Shortly after Radiohead announced announced their pay-what-you-want offer for the digital version of In Rainbow, Paste Magazine made the same offer: choose what you want to pay to receive the publication for one year.

Here is what publisher Nick Purdy told Audience Development about the experiment:

If I had to do it all over again I would do the same thing. It paid for itself because we had enough new subscriptions and advertising. The PR value alone was worth doing it. As a sustainable model, I think there is some valid criticism that you undervalue your product—and it obviously doesn’t work when the ad revenue is not there.

For a young magazine that had not reached market saturation it was a fantastic way to get the word out about Paste. We got 30,000 subscribers out of that and they’re still with us. We would have needed 2 million pieces of direct mail to get that response.

We used it for only that one time as a subscription push, but for all of 2008 we continued to use it as a strategy at live events.

We’ve learned that people won’t subscribe at a festival, but they’ll come over to our table and pay what they want and take their first issue with them. It had a strange mystical power. And the shame factor drives the subscription price higher—the average Internet order was $7, versus $10 face-to-face. For a while it became a core strategy at festivals. We gained a few thousand more subscribers that way.

Pay-what-you-want works like free, creating a way for prospects to try your product or service. This case study also shows the potential for a stronger bond with high renewal rates for people who initially subscribed using the offer.

The final comment by Purdy about higher rates paid for people who paid in person at festival is interesting; does personal contact versus online anonymity increase amounts through some indirect peer pressure?

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You'll find more detail about Radiohead's In Rainbows pricing experiment on page 18 of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.