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.
46 comments:
Restaurant is not a consultancy.
The 'economist' may have been a home economist. And you know what we think about any type of economist.
You can run the experiment because you can control who you invite and you can prepare them and you do not need everyone to pay top dollar to cover your costs. While your timeframe may be a little short, you can still manage the whole thing to everyone's advantage.
You called yours disruptive - this one is called bold. Yours is really soemwhere in the middle. Not totally disruptive because your industry doesn't come to a grinding halt and change its ways forever.
Detail.
Very neat.
J
see
Indienomics: The world of 'Pay What You Want' games - Wired - http://bit.ly/9PQFxZ
Pay What You Want for a Room... http://casa579.com/paywhatyouwant.aspx
Social Enterprise in Music http://www.paywhatyouwantonline.com/
'Pay what you like for personal/professional development? http://progressschool.wordpress.com/about-leeds-progress-school/
Another example of disruptive marketing
Evan
Punks will visit and refuse to pay. Ironic.
Joe
There was one in London but it got discovered by students who took the mick. End of business! Be warned.
Kevan
Bold? Or totally stupid?
I am in PR and could never contemplate payment by results. It is simply too complicated to measure.
FA
Lentil as Anything, Melbourne - Eat & Pay Whatever You Want www.youtube.com/watch?v=p75J-UjnL8M
We have a coffee shop that opened in my area with the "Pay-What-You-Want, if at all" message. They actually are pushing the "why pay for coffee?" line in some print advertising. Yeah, it's cute... but the college kids in the area are going to take full advantage of it and bleed them dry until they're out of their start-up funds. They're marketing it as a cultural hangout where music/art are the draw and they're serving a brand of coffee products that advertise that a large percentage goes to charity. They're banking that people will pay a decent amount for their coffee in the spirit of giving. I'm very curious on the outcome... I'll be following it closely.
MC, LinkedIn
Very interesting. Can I have a few of those places by my house??? In the Radiohead example I think it was a great success especially in the PR arena. The money they saved promoting the release probably made up for the, at times, cheaper purchases. Then again a file of music has diminishing costs over time while food always has a cost. I'm interested to see where this will go.
JB, LinkedIn
http://www.youtube.com/watch?v=RjSRDus9Bec
Java Street Cafe Goes Pay-What-You-Want!
and a tanning salon
http://www.youtube.com/watch?v=bb4z16i2pcM&feature=related
http://www.youtube.com/watch?v=fOu7ZvhyE2k
Red Eye: New trend - pay what you want restaurants.
http://www.youtube.com/watch?v=nGia6__L30Q
When British alt-rockers Radiohead released their latest album, In Rainbows, ...
the financials...
When British alt-rockers Radiohead released their latest album, In Rainbows, for distribution online one year ago, they shocked the music industry by letting fans choose their own price for the download. Now the sales data have finally been released by Warner Chappell Publishing.
At the "You Are In Control" conference in Iceland, the U.K.-based branch of the publishing company revealed the figures.
Digital publishing income from In Rainbows was bigger than all previous Radiohead digital income, and Radiohead made more money off the album before its CD release alone than they made in total from 2003's Hail to the Thief.
Between physical CDs, the expanded box sets and digital downloads, In Rainbows has sold approximately 3 million copies in the US and UK.
It sold 30,000 copies its first week on iTunes in the U.S. as well. Roughly 1.75 million physical CDs have been sold, with 100,000 copies of the limited edition box set sold through the band's own merchandising.
Warner Chappell Head of Business Affairs Jane Dyball notes that the average price paid for the album fell as the die-hard fans purchased it first, then the casual fans followed. Also, illegal BitTorrent downloads of In Rainbows outnumbered the official downloads from Radiohead.com.
THIS IS ALL FASCINATING STUFF BUT IT IS NOT A REAL BUSINESS MODEL IN THE LONG RUN. NOT SUSTAINABLE. UNLESS YOU ARE RADIOHEAD. IN THE LONG RUN YOU GET RIPPED OFF AND THAT IS HUMAN NATURE.
OK Robert so are you saying that this iis the way of the future? Have you been smoking something funny? Wake up man. Smell the coffee.
Go back to bed and start the day all over again.
Fascinating how people either "get this" or they don't "get it". Seems that a bit of thought will make you reconsider if you can't do soemthing similar. Or you could just follow the crowd.
Just listeened to the ablum for free on YouTube - wouldn't have paid. Does nothing for me
Always over-rted for thier music but not for their business sense. Jim
Very interesting article, Thanks for posting. It's a good gimmick to get people talking about a restaurant. A great marketing ploy if you are the first one in a city to go for it, but lets face it - as the article says it is not sustainable in the long term as a business model. It's too susceptible to abuse.
a sustainable business model? no. great tease? yes.
unless it could be a business model by suggesting minimum fees or... using the nudge of others watching to make sure people don't short-change you.
Eric
I think this is something for all of us to think about. We should not assumne that pricing the tradtional way is the right way.
The pay-what-you-want thing is a true challenger strategy. For me the pay what you want per room piece is fascinating.
Lots to think about.
yes but no but yes. Will love to see how this can roll-out. What is holding me back?
