The Oregonian reported Saturday, that the Portland-area restaurant mini-chain Blue Sage Cafe is letting customers pay what they want for their food. During the month-long promotion, customers receive the full bill and a chance to write in how much they wish to pay.
The pay-what-you-want has spread to a variety of products/services, including music (Radiohead, Nine Inch Nails), restaurants, hotels, conferences, memberships, and magazine subscriptions. How sustainable is pay-what-you-want as a marketing strategy? A few considerations:
- Pay-what-you-want works for products/services that are already in high demand. Radiohead is certainly a blockbuster act, which stands little to lose financially even if customers on the whole end up paying less. Similarly, pay-what-you-want is also likely to work for high-volume products where the economies of scale will counteract lower margins. And, customers who pay more than the intended price subsidize those who pay less. It should all even out, and if not, there’s other advantages to the model.
- Pay-what-you-want generates powerful word of mouth and media attention. In fact, the model’s primary strength is the promotional aspect. The novelty aspect increases traffic while long-term viability gets rarely discussed. As the novelty of pay-what-you-want wears off, customers may lose interest or start taking greater financial advantage. In the end, what will continue to matter is the quality of the product, service, and experience. (You can ask me to pay what I want, but if I don’t want it to begin with, you aren’t going to see any of my money.)
- The success of pay-what-you-want will hinge on the other elements of the marketing mix. Price is an important signal in the purchasing process, but it functions in relation to signals emanating from the remaining marketing mix Ps, including through anchoring and priming. The decor of a hotel or restaurant (place, physical evidence), the quality of event speakers or publication content (product), listing the regular price as opposed to no price, the experience before/during/after consumption (process), or how the product is promoted will affect the perception of value in the customer’s mind and hence the price they’re going to pay. On the less tangible level, the emotional connection to the brand or how special the customer is made to feel through customer service will also affect the final price paid.
- Pay-what-you-want extends a significant measure of trust in customers, which is likely to generate a reciprocal measure of customers’ trust. It certainly requires the company or entrepreneur switching to this model to change their mindset and overcome the fear barrier created by the uncertainty of how much the till will fill by the end of the day.
- Finally, the trust shift as well as the extreme customization of price reflect the increasing power of the customer and partly contribute to the social bottom line (empowerment). It is conceivable that simultaneous to the novelty of pay-what-you-want wearing off customers will, instead of fleeing, get accustomed to it and will come to expect it. If that happens, winners will be those who offer the model and create the perception of higher value in the customer’s mind. You can’t beat the basics.
What would you add?
{ 4 comments… read them below or add one }
Reminds me of the story (true) of the guy who quit his job to start a bagel delivery business for coffee rooms. He would ask for people to pay on the honor system. He exceeded his expectations and always made a profit. For items like bagels and coffee, I think it’s hard to lose. When you’re talking about higher ticket items it would seem to be a lot trickier because your margins for loss are probably higher and if 3 or 4 patrons walk out of your restaurant paying half you probably lose money. It would have to be like tipping where a cultural norm or expectation exists. Intriguing none the less.
@Will Johnston: Thanks for the refresher on the bagel guy story. It prompted me to consider another factor of pay-what-you-want: online vs. offline. The physical presence of other people in retail environments like a restaurant would create social pressure to conform and pay the generally accepted value, if not more. Nobody wants to appear as a scrooge to others, even if they’re strangers.
We provide professional services and essentially offer pay what you want by standing behind our services and allowing our customers to adjust their bill if they don’t believe they received value. We also work primarily on fixed price agreements so our customer knows what they are getting and how much they are paying before the work even begins.
This forces us to focus on delivering value and to provide outstanding customer service. Our relationships tend to be long-term and we have yet to have anyone not pay our full fee.
In the event our bill was adjusted downward, the only thing we really lose is our time. Through close communications and a solid relationship, there should be no surprises at the end when we deliver our bill.
We offer a similar Pay as You Want scheme at our guest house in Rio de Janeiro… every week we list which rooms are available on the Pay as You Want scheme and the the first person to reserve the room gets to pay whatever they want (and feel is fair) for their stay…