By Ciaran Farrell
In response to hard economic times where inequalities are at a high, restaurants are offering new, social solutions. This is the case of Boston’s Panera Cares Café, a nonprofit community café where prices are only a suggestion.
This new alternative to the sliding scale fee model gives the customers the choice of what they pay instead of assigning a price according to their income. Panera Cares Cafés, as well as more than 50 other restaurants in the United States, offer a pay-what-you-want system committing to feeding everyone who walks through their doors, bringing dignity back to dining.
The high-risk nature of the restaurant industry raises questions regarding the key tools that enable these restaurants to succeed in bringing social change while staying financially sustainable.
It is tempting to think the concept of pay-what-you-want is based on an idealistic view of society where everyone pays their share according to their level wealth. However, this statement is refuted by a recent study published by the Rady School of management. The study, published in 2012 states that customers consistently pay for meals regardless of whether they are being watched or not as a result of self-image concerns.
The key of success for this model lies in finding the right balance between non-paying and paying customers. Panera has stated that more than 80 percent of their customers pay the suggested amount or more, making them so successful that they have opened new locations.
The large amount of documentation and testing around this innovative pricing strategy have left us with the following best practices for the pay-what-you-want model:
- Suggest a price: It is important to give the customers an idea of the meal’s value. Without an indicated price, customers could be confused as most usually seek to pay a little over the suggested price.
- Include clients in the social mission: Create awareness around the social benefits of this pricing strategy to encourage people to participate in paying according to their level of wealth.
- Favor low-overhead products: The risk of this strategy is increased when selling products or services that are costly to produce. A good solution to this is to create a base product with extras that can be paid for.
There is no perfect model for this pricing strategy because it can be applied to a diverse range of industries. However, it seems that this pricing strategy is most effective in well-established enterprises that benefit from a regular clientele who will not lose interest with time.
This new trend in social innovation tackling food insecurity was made possible by the example set by early, socially minded innovators such as Mariana Chilton, the founder of EAT Café and a successful pioneer of American pay-what-you-want restaurants. Chilton’s passion for the social mission of bringing food security led her to create the One World Everybody Eats Foundation. This foundation offers consulting services where help is provided to implement the pay-what-you-want strategy, thereby exploiting the full potential of a social enterprise to bring as much social change as possible through replication and scaling.
Sources:
- http://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/pay-what-you-want.pdf
- https://www.washingtonpost.com/lifestyle/food/inside-the-world-of-pay-what-you-can-restaurants-which-are-redefining-charity/2017/01/23/4b7b588e-d45e-11e6-945a-76f69a399dd5_story.html?utm_term=.f5866afec139&wpisrc=nl_rainbow&wpmm=1
- http://www.eater.com/2015/5/6/8556309/pay-what-you-want-restaurant-SAME-cafe-panera-cares
- http://www.huffingtonpost.com/anna-brones/eat-what-you-want-pay-wha_b_1071610.html
- http://blog.gumroad.com/post/75707736685/is-pay-what-you-want-pricing-for-you
- http://quickbooks.intuit.com/r/marketing/pay-what-you-want-pricing-sustainable-model-or-useless-gimmick/
