Thursday, 23 September 2010

The Bold "Pay-What-You-Want" Restaurant Experiment

The bold "pay-what-you-want" restaurant experiment

After the fuss/comments/feedback from our 30 Day Business Growth Challenge, I thought I should post this (slightly pessimistic) view of "pay what you want".

A new dining trend allows customers to decide their own menu prices. An economist explains why it's a bad idea

I will copy and paste the best bits from the article:

In the last few weeks, a radical pricing strategy has been making waves in the restaurant world: establishments that allow diners to decide themselves what they'd like to pay for their meal.

Of course, the pay-what-you-can model has been attempted with some success in other businesses, most notably three years ago, when Radiohead put its "In Rainbows" album online and allowed fans to choose its worth.

To find out if the pay-what-you-can model could work for a restaurant, Salon spoke with Tyler Cowen, a professor of economics at George Mason University (and food writer), from Berlin, Germany.

Do you think this pay-what-you-can model could actually work for restaurants?

Do you think it could work on a small scale -- two or three restaurants in a city?

I'm not even sure it can in the long run.

But Radiohead's experiment was fairly succesful. What's the difference between it and a restaurant?

With Radiohead, there's a focal price of about $10, which is pretty cheap. If you download an album and send in $10, you feel you've done your bit, and it's not a question of repeat business. A restaurant has no other way to get that money back. They count on the people to pay for their food.

Is there anything that these restaurants can do to encourage people to pay more?

You have to feel like you're being watched. You have to feel that other people are paying. You have to feel like you're part of a cool experiment.

Are some sectors of the economy better suited to this kind of pay-what-you-can model?

It depends on what you mean by giving things away for free. There's plenty of stuff that gets given away for free, like NPR. But once NPR's content is produced, it doesn't cost them extra to have additional listeners.

Why are these restaurants popping up now?

I'm actually not surprised you see them in down economic times. You let some people pay less that can't pay more -- it's part of the charm.

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