Was Paneras PWYW experiment a success or a failure

If you're like me, you probably enjoy eating a good meal at a restaurant at least a few times a week. It's nice not to have to cook at home, and visiting a restaurant can be a nice way to spend some time with family, friends, and colleagues. Now, although America is not really famous for its food, many of our restaurants are well-known, especially our fast food restaurants. Even if you've never been to the US, you've probably eaten in one or more American-based restaurant chains. There's McDonald's, Pizza Hut, or Subways. One of my favorite restaurant chains is a place called Panera Bread. Now, those of you who live in the US or Canada are probably familiar with Panera. They have over 2,000 locations across North America, and one of the largest bakery chains in the world. Here in Champaign, we actually have three Paneras, one right next to our campus. In addition to serving delicious breads and pastries, Panera also makes great soup, salads, and sandwiches. My favorite Panera meal is a grilled cheese and chicken soup combo with a sided chips. It's cheap, but so very delicious. Now the purpose of this case study is to illustrate and apply the concept of pay-what-you-want pricing to an actual business, in this case, Panera. In addition to serving delicious food, Panera is also a very socially responsible company and cares a lot about their community. In order to better serve its community, Panera implemented a pay-what-you-want pricing strategy in one of its restaurants in St. Louis, Missouri way back in 2010. It then opened four other pay-what-you-want locations across America, including restaurants in Boston, Massachusetts, Dearborn, Michigan, which is just outside of Detroit, Chicago, Illinois, and Portland, Oregon. Across these locations, Panera found that around 60 percent of their customers paid the suggested price, 20 percent paid less than that price, and 20 percent actually paid more than the suggested price. In total, close to 90 percent of all their customers at these pay-what-you-want restaurants paid something that could have got their food for nothing. Now, since Panera is a well-known restaurant, its pay-what-you-want pricing strategy receive lots of attention and obtain lots of positive comments for it's very innovative approach. For example, as shown in the required video, a CBS news story, back in 2010, proclaimed that by implementing this approach, Panera was a business genius. Now, despite these positive accolades, Panera was never able to expand the strategy beyond these initial five restaurants. By early 2019, they closed all of them, there were no more pay-what-you-want Panera locations. Panera's pay-what-you-want pricing strategy was a borrowed experiment that last nearly a decade and collectively across all five restaurants served over two million meals during their lifetime. The assigned reading and video provides you with a sense of what Panera was trying to accomplish to this initiative and how its customers and employees responded to it. In brief, here are three key issues that I'd like you to carefully consider as you evaluate this case. First of all profitability. As a business, Panera seeks to make a profit or at least avoid a loss. Now, although most of Panera's customers, 90 percent were paying something for their food, their pay-what-you-want restaurants were experiencing an average of about a 30 percent loss, thus, this approach did not achieve long-term profitability. Second, customer response. Panera's pay-what-you-want strategy also had some unexpected responses from their customers. Although Panera was very clear that their pay-what-you-want strategy was meant to help people who cannot afford to pay a full price for their meal, a number of people who could afford to pay simply chose not to, such as college students for example. Also, their pay-what-you-want restaurants attracted a large number of homeless people, which resulted in decline in their regular customer base. For example, one of its paying customers complained, "These homeless people stink, I can't stand eating like this," which of course is a horrible thing to say, but some people said that. Third, impact on employees. This pay-what-you-want strategy also had a significant impact on Panera's employees. For example, since only five of Panera's 2,000 plus stores employed this approach, its customers were often confused by this strategy and employees had to spend lot of time explaining how it worked. Also, unfortunately, many of its homeless customers were drug addicts or had some form of mental illness. Thus, its employees had to engage in non-typical duties, such as dealing with people who are using drugs in the bathroom or providing psychological counseling to them. Now, I'd like you to carefully consider these three issues as you evaluate the wisdom of Panera's pricing strategy and use them to help answer the following three questions. First, was Panera's pay-what-you-want experiment a success or a failure? Now, it didn't result in profits, but it lasted nearly a decade. Second, would the outcome have been different if Panera was selling a digital product, such as a book or a video game instead of soup and sandwiches? Third, how could have Panera improved its pay-what-you-want strategy? What digital tools could they have used to enhance it's success? Well, I hope you enjoy working on this case, I look forward to seeing your thoughts. Hey, thanks for sticking around. Here is your bonus fact, Panera Bread was founded way back in 1987 and was first known as the St. Louis Bread company, because that's where it began, in St. Louis, Missouri. It changed its name in 1997 to give the brand a more global focus. In fact, the word Panera is Spanish and means "bread basket" so I'm told. Well, good luck with the case, take care.