Panera Bread Pay What You Want Business Model Sounds Utopian But it is Working

Radiohead did it, Panera Bread is doing it, and gamers are no stranger to it. Paying what you want is a concept that is starting to resonate with a new generation of internet entrepreneurs and business owners in the United States.

It is a business model that is bold enough to trust the buyer to pay. It puts the business at the mercy of what people feel like the product is worth. Perhaps it is a model doomed to failure, but it seems that more and more businesses are putting themselves out there to try and make “pay what you want (PWYW)” work. Given the hard economic situation many Americans find themselves in, the PWYW model may be at a point where it could really emerge as a transformative business practice.

If people are willing to support businesses on their own free will to determine the price of goods or services, the work the restaurant or store puts into their products will be appreciated more on the part of the customer. The business will also be looking to cater to their local demographics and provide the best product that people would be willing to pay a fair price for.

The model could work on a much larger scale and it does not have to be restricted to a local farm stand or some hip, throwback hippie-shop in Bar Harbor. When people feel trusted, they will most likely be honest. Call it Utopian, but this might be the time for PWYW to make a big impact in America.

So far, in some isolated cases of businesses being bold, it has been paying for itself.

Panera Bread has recently opened a fourth branch of their non-profit Panera Bread Cares in Chicago. The idea is simple, Panera Bread will operate the restaurant the same as any of their other restaurants. The same menu, the same style, but at the end of the counter they will have a donation box. An unattended box politely asking customers to give what they feel is fair for what they are taking. Sure, a good portion of people just take the sandwich for free, but a large number of people also over-compensate the business. Someone used to paying $1.79 for coffee might just give $2.00; while it is only 21 cents, this would add up for the business and, so far, it has been working. 

This model does not promise large profits, which is the venture for most people embarking on a business endeavor. What it does do, is offer some percentages that show a balance. According to a report done by the Chicago Tribune, “Up to 20 percent of customers pay more than the suggested price; 20 percent pay less or nothing; and the remainder pay the recommended amount.” It is a pretty even split between the three levels of people, those who give what is fair, those who give extra, and those who will take advantage of the system or pay what they see as fair.

In the end, the Panera Bread Cares businesses have been paying for themselves and have been making small profit margins on top of that.

Panera Bread Cares goes further by donating any profits they make to specific, local charities. This is a practice that goes hand in hand with many PWYW start-ups, such as the indie-game sellers the Humble Indie Bundle. If people see an attachment between the money they are paying and something good for their community or for a specific community elsewhere, they are more likely to give more than what would be initially asked for as a price. People like to feel like they are helping others and they are more likely to give if they know exactly where their money is going. Humble Indie Bundle gives the option for a portion of proceeds to go to a charity.

Case studies of businesses using the PWYW model have found that people will often give a fair price. They see the work that went into making a sandwich or providing quality selections of games, and they begin to work the gears and really assess what they have in front of them. It’s like the PWYW farm stand concept. The fruit is seen and it is really, morally hard to just take it. The image of a farmer growing the fruit and harvesting the vegetables makes walking away with the product feel wrong without leaving something for the work.

This is where the Utopian vision begins to edge its way in: people are afraid to be cheap. Studies show that people generally will give a fair price or not pay for the item at all. They have to “unravel” the product and really assess its worth, rather than be told its worth. It is a less black and white approach to business that I believe will become more and more relevant in places with economic troubles. Though not entirely related, the resurgence of bartering in Greece offers a glimpse of this “unraveling worth” business. For people in Greece, in the face of radical austerity measures and a crippling credit crunch, it is more reasonable to simply exchange the goods or services on a one to one basis. While not a large scale concept, the bartering system, like the PWYW system offers efficient, small-scale business that operates on a certain honor system and code of ethics. Both seem to place individual needs above prices designed around the conventional bottom line.

The PWYW system operates on the principles of the double bottom line that places social impact above profit margins. So while businesses will always have to be concerned with making enough money to stay in business, the second bottom line seeks out their social relevance in the community as well.

So putting aside the PWYW model as a form of publicity or statement alone, like with Radiohead’s “In Rainbows” online sale, the model can also be seen as a viable option for business given the right conditions. If a business, such as Panera Bread is willing to spend the high initial cost to try a new model of business on a larger scale, more people will see the model as a legitimate way to exchange money for goods and services and it will be taken more seriously.

There will always be people who will take advantage of such a system, but there will also be many who see the value in it. It will lead to a public that is more trusting of their businesses, and it will also lead to businesses that put more faith in their customers. This is not a movement that will happen overnight, but with more online businesses and with some satellite stores in the Panera Bread chain giving it a shot, the PWYW model can have a positive effect for trust in businesses and for local communities all over the United States.

For the time being, the PWYW model has not been met with any great success stories, but it does offer a new mindset of how the market-place could be for future generations.