A New Business Model… Priceless?
Mar 27th, 2009 by admin
During the holiday season of 2008, something emerged that had never been seen before. I like to call it the Name Your Price (NYP) phenomenon. Major retailers were so desperate for sales you could literally walk into a store and name your price. No reasonable offers were rejected. Called haggling by some, prices at this level could be negotiated with thousands of consumers across the nation saving thousands of dollars by naming their prices (and retailers went along for the ride - happily).
But what happens when your entire business model is built around haggling, negotiating…the NYP phenomenon? Is it feasible? One café owner in Kettering, Ohio thinks so. Sam Lippert, founder of Java Street Café, has instituted a “no pricing” policy at his establishment. Basically, he lets customers set their own prices by paying what they want – what they think their purchases are worth. The results? According to a recent interview with CNN, Lippert says that “sales and customer count are up between 50 percent and 100 percent.” Lippert believes that at the end of the day he comes out even – when people have to look him in the eye, they tend to pay what the meal is worth (instead of shortchanging him).
Supposedly, cafés with pay-what-you-think (can) business models are popular in Europe. And Java Street Café is not the first to utilize this alternative model here in the states. Take One World Cafe in Salt Lake City, Utah for example. They have been in business since 2003, offering organic food based on the pay-what-you-can philosophy. And their growth has been nothing short of phenomenal.
What do the experts have to say about this? Well, according to an article published in the Journal of Marketing (American Marketing Association), this is officially known as Pay-What-You-Want (PWYA) or participative pricing. And their research revealed that “PWYW might be suitable as a price promotion tool and may also help improve the seller’s credibility by letting the consumers decide about the prices of products. Implementing PWYW, the seller can demonstrate to consumers that he or she believes in the quality of the products because lower prices can compensate for lower quality without signaling low quality by lower posted prices.”
What do you think? Is PWYA practical? Priceless? Or simply preposterous?
It’s just not sustainable — not generally, anyway. Music artists have tried it, a few with great success. Was it Radiohead that did it first? It worked for them, but they self-produced their stuff, so they got to keep almost every penny they generated.
When people are willing to pay you only an amount that doesn’t cover your costs, you’re screwed.
I find this whole concept utterly astounding, to be honest.
It makes me want to run right out and give it a shot in some form or fashion and see what the results really are.
I have to wonder though, whether this business model would be REALLY hard hit in economic times like this, with so many people out of work and looking for a little bit of a break on price anywhere they can. Could/would folks really try to take advantage of this type of business…or just stay at home and eat as they probably should.
Hard to say, but I’d love to experience all of it firsthand. Thanks for a really intriguing post.
Being on the inside of this story–I’m a regular at Java Street Cafe–I can add three intriguing facts.
1) Since Sam began the “Your Fair Price” policy, sales are up 32%.
2) Naturally, before he began the policy, he’d fallen behind in rent due to the economic situation.
3) The landlord is not giving him a break and allowing him to recoup losses–an eviction notice is on the way…
For more detail, see:
http://amzuri.wordpress.com/2009/04/01/business-ethics/
That sounds like a really dangerous trend. And it could really be bad if someone other than the owner has to be trusted with making on-the-spot pricing decisions.
I’ve been thinking about automating part of my customer service back-end with something like SuFaq.
I actually think it is a good idea, but I would not do it after the fact like the coffee shop. I would tell the client ahead of time to name a price they want to pay for the video they want us to produce (HandBookLive is a video production company focusing on video manuals designed for HandBooklive.com site).
Having them pay what they want after the video is already produced might be tricky because the creative team would not know how much time they can afford to spend on the video production, extra assets, graphics, etc.
And I agree with Carlos, that the owner needs to be involved in the decision making
I read your blog about the Name Your Price phenomenon and was shocked that A) you thought this was a new concept and B) everyone else thought it was not substainable.
NYP is not new. The concept is practiced all over the world. In the Middle East it’s not unusual for you to go into a mall, try something on and then make an offer. The salesman (yes salesman not person!) generally has a 30-40% variance he can work within to make the sale happen. Judging by the amount of high end stores in the Middle East and the watches these salesmen wear it’s a substainable business model.
The rest of world finds it wierd that the US consumer are not able to negoitate thier own price.