Panera’s Non-Profit: Pay What You Want Store

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.

Thinking and Eating

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Mashing up psychology, culture, and food. Mark Lock (Yien Hao) is currently a research associate at Harvard Business School working on psychological research related to food and the digital marketplace.

Panera’s Success From a Psychological Standpoint

The obvious answer as a consumer:

Panera has the most consistent and delicious paninis ever (especially the Roasted Turkey Artichoke Panini which has been promoted from Panera’s Signature Hot Panini section of the menu to Premium Signature Hot Panini)

 

Find a recipe of it here (Dashing Dish offers healthy versions of recipes for popular dishes)

The not so obvious factors:

The whole idea of café bakery does not seem novel but upon closer inspection you may realize that Panera has really been a trendsetter in this category. From a psychological standpoint, I want to focus on the experience and social norm induced psychological barriers that prevent people from even stepping foot in a restaurant in the first place. Panera removes these barriers significantly and that’s why I have found myself drifting into Panera on a day when I have no idea where to get lunch.

Barrier 1 broken:

Eat alone

Eating outside of the home is usually a social event. In many cultures including the US, eating alone is perceived as an anxiety inducing action outside of the home. Eating alone signals that someone is Alone (with a capital A). The casual nature of Panera, bar seating and small tables break this barrier allowing “single eaters” to enjoy their meal in-store without the fear of being judged.

It is interesting to note that even though many Chinese restaurants are at the same price point as Panera, the mere fact that chinese restaurants are not “self service” drives “single eaters” away who just want something classy but easy. Chinese restaurants also differ from Panera for another reason.

My theory on why eating alone is ok in this situation is that fast food and hybrids like Panera veer away from the norms of the traditional family dining table. Chinese restaurants have table layouts that evokes strong communal ties. The further away a concept is from a traditional dining table, the more accessible for “single eaters”.

This sounds intuitive, but many restaurants especially casual dining joints do not realize this perception and brand themselves as “family” brands. It seems like a safe bet to include “everyone” through the family, but the family is NOT “everyone”. Branding decisions to go the family route and evoke images of warm family dishes may be a problem for chains that are in cities with huge “single eater” populations.

Barrier 2 broken:

No tip

The fast food-like setup where service personnel and customers are physically separated by a counter triggers fast food paying norms rather than your traditional restaurant tipping norms. Even though Panera is not considered a fast food chain, people feel no obligation to tip since you don’t tip at place like McDonald’s. Service is more impersonal in some sense, and this is refreshing for people who are overworked and tired of interactions with waiters while allowing them to save a few bucks for an in-store dining experience.

Barrier 3 broken:

Anti-premium and affordable

Panera’s positioning is far from taking a premium approach. It is accessible in its image removing any sort of intimidation barriers that may come with premium restaurant brands.  In other words, Panera’s sandwiches are relatively cheap but the word “cheap” is often not associated with the brand.

Barrier 4 broken:

Anti-cheap

McDonald’s is cheap. Panera is anti-premium but at the same time, anti-cheap. Cheap can be broken down into two: cheap quality or low price. Panera positions itself as good quality but at an affordable price. To some extent, the healthiness of Panera’s products is also lumped into this anti-cheap image.

Company to Watch: St. Louis Bread Company (Or Panera)

Panera is one of those names and chains you cannot pinpoint where its origins are. Is Panera Spanish for bakery? Not exactly. Is it a New York style deli or a suburban casual dining joint that can be found next to a JC Penney’s? Neither aptly describe what the Panera experience is.

In today’s restaurant world, Panera is a hard-to-define, surprisingly cosmopolitan (or originless!) concept that has worked successfully around the United States in a rapidly growing segment of restaurants—Café bakeries.

Many people are surprised to know that in St. Louis, Panera does not exist. The original name for its bakery is St. Louis Bread Company. This hip sandwich joint is from St. Louis out of all places? What do they even have there? All I know is  St. Louis has a giant, silver arch in their city that does not really do anything.

Regardless, quality sandwiches can earn you a ton of money. Just look at Panera’s numbers!

  • Research firm, Technomic, reports that 71% of 1,500 survey respondents had been to a café-bakery within the last year 2010 compared to 43% in 2008.
  • Sales in the café bakery segment has grown 12 percent from 2008. 1
  • Panera’s 2010 nationwide sales were $2.9 billion beating all its competition by a significant margin. Number 2 café bakery chain, Tim Horton’s, reported $443 million in nationwide sales. 1

Why is Panera so successful? Look for a post on October 15.

