Pay What You Want Pricing

aaronIt’s your turn to order after a 5-minute lunch line wait at a local casual diner. You check the menu and notice there are no prices.

“Hello sir, what can I get for you today?”

You place your order and the cashier asks if you want a beverage too. You say yes and she proceeds to tally up your items.

“Sir, the suggested price for your order today is $8.96. But you can pay whatever you want.”

The immediate thought is, “well, I’ll pay half then.” You hand over your credit card and she asks, “how much would you like charged on it?”

You feel as though the eyes and ears of everyone in line behind you is now tuned in to your next response.

“Ah, put $9 on it.”

“Thank you sir,” the cashier says without the slightest hint of appreciation for your 4 cent goodwill gesture.

You smile with a mix of confusion and shame, then move on down to wait for your order…

Panera’s experiment in pay-what-you-can-afford pricing

Last year, Panera Bread, the upscale not-quite-so-fast food stop, instituted a pay-whatever-you-can-afford price structure at one of their establishments in Missouri. Now, one year later, they have begun analyzing their do-good gesture.

How do you think they did?

I first heard about this in a news story shortly after it was launched. I didn’t think it would go over too well. I mean, how many people would pay for something they know could be free? Right?

Well, it turns out Panera’s experiment went pretty good. In a recent article in USA Today, an executive said this:

“It was a test of humanity. We didn’t know if people would help each other or take advantage.”

What they found out was that 20% of folks coming to the restaurant gave less (or nothing), 60% gave the “suggested price” and that 20% gave more than what was suggested.

Is this a good pricing model?

It’s interesting to note that while this particular Panera store is “breaking even” – they are planning to open others just like it in the near future.

But is this good business practice?

Panera admits they are in it to “build relationships” with the community and to offer those down-on-their-luck, a “dignified” meal.

I applaud their efforts – and it really is an interesting way to approach pricing.

Though, I have to admit, I’d feel a bit like the person in the opening story. I’d probably give out of guilt and not wanting to look “cheap”.

How about you? Would you pay the suggested price or opt for the free meal – just to save a few bucks? Do you think there is a future in pay-what-you-can-afford establishments?

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8 comments

  1. Savvy Scot says:

    What a great experiment. I think that this says a lot about how we are programmed to feel in social situations. More often than not, I tip generously – but there are certainly times where I feel that I have overpaid considerably for what I received. I think this sort of pricing policy says a lot about the business. A sort of guarantee that it is good. Good Article :)

  2. Ryan says:

    “A mix of shame and confusion”…I think this is an accurate take on how we would feel in this situation. I’d probably feel guilty if I didn’t pay full price if I could afford it.

    Panera says this is an attempt to build community, but could it also be a way to give customers a feeling of control over the situation? I can only imagine the budget for marketing and consumer behavior research that went into this initiative. If they’re simply breaking even, from a financial standpoint it doesn’t necessarily make sense. But it sure gets them some free publicity!

  3. ImpulseSave says:

    Loved this article! What a fascinating idea, and I definitely agree with Savvy Scot that it says a lot about how we are programmed to act in this country. I feel that in America we are trained to be generous, and that since he have been given so much we are responsible to give much.

    I would be curious as to how this would work in cultures where bargaining and haggling are common practice! My instincts say it would not do as well, but I could be wrong.

    • Aaron says:

      Thanks! Totally agree that having much ought to produce generosity. I wonder if it would work in a less prosperous country?

  4. Geoff says:

    Interesting experiment on human nature. Do the less well of pay less and the better off pay more, or, is it more down to conscience?

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