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Radiohead Marketing in a Digital World

by Prof. Aric Rindfleisch

“Radiohead” posted by
Radiohead, shared publicly,
retrieved from
http://plus.google.com/.

Purpose: Radiohead had sold this album through a recording

The purpose of this case study is to better understand company, this album would be priced for about $14.99
the costs and benefits of a PWYW pricing strategy. and Radiohead would receive about 15% of this total
($2.25). Radiohead’s share would be even less ($1.40)
Background:
if this album was sold via iTunes.
In October 2007, the famous British Rock band
Radiohead released its new album titled In Rainbows. Core Issue:
At the time of this release, Radiohead had just ended its This innovative approach obtained lots of attention for
contract with its recording company and decide to self- Radiohead and excited lots of music fans. The core
release this new album. It made this album available for issue is the degree to which this was a good pricing
download on its website. That was an innovative strategy for Radiohead.
distribution decision. However, what was even more
innovative was its decision to allow its fans to
download this album for any price they wanted
(even for free). This strategy was so new and different
that it created a whole new pricing strategy called Pay
What You Want or PWYW. As a point of reference, if
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Case Study

Questions:

1. Was the PWYW strategy a good decision for

Radiohead?
2. What could Radiohead have done to make this
strategy more effective?
3. Is the PWYW strategy something that could be
employed by more traditional firms?

Typical Student Reaction:

When I teach this case, the student reaction is generally
quite favorable towards the PWYW strategy. They
view it as an innovative approach and feel that given the
relatively low margins that musicians receive per
album, its fans didn’t have to pay very much in order
for this strategy to work. They also note that
Radiohead’s high degree of awareness and loyal fan
base made the success of this strategy more likely but
caution that it would be much more risky for a new
band that lacked these features.
Concept Application:
This case is an excellent example of the PWYW
strategy and is still one of its best examples of its
application in a real life scenario. In this case, the
PWYW strategy worked quite well. This initiative was
clearly a digital marketing success story. Over 1.2
“radiohead: its up to you” posted by iurikothe, under Creative Commons
license, retrieved from http://www.flickr.com/.
This resulted in an average payment of $2.26 across
everyone who downloaded this album.
Recent Developments:
Radiohead hasn’t tried to replicate this experiment in its
subsequent album releases. Also, the reviews of this
approach have been quite mixed. Some reviewers view
it as a new business model while others see it as nothing
more than a cool experiment. As noted earlier, the
PWYW pricing strategy has been employed by a few
other artists and is also diffusing across a number of
other industries including restaurants, movie theatres,
and even synagogues!
Lesson Learned:

million people visited its website during the first 1. Some people will pay even without an explicit

month, and this initiative generated a substantial
degree of online buzz. According to Radiohead, they
made more money from this album than from any of
their prior album releases. Nearly 40% of those who
downloaded the album paid something, with an
average payment of $6.
price: If you’ve taken an economics class, you probably
learned that people are self-interest seekers and try to
maximize their utility. In other words, economists view
people as trying to get as much as they can by paying as
little as they can. Thus, a PWYW strategy seems really
crazy from an economics perspective. However, from a

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sociological perspective, this strategy makes more
sense. Sociology tells us that people’s behavior is
strongly influenced by social norms. One nearly
universal and strongly held social norm is reciprocity.
In other words, if someone gives something to us, we
are expected to give them something in return. In the
Radiohead case, it appears that about 4 out of 10
people were motivated by this norm.
2. The value proposition of a product may vary
considerably across a customer base: The price of a
product should be tied to the value that it provides to
the person who buys it. Since the amount of value
provided is likely to vary from one person to another,
a traditional one size fits all policy overcharges some
people while undercharging others. The result is both
lost revenue and lost customers. The Radiohead case
proves this point. Although the majority (over 60%)
of those who downloaded In Rainbows paid nothing, a
small portion paid quite a lot—some customers even
paid more than $10, which would be the price of an
album downloaded from iTunes.
3. Pricing strategy is closely related to the other
portions of the marketing mix. One of the best
books on the topic of pricing is Thomas Nagle’s The
Strategy and Tactics of Pricing. This book argues that
pricing should be the first decision that any firm makes
Resources:
• “Radiohead says Pay What You Want” (http://content.time.com/time/arts/article/0,8599,1666973,00.html)
• “Thom and Ed talk about In Rainbows release” (https://www.youtube.com/watch?v=V-4CpJyZ4Yw)
and that the price of a product should reflect the value
that it brings to its customers. It also argues that price
should determine the rest of the marketing mix. For
example, if you are adopting a low cost pricing
strategy, then your product should be manufactured at
a low cost and you have to be very economical in your
promotional strategy. Similarly, in this case, we see a
close relation between Radiohead’s pricing strategy and
its distribution strategy. It would be clearly much more
difficult to adopt a PWYW strategy if it distributed this
album via iTunes or through a physical distribution
outlet. So, please keep this relation in mind.
4. Digital tools allow for more flexible pricing
strategies. Although PWYW has been conducted in
non-digital settings (such as the Panera store in St.
Louis), it was greatly enabled by Radiohead’s digital
platform. One key advantage of a digital platform is the
ability to either make the prices paid hidden or
transparent. For example, a firm may not want other
customers to see that the majority of their peers paid
nothing. Conversely, it may choose to reveal the
average price paid as a means of setting a reference
price. This type of strategic flexibility would be much
more difficult to implement in a non-digital setting.
Thus, the PWYW strategy should be more effective for
digital marketing vs. traditional marketing settings.