Kish: Where Customers Pay As They Wish

Abstract

New restaurants often do not manage to succeed within a reasonable amount of time. Exotic restaurants especially face the problem that price promotions may not attract new customers because prospective customers might associate very low prices for unfamiliar food with a high functional risk. This paper describes how Pay-What-You-Want (PWYW), a new pricing mechanism, was successfully implemented at Kish, a moderately priced Persian restaurant in downtown Frankfurt. After the initial testing phase, which had the characteristics of a promotional offer, the restaurant decided to permanently offer its buffet lunch under PWYW conditions. We report the long-term effects of this decision as well as a simulation demonstrating that profitability is mainly based on 'trading up' the continuous inflow of new customers to the more profitable dining offer where prices are fixed.

Perceived Price Fairness in Pay-What-You-Want: A Multi-Country Study

“…Kim, Natter, and Spann [15] assume that in PWYW situations, price paid increases by just 20 percent of the increase in variable costs. Moreover, offering PWYW decreases the average price paid but also increases the amount of customers [14] [16]. As such, PWYW is suitable for short-term offers and promotions rather than applicable as a permanent pricing strategy and is more dedicated for products with high fixed and low variable costs [14] [15].…”

A review of the empirical literature on Pay-What-You-Want price setting

“…The evaluation results of field studies, which contain behavioral data on PWYW prices paid voluntarily for real purchases and compare them with common fixed market prices, yield the following overall picture (Bourreau et al, 2015;Drevs, 2013;Gautier and Van der Klaauw, 2012;Gneezy et al, 2010Gneezy et al, , 2012Kim et al, 2009Kim et al, , 2010aKim et al, , 2010bKim et al, , 2014aKim et al, , 2014bLeón et al, 2012;Machado and Sinha, 2012 (study 3); Regner, 2015;Riener and Traxler, 2012): Brought to you by | MIT Libraries Authenticated Download Date | 5/9/18 8:48 PM -Only a very small portion of buyers pays nothing or more than the standard fixed price for the good, respectively. -The majority of buyers pays less than the standard fixed price so that the average payment per unit/customer in a PWYW setting is lower than the regular fixed market price for the good.…”

“…Looking at price averages measured at various points in time, Riener and Traxler (2012) and Schons et al (2014) find that the monthly means of the voluntary payments sellers record over 24 or two months, respectively, drop. On the other hand, Kim et al (2010b) and Mills (2011Mills ( , 2013 note that the prices buyers pay on average grow during 12 months or 14 days, respectively. Finally, Regner and Barria (2009) detect no significant differences between the monthly mean PWYW amounts, which an online seller of music tracks receives over an 18-months period.…”

“…The most prominent "indirect" financial outcomes of PWYW pricing are additional revenues that a supplier generates through stimulating demand for other and potentially more expensive products or services which typically complement the goods sold at PWYW (e.g., drinks served with a meal in a restaurant). The empirical literature occasionally mentions such cross-and upselling effects of the PWYW method (Gneezy et al, 2010;Kim et al, 2009Kim et al, , 2010bKim et al, , 2014aKim et al, , 2014bSchmidt et al, 2015;Steiner, 1997). However, these effects have not yet been the focus of systematic empirical investigation.…”

“…In a similar vein, suppliers may rate an introduction of the PWYW method as being commercially advantageous for them because they expect that its use will improve the awareness for their offerings and their overall image among potential customers. These effects in turn, may increase the sales volume or the average unit price for goods sold under PWYW conditions or other products offered at conventional fixed prices (Kim et al, 2010b;Riener and Traxler, 2012).…”