Thanks for sending me here. Interesting concept and I think it has all been said already.
This is certinly a challenge and as you say, some people will not get it it.
Food for thought. Pun not intended.
Enjoyed boardroom session yesterday.
had one in new york but only lasted 8 months - social enterprise has its problems?!
Worth thinking about despite what the others say. Perfect for a charity type thing. Or a social enterprise?
Sonia
Dough rising
Panera’s restaurants are thriving in the downturn
http://www.economist.com/node/17209665
Nice to see that the Economist seems to be following you! Coincidence?
Warner Music UK exec, "What we need is a revolution," suggests album prices be "radically" slashed to $1.50
http://bit.ly/df41oc
see
http://dailycrowdsource.com/2010/10/24/arts/music/radiohead-concert-crowdsourced/
The follow up on the Busienss Club is worth the time
http://www.directorscentre.co.uk/articles/disruptive-essay2
Interesting idea but it might lead to profiling based on how a person is dressed or looks.
I am thinking in terms of more money buys fancier clothes, poorer people don't see new clothing/grooming as an essential - food is more important - clothing can be something you throw on or make a statement with.
I know some highly educated that dress like 'scruff bags' and are treated thick/lesser humans as they don't conform to the 'tidy' model - a person dressed to impress the tidy people is going to find a scruffy person at odds with their own ideas - I can see food fights - if scruffy person feels tidy person is judging them based on their own values.
There are different reason people dress in a suit or in walmart jogging bottoms (with their bellies hanging out) - seeing too much flesh can be offensive - depends on size of the human and how well known they are for what.
Letting your customers decide how much to pay. Worked for Radiohead, works for funfairs... http://ow.ly/3BgA (Economist)
Interesting idea but it might lead to profiling based on how a person is dressed or looks.
I am thinking in terms of more money buys fancier clothes, poorer people don't see new clothing/grooming as an essential - food is more important - clothing can be something you throw on or make a statement with.
I know some highly educated that dress like 'scruff bags' and are treated thick/lesser humans as they don't conform to the 'tidy' model - a person dressed to impress the tidy people is going to find a scruffy person at odds with their own ideas - I can see food fights - if scruffy person feels tidy person is judging them based on their own values.
There are different reason people dress in a suit or in walmart jogging bottoms (with their bellies hanging out) - seeing too much flesh can be offensive - depends on size of the human and how well known they are for what.
Worth thinking about despite what the others say. Perfect for a charity type thing. Or a social enterprise?
Sonia
Dough rising
Panera’s restaurants are thriving in the downturn
http://www.economist.com/node/17209665
When British alt-rockers Radiohead released their latest album, In Rainbows, for distribution online one year ago, they shocked the music industry by letting fans choose their own price for the download. Now the sales data have finally been released by Warner Chappell Publishing.
At the "You Are In Control" conference in Iceland, the U.K.-based branch of the publishing company revealed the figures.
Digital publishing income from In Rainbows was bigger than all previous Radiohead digital income, and Radiohead made more money off the album before its CD release alone than they made in total from 2003's Hail to the Thief.
Between physical CDs, the expanded box sets and digital downloads, In Rainbows has sold approximately 3 million copies in the US and UK.
It sold 30,000 copies its first week on iTunes in the U.S. as well. Roughly 1.75 million physical CDs have been sold, with 100,000 copies of the limited edition box set sold through the band's own merchandising.
Warner Chappell Head of Business Affairs Jane Dyball notes that the average price paid for the album fell as the die-hard fans purchased it first, then the casual fans followed. Also, illegal BitTorrent downloads of In Rainbows outnumbered the official downloads from Radiohead.com.
http://www.youtube.com/watch?v=nGia6__L30Q
When British alt-rockers Radiohead released their latest album, In Rainbows, ...
the financials...
Bold? Or totally stupid?
I am in PR and could never contemplate payment by results. It is simply too complicated to measure.
FA
Punks will visit and refuse to pay. Ironic.
Joe
You called yours disruptive - this one is called bold. Yours is really soemwhere in the middle. Not totally disruptive because your industry doesn't come to a grinding halt and change its ways forever.
Detail.
Very neat.
J
see http://www.psychotactics.com/blog/pricing-your-product/
Panera Bread Co. used this same idea when it opened its first pay-what-you-want restaurant in Clayton, Mo. The company ended up making over $100,000 in revenue in the first month alone. It opened it’s 4th restaurant of this kind in Portland, and said at the time that about 20 percent of the visitors to the cafes leave more than the suggested amount, 20 percent leave less and 60 percent pay what is suggested.
But 9 months later it’s not doing so well. The Portland café is only making about 60 percent of the revenue of a regular, full-paying location, compared to an 80 percent take in the politer climes of St. Louis and Detroit. Also, the homeless tend to camp out there and stay all day if they aren’t shooed away, so Panera had to hire a bouncer.
It’s important to have fair minded customers for this model to work (homeless and hungry people probably care more about being fed, than being fair).
http://bridge101.visibli.com/share/xoLe5Z
Thomas Morffew
http://www.humblebundle.com/ is a great example of PWYW working well.
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