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.

Filed Under: food, pay what you want, restaurants
Companies: panera

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  1. icon
    Ragaboo (profile), 3 Nov 2010 @ 10:06am

    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.

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