and offered a low price (Jang & Chu, 2012). Second, participants might have

considered what they thought was a fair price. Thereafter, they decided this price was too high

for them and did not purchase it. Indeed, participants that agreed to have paid a fair price paid

a higher price. The stronger participants agreed with the fairness of the price and the higher

their WTP, the lower the number of participants who purchased the product. This is in line

with Gneezy et al.’s (2012) argument that consumers give up when they perceive the costs of

increasing fairness as too high. Nevertheless, some participants that agreed with fairness price

and purchased the product, still paid prices far below cost price.

5.2 Perceived fairness

Because the consumer has full control over the price, PWYW could be perceived as more fair

than fixed prices (Kim et al., 2009; Mendoza-Abarca & Mellema, 2015). As this assumption

was based on an experiment in auctions, this study was the first to measure the perceived

fairness of PWYW. It was found that nearly half of participants neither agreed nor disagreed

with the statements that PWYW was fair and that PWYW was more fair than fixed prices.

The perceived (relative) fairness of PWYW had an effect on WTP.

Surprisingly, for both fairness of PWYW and relative fairness of PWYW the highest WTP

was for participants that neither agreed nor disagreed. Thus, when participants were not sure

if they thought PWYW was (more) fair, they paid a higher amount of money.

Underscoring the fairness of PWYW did not have an effect on the perceived fairness

of PWYW nor on the perceived relative fairness of PWYW. This is in line with Kunter (2015)

who did not find effects on textual cues about fairness either. Only for purchasing participants

younger than 42 years there was a significant negative effect of underscoring the fairness of

PWYW on the perceived fairness of PWYW. This effect showed exactly the opposite as what

39

was expected in the hypothesis. However, the effect is in line with the negative effect of CSR,

mentioned by Castaldo et al. (2009). It highlights the importance of the credibility of

information about CSR. If the information is perceived as not credible, a backfire effect might

occur.

Besides underscoring the fairness of PWYW, some interaction effects occurred for

perceived fairness of PWYW. First, the effect of familiarity on the perceived fairness of

PWYW highlights the importance of informing consumers about PWYW. At the same, since

the familiarity did not have an effect on the perceived relative fairness of PWYW, making

them aware does not make them perceive the pricing system as more fair than fixed prices.

Second, the effect of the trustworthiness of the seller (i.e. Goodclub) is in line with Pearson

and Henryks (2008). They argue that consumers rely on the retailer’s reputation to confirm

ethics. It also assumes that for organizations of which customers have low trust it might not be

good to implement PWYW. Third, for relative fairness of PWYW, the effect with interest was

two-sided. Thus, participants who thought that PWYW was more fair than fixed prices were

also more interested in the product. This highlights the marketing aspect of PWYW, named

by Kim et al. (2009). Lastly, sustainability had a very weak effect on both statements as well.

This assumes that PWYW is more suitable for sustainable products. However, since this

experiment took place at a platform for sustainability, this is not remarkable.

5.3 WTP for charity in PWYW

Both Elfenbein and McManus (2010) and Gneezy et al. (2012) showed in their experiments

that consumers are willing to pay more when a part of the revenue is donated to charity.

Contrarily, the results of this study showed that participants in the charity treatments paid a

lower price for the product, compared to those in the other treatments. This effect was only

40

significant for purchasing participants. There was no moderating effect of age nor gender,

neither after separating purchasing participants.

Of the participants in the charity treatments, 78.2% agreed that the donation to charity

added value for them. Participants that disagreed indeed paid a lower price, yet this effect was

not significant. More interestingly, for purchasing participants fairness of PWYW mediated

the effect of charity on WTP. A donation to charity thus leads to less agreement about fairness

PWYW. Koppel & Schultze (2013) mentioned that ethical consumers seemed to be

supporting the mission of the social organization by purchasing its products. However, in this

study participants might have felt manipulated, since they knew the offer was part of a

research. Moreover, Milieudefensie is a partner of Goodclub. Participants might have

perceived the donation as high benefit for Goodclub, as mentioned by Yoon et al. (2006).

Besides, the difference in WTP between the treatments with and without charity was bigger

when participants agreed or disagreed with fairness PWYW, compared to when they neither

agreed nor disagreed. Apparently when participants in the charity treatments were not sure if

they thought PWYW was (more) fair, they paid a higher amount of money.

5.4 Credibility in PWYW

Schmidt et al. (2014) outlined the importance of the reputation of the seller for PWYW. They

assumed that an effortful, friendly seller may induce a buyer to pay more. Moreover, CSR of

an organization should be communicated to consumers, otherwise they will not be aware of it

(McWilliams & Siegel, 2001). Nevertheless, when consumers are skeptical about the

credibility of the information, a negative effect might occur (Castaldo et al., 2009).

In this study the effect of the trust in the seller was measured. As expected,

participants that strongly agreed paid a higher price than participants that neither agreed nor

disagreed and strongly disagreed. Thus, consumers are indeed willing to invest financially to

41

support retailers who act in an ethical manner, as mentioned by Memery et al. (2012). In

alignment with Castaldo et al. (2009), trust can account for the success or failure of a

company with a social orientation. However, consumers only seem to invest relatively more

than consumers who do not perceive this ethical behavior. On average, participants that

(strongly) agreed with trustworthiness Goodclub, still paid a price below cost price.

Also, there was a weak significant effect of sustainability on WTP. The stronger

participants disagreed, the lower price they paid. This effect was moderate for purchasing

participants. In this research the aim was to examine the effect of PWYW in a group that

could be seen as ethical consumers (i.e. newsletter of Goodclub). It could have been expected

that this group was therefore willing to pay a higher price when they perceived the product as

sustainable. Therefore, participants were comparable to the high premium price group in

Barber et al.’s (2014) research. Nevertheless, purchasing participants that (strongly) agreed

with sustainability still paid a price below cost price.