(1) Study: Bakery-café segment expanding from the Nation’s Restaurant News


I love this article about the food ad video companies that make these crazy delicious food TV commercials. You can also view a video for the whole filming process for a scene on a pasta joint on this page:


http://www.nytimes.com/2011/10/09/business/in-food-commercials-flying-doughnuts-and-big-budgets.html?pagewanted=4&_r=1&ref=business

Decision: Rain chemicals on my sandwich bread, please

Bread makes or breaks a sandwich. You can have the most processed, slimy piece of space age turkey and when you put it in between chewy, vinegary pieces of fresh sourdough, you have a hundred dollar sandwich sitting in front of you.

What is the decision-making process that goes into purchasing good bread for your sandwich?  You can’t taste it beforehand if you are buying it from a supermarket, but one of the few signals of quality that you can obtain from the bread’s packaging is whether it is natural, organic, or inorganic/processed (otherwise known as “neutral” or “regular” to those who don’t work for the whole foods police). These labels of quality are broad categorizations but do provide the consumer an easy  way to divide the world of bread into good and bad.

The good: inorganic. The bad: organic.

No, those last two sentences were not mistakes.

In the current day, it is true the norm is to view organic food as good and inorganic as the inferior option. Humans are idealistic. Almost anyone can see themselves as being a supporter of the organic movement (even if one cannot afford the high price points on organic products), because it represents an undeniably glamorous aspiration.

On the contrary, inorganic bread can be superior to organic bread if you consider the variety in consumer behavior profiles. Often times, marketers talk about tailoring products for certain consumer profiles that find maximum value in product attributes that others may not. In this case, inorganic bread can be a superior product upon closer examination of:

  1. goals of certain segments of consumers (health, taste, prestige, self-punishment, etc.)
  2. usage patterns (how often do you eat bread?)
  3. the chemicals factories pour into your processed bread

Consider my consumer profile. I am a single young professional who eats out sometimes and can last on a loaf of bread for one to two weeks.  I seek out quirky restaurants with high Yelp rating on the weekends and like to whip up a gourmet Chinese dinner a few days a week. If my stir-fry calls for regular “high sodium” soy sauce and ample amounts of “high fat” sesame oil, I am generous to include them in my meals.

Every time you buy a product, you should calculate the tradeoffs between its weaknesses and strengths to maximize what works best for your own usage. Therefore, it does not make sense that if you see an organic label on bread you should snatch it up immediately unless you are a health nut who does not value taste and shelf life.

My consumer profile would indicate that I value taste and shelf life over health. Inorganic bread trumps organic bread in shelf life anytime. A loaf of “When Pigs Fly” Organic Wheat Bread lasts for six days from the day it was packed (mold starts showing up once it gets close to the six day mark) whereas a loaf of “Dutch Country” Whole Wheat Bread lasts twice the amount of time and retains its taste more readily (from observation since the standard SELL BY dates are never indicative of food expiration). It is psychologically painful to see half a loaf of bread go to waste and this future pain is often overlooked upon time of purchase.

While there is no market research comparing general population taste opinions of organic versus inorganic bread, inorganic bread manufacturers have found ways to utilize food science technology to enhance processing of both the wheat itself and the breadmaking process to produce “ tastier” bread.  After all, customer retention is based on these companies being able to produce the most delicious bread. My opinion is that I have encountered numerous disappointments in the taste of organic bread, especially in texture. The majority come too dry or too hard. On a higher level, inorganic bread does not allow me to accomplish my consumption goals successfully.

Look at this:

You may argue that the insane number of chemicals in inorganic breads can be dangerous to one’s health.  I would be crazy to argue otherwise upon seeing this lab experiment in the shape of bread.

However, not all inorganic breads are made the same. Some use only a few preservatives that provide greater shelf life and taste. Science should not be feared just because you cannot read an ingredient’s name properly. Such biases against scientific food enhancers have been perpetuated by celebrity chefs like Jamie Oliver who proclaim famous heuristics like if you don’t know what the ingredient is in the nutrition label, don’t eat it.

