Radiohead shocked the music industry with their 2007 album, In Rainbows, when they asked fans to download their album and pay whatever they wanted. Likewise, Panera shocked the restaurant industry with the opening of a branch in Missouri that utilizes the same “Pay What You Want” pricing mechanism!
The store in Missouri, opened by Panera’s non-profit St Louis Bread Co. Cares, has the exact same menu as all other Panera locations but lets customers pay for their meals according to their own judgment. A sign that reads “Take what you need, leave your fair share” is the basic guideline. Panera has also expanded this model over the last few months to more stores in Missouri. What sorts of effects will this have for the general Panera brand going forward and is this pricing scheme “sustainable” ( however you may define the term)?
“Social Corporate Responsibility” is a word that is thrown around quite a bit in the business world today. It’s good to be a green company or a company that enforces strict labor conditions. But is what Panera doing an act of social responsibility? No, Panera is being far from just responsible. With its Pay-What-You-Want stores, Panera is being flat out charitable. It is taking the huge risk of giving away its product like a soup kitchen out of a corporate moral desire. Given Panera’s large scale success in their segment Panera can afford to take on a project like this. It was likely also true that Radiohead didn’t have as much to risk as well being a band with one of the largest worldwide fanbases.
Sustainability of this project is not an issue for Panera, but do these “Pay-What-You-Want” stores add value to the company in anyway? Definitely. Hubspot, the pioneer of Inbound Marketing, a way to market to consumers using techniques that attract customers inbound rather interrupting them, says that companies can get a lot back from giving some things out. Sounds intuitive right?
From psychological research, we know that the reciprocity norm is a strongly embedded norm in all cultures. Evolutionary psychologists even have come to say that the reciprocity norm is the backbone of building strong societies over time. Simple as that: Only good things can come out of people who want to help others who help them who in turn help others and so on. It is a positive self-perpetuating cycle.
In a study by Dennis Regan, we see that the reciprocity norm is so strong that it can even overcome effects of social unlikeability. Participants were told that they were participating in an experiment on aesthetic judgments. The researcher served as an accomplice and either presented himself in a very likeable way or unlikeable way to certain participants. Participants then rated art slides. At the end of this task, the researcher either brought back a can of coke into the experiment room or a can for himself and the participant. Participants who were given a can of Coke at the end agreed to buy twice as many raffle tickets from the researcher after the experiment compared to those who were not given the Coke. This effect was present even when the researcher presented himself in a very unlikeable manner.
So Panera knows– it is not in people’s nature to free-ride. They also know that giving away their product is a form of trial, encourages word of mouth, encourages bloggers like me to talk about them, boosts their brand image and in turn comes back to them through new customers and purchases. This loop sounds pretty darn good especially if you are also doing some good for society in the process.