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May 26, 2021

Why the 'Pay What You Can' model works

On the surface, “pay what you can” business models are a direct affront to capitalism, something that’d never be lectured at the Kevin O’Leary School of Business.

Istockphoto_4645476-filling-the-coin-jar Yet there appears to be a growing sample that shows foregoing direct profits may hold long-term benefits under the PWYC model, which allows customers to feel free to fork over what they feel is right for a product or service, higher or lower than the suggested retail price.

According to an executive of Panera Bread, the North American bakery-café chain that has run the PWYC campaign at three of its 1,500-odd locations for the past year, the promotion works, and many times consumers actually pay more than what they should.

The roots of PWYC models are tough to trace, but surely no such campaign was as high-profile as that of Radiohead, the alternative rock band that released its 2007 album, In Rainbows, for download before its official release under the guise that listeners could pay what they thought appropriate – “It’s up to you,” the band’s website stated.

The promotion appeared to work just fine – 40 per cent of people paid an average of $6 for the download, which is a decent bump considering the band then released the album in stores anyway – and the Radiohead campaign may have laid the framework for Panera Brand to try its own PWYC model.

According to the restaurant chain, about 60 per cent of diners have left the suggested amount for their meals over the past year, 20 per cent left less and 20 per cent left more. One diner, according to the Christian Science Monitor, left $500 for their tab.

The idea behind PWYC is clear: people are, generally speaking, honest by nature. For those that aren’t – that take advantage and pay less, the equivalent of “parking in a handicapped spot,” Panera Bread founder Ronald Shaich says – the people that pay more even things out. The overly-generous subsidize the cheapskates, businesses get a bit of good publicity and everything settles where it should.

“The lesson here is most people are fundamentally good,” Shaich notes. “People step up and they do the right thing.”

What would you hand over if presented with a Pay What You Can opportunity? More, less or just the same?

By Jason Buckland, MSN Money

*Follow Jason on Twitter here.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...