Panera's 'Pay What You Want' Restaurants Are Working

from the how-about-that dept

Earlier this year, we noted that Panera Bread was testing out a “pay what you want” concept restaurant in St. Louis. It was set up as part of a non-profit charitable foundation, rather than as part of the corporate Panera structure. However, at the time, I noted that I wasn’t sure how well it would do, since “pay what you want” for scarce goods seems like a much more dangerous idea. I also pointed out that while I was sure many people would pay the “recommended” prices, and some would obviously pay much less, I doubted many would pay more than the recommended prices to make up for those who paid less. I did note that I hoped to be pleasantly surprised by the results… and now I should admit that I am.

Declan points us to the news that the company is actually expanding the effort, with an expected “pay what you want” opening in Portland. That article also notes that the company has said the original one has been a success. As I expected, the majority of people do just pay the recommended price, with another 15% paying less (or even nothing). But, a separate 15% actually do pay more than the recommended price.

I’m still not convinced this kind of offering works that well in all cases, especially with scarce goods, but I think we’re beginning to see scenarios under which it can work. For example, we did recently discuss a study that found “pay what you want” appears to work much better with a charitable component, which is definitely the case here. Separately, we’ve seen that it can work if you really connect with people, and apparently Panera worked hard to really connect with the local community to make this restaurant work. It’ll be worth watching to see if it can replicate that success elsewhere.

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Companies: panera

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Comments on “Panera's 'Pay What You Want' Restaurants Are Working”

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Lisae Boucher (profile) says:

What might also count...

I wonder… Say, I go eat there and the dinner costs a recommended $21. If I have a $20 and a $10 bill, I have three options:
1) Pay $20
2) Pay $30
3) Pay something in-between and ask change back.
Since some people don’t like loose change they could decide to have the amount rounded up or down to an amount that’s a multiple of paper bills. And if it was a good dinner, people are inclined to pay at least a small tip, thus rounding up.

Jim L (profile) says:

I love Panera

I really like Panera. Being someone who works from home I often meet clients there.

For the price of a cup of coffee and maybe a bagel they let us sit and chat (and use their WiFi) as long as I want. Never once have made me feel uncomfortable for over staying my welcome. Because of that I’ve gone back many other times for no reason at all.

This plan to support charity seems like it fits in very well with their main business plan and I would support one if it came to Pittsburgh.

Grant Woodward says:

Pity it's Panera being so successful with this

While I wholeheartedly applaud the ‘charitable’ part of this, and am always interested in business model success stories, I find myself slightly disappointed that it’s *Panera* doing well with this. Their food is just absolutely awful. Good service, like Jim L. said above, but shockingly bad food and coffee.

That kvetching done, though, this is really interesting and I’m really glad the success of this has continued past the novelty phase. I’d expected it to have tapered off by now, honestly.

rec9140 (user link) says:

Re: Pity it's Panera being so successful with this

“Their food is just absolutely awful.Their food is just absolutely awful.”

Well you must just have the one bad apple of the chain. I’ve NEVER been to one that did not have good food, and impeccable service.

Plus the eye candy at lunch and dinner at most is a bonus.

Its not a “star/rated” restaurant its a place to get some great bagels, great pastries, juice and if like it coffee. The sandwiches and soups are great.

Just made my at least once weekly pilgrimage to my local store.

I also take the office at least once a month a nice batch of bagels. The French Toast and Cinnamon Crunch ones! YUMMMY NOM NOM NOM NOM NOM! I get my own so the office doesn’t take my favs..

Then theres those egg, bacon, cheese sandwiches in the AM…. NOMNOM. I wish they served those all day!

No one is ever disappointed at the Paneras I’ve been to in several states. No one… Along with the fine eye candy….

Radjin (profile) says:

That’s because their prices are placed to where they actually make 5-10 times what it costs to provide. So if they have a recommended price, many are compelled by embarrassment to pay at least the suggested amount. Those who pay more are either showing off or, much less likely, actually think the meal is worth it. Those who pay less, well there will always be those who think that because it’s a big corporation they should give things away.

Ragaboo (profile) says:

About the Charitable Component

You say: “‘pay what you want’ appears to work much better with a charitable component…”

I recall reading about a study (I forget where) regarding an experiment set up around the digital photos you can buy after you get off a rollercoaster. They priced them four different ways to see how people reacted:

1) Fixed price
2) Pay what you want price
3) Fixed, and half goes to charity
4) Pay what you want, and half goes to charity

They found found two things: 1) More people bought with the pay-what-you-want model, resulting in higher total profits, and 2) fewer people paid when charity was involved compared to the same model without charity, but those who did pay paid more than they would have without the charity component.

In the end, the profit for the company was highest with the pay-what-you-want charity component despite, fewer people buying the product.

For my two cents, I think fewer people paid when charity was involved because there was an additional mental transaction cost. You no longer were buying just a photo, you were also donating to a charity. That’s two transactions. People wouldn’t think of that as, “I’m paying for a photo and some of it is going to charity,” they’re subconsciously thinking, “I’m paying for a photo and I also have to donate to a charity.” They figure out how much they would pay for the photo and how much they would give to the charity, and if the resulting number is in their budget and doesn’t make them feel guilty, they’d pay it. That’s why fewer people pay, but those who do pay more … they’re actually donating as a separate mental transaction.

Mike Masnick (profile) says:

Re: About the Charitable Component

I recall reading about a study (I forget where) regarding an experiment set up around the digital photos you can buy after you get off a rollercoaster.

Perhaps you read about it here. 🙂 That’s where the link in this post goes to…

rec9140 (user link) says:

Re: About the Charitable Component

Well that would depend on the charity involved..

If you going this “greenie weennie” route with the charity, I’ll pass and go to a normal Panera, and pay the retail price.

If your charity is something in support of Bengal Tigers, of Florida Panthers, or local cat shelter or something else then let me know a nice retail+20% for the charity I have no problemo with…. and if your helping out the truly indigent out there with some free meals too.. great!

Remember if theres left over bread goods they go to local food shelters.. at Panera. I don’t know when theres any left at my local one… snooze you loose at my local stores. NO BAGELS FOR YOU!!

Gene Cavanaugh (profile) says:

Pay what you want

This, I believe, requires delicate marketing.
When I was a child, we were poor (as in POOR!). My father was out of work for six years, and refused to take “charity” (aka welfare). My mother did not work.
My half-breed grandmother sneaked a little food to us, and helped us live in a dilapidated shack grandfather owned, but couldn’t rent (grandfather also “didn’t take (or give) charity”). I sometimes ate dirt and grass to fill my tummy.
Later, my wife and I were pretty well off (we gave it to the kids, so not now), but we still “aren’t hurting”.
If someone makes it clear that people who CAN’T pay will be taken care of (don’t care about the jackasses who won’t) I will DEFINITELY pay more to make up the difference, and I don’t see that ever changing – but the idea has to be carefully “sold” to me!

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