Right By Radiohead

The difference between what Radiohead and Apple are doing is that where Radiohead is earning customer loyalty, Apple is spending it.

It was all very cute and nice back when we marketers could kid ourselves that engaging our consumers was a simple matter of letting them create their own television commercials.

That idea of consumer engagement is looking even more vapid than it did before — now that Radiohead has decided to put its money where its heart is and actually trust its fans to set the price of its latest record.

On the off chance you've never heard of Radiohead — or the way it is marketing "In Rainbows," its new disc — the deal is that the band is releasing its material online, on its own record label, and inviting fans to pay as much or as little as they see fit.

Needless to say, the approach is generating considerable chatter, not only among Radiohead fans but also among record-industry observers. Much of that conversation centers on Radiohead's gambit as a possible solution to illegal file-sharing.

As George Lowenstein, a Carnegie Mellon economics and psychology professor told The New York Times: "If the band is willing to trust you to pay what's fair, all of a sudden, for the people who have been saying it's not stealing to download the song for free, it's much more difficult to rationalize that."

But the issue runs deeper than just the moral dilemma of file-sharing; it goes right to the heart of the emotional bond between consumers and brands — and how that bond affects consumer purchasing decisions. "It's almost like supporting a sports team or donating to a political candidate," says Dr. Lowenstein. "You're selling to the world how much you like them by how much you pay."

Radiohead isn't the first to try something like this. Back in 2001, Wilco did something similar when it released "Yankee Foxtrot Hotel." At the time, Wilco was between record labels and decided to stream its music online — for free.

Wilco didn't ask its fans for any money at all. Amazingly, however, some fans actually asked Wilco if they could send some money anyway. About $15,000 was collected, which Wilco donated to charity.

The kicker of this story is that when Wilco finally got a new record deal and released its album on CD, it soared to number-eight on the charts — which was better than any of the group's previous records had done.

Radiohead's approach also echoes that of the Terra Bite Lounge, a coffee shop in Kirkland, Washington, where it's up to the café's customers to decide how much to pay, or whether to pay at all.

As reported by Amy Roe in The Seattle Times, the Terra Bite Lounge was founded by Ervin Pertz, a Google programmer who scraped together the dough to start a café that he says sells "good karma" as much as coffee and snacks.

As Ervin explained: "People want something different. They want simplicity…. They want to be taken to a new place, and they want to contribute something." His bet is that "he can finesse the largesse of well-off latte lovers to cover the tabs of the less fortunate."

After almost a year, Ervin is still in business, although he admits he may have to install a cash register at some point. The main challenge seems to be that letting customers create their own prices makes some people feel uncomfortable.

That is also true where Radiohead's fans are concerned, with some reporting a certain angst over how much is the right amount to pay. As one Radiohead devotee put it: "The fan in me wants to pay $80, but the person that's paying the rent wants to pay $8."

What's really interesting is that most people are, in fact, paying a fixed price of $82 for a special boxed set, which features an additional CD as well a vinyl copy of the record and a special booklet. Sales figures for the boxed set are not yet available, but it appears that the "pay what you please" policy probably gave it a lift.

Either way, it's unquestionable that Radiohead is earning greater loyalty simply by trusting fans to tell the band how much its product is worth to them.

Now, compare and contrast the Radiohead example to Apple's recent pricing debacle with the iPhone. As you've no doubt heard, Apple introduced the iPhone priced at $599, and shortly after dropped the price by $200.

Apple tried to make amends by offering those who had paid the higher price some sort of convoluted rebate, but the damage was done and now the company is facing at least one million-dollar lawsuit from a disgruntled customer. Not to mention an avalanche of bad feelings and bad press.

It didn't have to be that way for Apple. Just for fun, try to imagine for a moment what might have happened had Apple had the courage to allow its customers to set its own prices for the iPhone!

That would never happen, of course. It is antithetical to Apple's closed culture for one thing, and it would be way too risky for the company for another.

But think about it — it's really not about the price; it's about the relationship between brands and consumers and how consumers value that relationship. Apple, more than most brands, could afford to test those boundaries. The important question here is, could your brand?

If the answer is no, then maybe it's time to think some more about the value you are bringing to your customers — and whether you are earning their loyalty like Radiohead, or spending it like Apple.

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