However, many of these chemicals have been tested with the FDA (the reliability of the FDA is questioned at times but this is another story) and are known to be chemically inert (non-reactive with bodily processes) to any chemist. Unfortunately, there are no hard and fast rules about which chemicals to avoid and which are safe. Once again, you as the consumer should make the tradeoff between the nebulous health risks and very real gains from added preservatives and enhancers. For Jamie Oliver, he sees no tradeoff since the gains side of the equation is unrealistically missing.

Marketers at companies like Pepperidge farm (a famous inorganic bread company though they do offer organic options) can leverage the unique strengths of inorganic bread and make consumers aware of these tradeoffs instead of trying to minimize exposure of perceived unhealthy ingredients or copying an organic image without actually offering an organic product.

Next time you are perusing the bread section at a supermarket that offers inorganic and organic options, introspect on your own consumption behavior and make an informed purchase choice. Organic bread is good, but organic bread might not be good for you.

Culinary Tip:

for breakfast sandwiches involving “wet” spreads, buy soft, fluffy bread and eat immediately

for lunch and dinner sandwiches, buy drier breads so they can soak up the moisture of crisp greens, tomatoes and deli meats without becoming soggy.

Scripts– Hardwired to Order Sandwiches in Your Sleep

Welcome. This blog will start off with a series of articles related to one of the most iconic American foods– sandwiches. Although sandwiches have existed since the start of time, they were not officially given the name until 1726 (1). This is one of those semi-true but absolutely juicy tales that abounds in the history of food. Sandwiches were named after John Montague, earl of Sandwich, a hardcore gambler who had to use his right hand to play his cards and his left hand to eat. He would therefore request bread, cheese and meat together in what we now know as a sandwich.

Though fascinating, the post will not touch upon the origins of the sandwich. Instead, I will bring attention to the process of ordering a sandwich at a deli and the important psychological factors involved. I first moved to the United States four years ago from Taiwan. People always ask if I experienced culture shock, and this is the first incident that comes to mind.

Delis were new to me. Being a cosmopolitan city, Taipei had western style bakeries that sold sandwiches but always prepackaged (with some interesting ingredients which I will touch upon in a later post about sandwiches in the East). The prospect of ordering a sandwhich was horrifying to me, because Delis either have no menus showing the ingredients available or they do not address the sandwich creation process itself (take a look at Subway’s menu). Do I order my veggies first? What dressings are available?

Two problems were at hand from a psychological standpoint:

1)      Lack of knowledge in the sequence of the ordering process (you order your bread first, cheese and meats, veggies and then dressing in many cases)

2)      Lack of knowledge in the categories of foods that make up a sandwich (breads, meats, cheeses, veggies, dressing)

I avoided ordering sandwiches for a month and then decided to venture out of my comfort zone to order what the person in front of me ordered for another two months. There is a social anxiety that comes with being unable to fulfill a prescribed role in a situation where others can do so easily. Surprisingly, one of these roles is being the sandwich orderer. Asking “what breads are available?” and “what dressings are available?” are taboo questions at the deli. These questions are usually met with the awkward pause as the person behind the counter contemplates whether it is worth reciting the whole list of ingredients to you for every single category. While this is an anecdote from my personal life, it has been largely documented psychological literature that when people do not successfully prescribe to social norms and, in this case, “scripts”, negative social consequences like stigma and feelings of anxiety can arise.

The act of ordering a sandwich is what psychologists call a “behavioral script.” It is a socially learned sequence of behaviors and actions in a certain setting that becomes automatic to you. As an American going to your local Subway, you order your bread, meat, cheese, veggies and dressing without a second thought. You have learned through your culture to execute this script flawlessly, which involves all this:

Quite overwhelming! You are able to keep this in your head due to a lifetime of repetition and seeing others do the same.

Purchasing and eating certain foods in other cultures have their own scripts. Therefore, I sincerely believe that it is not only important when teaching foreign languages to focus on the linguistic aspects but also to expose students to various scripts that natives take for granted. This will allow foreign speakers to integrate better into new countries. A future post will lay out the script for the next time you are at a Taiwanese potsticker joint!

Picture courtesy of Tasted Menu Boston http://www.tastedmenu.com

Diagram created by Mark Lock

(1) taken from documentary http://www.youtube.com/watch?v=RmnsUeCXAZw

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