What if your favorite local restaurant, at the end of your meal, gave you a bill that let you fill in how much you should pay? In other words, what if you determined the price of your meal based on how much value you think you received?
I heard of a restaurant that did this and supposedly their revenue increased substantially.
This kind of pricing model works best in markets where repeat business is customary (hence your local cafe) so people don’t just leave $1, walk out, and never come back….Even though, nonetheless, I’ve been in plenty of restaurants just once and still tip a meaningful amount.
Are there other applications when customer-determined pricing could work? What are the pitfalls?
I understand that there is a high-end restaurant that does just that…but I think that this pricing is more effective for luxury items.
If a fellow takes his gal pal to a fancy restaurant to impress her, what better way than throwing down a sizable chunk of change–it shows his earning power, discernment, and generosity.
I doubt it would work in a fast food environment.
There’s a restaurant near us in London (Golders Green, actually) that has this model. We keep meaning to go there, and I think we will soon, just so I can report back! It’s a middle-of-the-road type place, not luxury or fast food.
In our entrepreneurship blog we covered that kind of business model, too. Our example is doing business in Berlin, Germany.
The title of the post is “Egonomics – when the price is exactly what you are willing to pay”“.