Although the credibility of the sustainability of the product, the perceived fairness of

PWYW and the trustworthiness of Goodclub lead to a higher WTP, these participants on

average still paid a price below cost price. In addition, purchasing participants still paid a

lower price, compared to participants that did not purchase the product. Moreover, purchasing

participants in the charity treatments still paid a lower price, compared to those in the other

treatments. Yet, this effect was not significant any more.

5.5 Limitations and implications

PWYW is increasingly implemented in several industries. More research should indicate

conditions in which PWYW is most profitable to the seller. In The Netherlands this pricing

mechanism is only implemented in exceptional cases. This experiment took place at a Dutch

platform endorsing sustainability (i.e. Goodclub). After examining its potential in this

42

country, this organization – and potentially others as well - might be motivated to implement

PWYW. This study provides implications in the PWYW field as well as in the field of

business ethics. Retailers are not only held responsible for their own behavior, they are

imposed to oversee ethical behavior in the whole supply chain (Schramm-Klein et al., 2015).

The market share of ethical products varies a lot between countries and most research is done

in the United States. For example, the market share for sustainable coffee in the Netherlands

developed from less than 1% in 1985 to 45% in 2010 (Ingenbleek & Reinders, 2013). This

experiment has implications for Dutch organizations which (consider to) invest in ethical

consumerism or corporate social responsibility.

This study highlights the importance of credibility in PWYW. Therefore,

organizations that consider using PWYW should try to increase credibility for both the brand,

as well as the product and the pricing mechanism. To increase the credibility of the product,

additional product information should be added to the advertisement. In this study, some

participants noted afterwards that the information was incomplete and where therefore willing

to pay less for the product. This is in line with the mentioned negative effect of lack of

information, mentioned by Araque-Padilla et al. (2015). Participants who thought PWYW

was (more) fair, were also willing to pay a higher price. However, those who neither agreed

nor disagreed with the statement had the higher WTP. Therefore, organizations who are

implementing PWYW should avoid that consumers perceive PWYW as unfair. Yet, they

could let them have a doubt. Not surprisingly, organizations should be perceived as

trustworthy. Schmidt et al. (2014) already mentioned the importance of the seller in PWYW.

Underscoring the fairness of PWYW did not have a positive effect on the perceived

fairness of PWYW, except for participants younger than 42 years. Yet, there were no effects

on WTP. Participants might not be vulnerable for this kind of information. Although nearly

no effects were found for underscoring the fairness of PWYW, this does not mean there are

43

none. It could be that the wrong content was chosen or that participants were already

influenced by the introduction about PWYW in the newsletter of Goodclub, see Appendix 1.

However, participants that neither agreed nor disagreed with the statements about the

(relative) fairness of PWYW had the highest WTP. A way to convince consumers of this

fairness might therefore not be desirable.

More research should specifically focus on the effect of perceived fairness of PWYW

on WTP for different conditions. In this study it was found that PWYW was not perceived as

(more) fair on average. When only looking at participants that either agreed or disagreed, two-

thirds agreed with the fairness of PWYW and a small majority agreed with PWYW being

more fair than fixed prices. However, perceived fairness of PWYW was only measured based

on two statements. In future research, this fairness should be measured based on a scale with a

high validity and reliability. Moreover, there should be a comparison between fixed pricing

and PWYW to measure the relative fairness of PWYW.

Based on the results of this study, it is not recommended for social organizations to

implement a donation to charity. However, since it is not sure why participants paid

significantly lower prices, it could be that the charity organization was not suitable. Also, an

imaginary currency was used. Previous research found positive effects of the donation to

charity on WTP. Therefore, organizations should not feel discouraged. Yet, a good

consideration about charity organization and the communication content should be made. This

was the first time that a social retailer was selling an ethical product through PWYW for

which a donation to charity is promised. Future research could explore if this result is

generalizable over different social organizations, ethical products, and charities.

Moreover, the product chosen in this experiment seemed to be too expensive. Kim et

al. (2014) found in their experiment that product between five and ten euros had a relatively

44

higher WTP, compared to those product for more than ten euros. As this experiment took

place online, there was no face-to-face interaction with the seller. Schmidt et al. (2014) argue

that this does not have to be a problem as long as the buyer wants to keep the seller in

business. However, apart from this online experiment, an offline experiment at the sister

organization of Goodclub was done. Although the gains were less than on average base, the

experiment was profitable, contrary to this online experiment.

Lastly, some authors (e.g. Kim et al., 2009) have argued that PWYW is a valid

measurement for WTP. In this study, almost for every variable a significant difference existed

between purchasing and not purchasing participants. It can be argued that the ‘true WTP’ is

what consumers are actually paying for a product. However, when they have the opportunity

to get a product for nothing and some will. This does not mean that they were not willing to

pay more when they had to.

45

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Appendixes

Appendix 1: newsletter Goodclub

50

51

52

Appendix 2: survey flow

Screen 1

53

Screen 2. NB: for other treatments see appendix 2.

54

Screen 3

55

Screen 4: purchase

56

Screen 4: no purchase, no charity

57

Screen 5: purchase

58

Screen 5: no purchase

Screen 6: purchase

59

Appendix 3: treatments

Treatment 1: baseline

60

Treatment 2: charity

61

Treatment 3: underscoring fairness

62

Treatment 4: charity and underscoring fairness