Panera Bread in St. Louis has come up with a new pricing model. Though the concept is not entirely new - Radiohead used the same idea when it digitally released its album "In Rainbows" - it is somewhat novel as a business model. The new pricing scheme is to have customers pay as much or as little as they want for their food: "Take what you need, leave your fair share". Under this new model, there are no set prices. What was the inspiration behind this change? The article quotes Panera owner and founder Ron Schaich as saying "he's trying to find out what human nature is all about...There's no pressure on anyone to leave anything, but if no one left anything, we wouldn't be around long." Customers who do not pay are encouraged to volunteer at the restaurant, but there is no official or binding requirement of payment.
So, what will be the outcome of this? Will philanthropy succeed and keep the business alive, or will the business go bankrupt after watching revenue fall below profitability?
My hypothesis is that the business will, unfortunately, go bankrupt or have to revert back to traditional pricing. Here's why. At first, the business may actually make more money. Customers with a sense of social justice or social responsibility will give more as a symbol of admiration to the cause. It will be their way of "paying" the business for its humanitarianism. As Rizzo talked about in class, the official term for this theory would be "reciprocal altrusim". And I believe that it would apply here, and would work...in the short term. In the long-term, let's look at incentives. People who can't afford the food have just been informed that price is no object. I've been to Panera, it's good food. If I couldn't afford to eat at restaurants, and a place as good as Panera offered me free food, I would go there as often as I could stand it. This increased demand would offset any philanthropy. Even if the company brought in more money through this method, I believe there would be too much demand. Demand would counteract philanthropy and the net effect would be a loss. In addition, those who already eat there have no incentive to eat there more often, unless they don't want to pay. Incentives have only changed for those who wouldn't otherwise eat there because of the cost. Without new paying customers or old customers paying more, Panera could not handle the increased traffic.
In a way, this situation is similar to that of the unlimited meal plan. There are no new costs for going to the unlimited dining halls. Essentially, since I have paid the one-time fee, they are now "free" dining halls. Now there are other places to eat on campus, but since I know that the unlimited dining halls do not cost me anything new, I find myself eating exclusively at Douglass or Danforth. Even if I am hungry and neither is open, I will wait until they open so that I do not have to spend declining. The same thing would happen at Panera. Non-paying customers will flock there.
The only way this could survive would be if customers who didn't pay did volunteer their time to the company. However, time is a highly valuable commodity, and I do not believe people would give up time to save one branch of Panera, especially if there are others available though those aren't free.
I hope I am wrong, but that is my prediction of the fate of this Panera bread and their humanistic experiment.
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