Another Pay-as-You-Wish Success Story

We’ve written before about pay-as-you-wish commerce, most significantly the case of a bagel man in the Washington, D.C., area, but also a coffee shop in Seattle and three instances of pay-as-you-wish download-able music: Radiohead, Jane Siberry, and SongSlide.

Now here’s another baked-goods pay-as-you-wish scheme that’s worth looking at, concerning a bakery in Kitchener, Ontario, called City Cafe Bakery. Below is a good description from an article by Karen Hall in Bakers Journal (the “Voice of the Canadian Baking Industry”).

There are a few things worth thinking about when you read any given pay-as-you-wish story.

On the plus side, there’s the opportunity cost of not having to hire someone to work the cash register.

On the minus side, there’s the issue of “survivorship bias” — i.e., if you’re reading an article about a pay-as-you-wish business, it is inevitably a business that has managed to survive and perhaps even prosper; but don’t forget all the articles you’re not reading about such schemes that failed miserably. The particular incentives in any particular pay-as-you-wish scheme are what determine success or failure.

Finally, as interesting as the pay-as-you-wish element of this bakery is, I was most interested in the line at the end about the don’t-answer-the-telephone rule. That’s something I’ve tried to adhere to for years, and which e-mail has only made easier.

“Everything is rounded off to the nearest quarter with taxes included where applicable,” he says. “So every dessert is $1.50 (tarts, brownies, and date squares), every pizza lunch is $5, every beverage is $1.25, every loaf of bread is $2.75 (Italian sourdough, multi-grain, and raisin bread on weekends), croissants are $1 each, and bagels are three for $2 (plain, sesame, and multi-grain).”

The bakery conducts audits every six months and [John] Bergen says only once did things come up short.

“Our theory is that two percent of our sales are being ripped off. ‘Ripped off’ in the sense that there are people who forget to pay or they make a mistake in paying, and then there are people who deliberately don’t pay. And every so often we have to kick somebody out that we know hasn’t been paying,” he says. “But at the same time we figure we’re being overpaid by three percent. Some people come in and want a $2.75 loaf of bread, but they see we’re busy so they throw $3 in and walk out. Or, although we discourage tips, some people still give them to us. But because the staff is paid well (the average wage is $15.50 an hour), the tips go into the general pot.”

The staff will make change if a customer needs it, but Bergen says they will ask the customer how much they want back because they don’t want to have to do the math.

Nor does staff answer the phone. There is a cell phone that suppliers can call, but the main phone does not get answered.
“When somebody phones, the (voice mail) message says the mailbox is full,” Bergen says. “We don’t answer it because the staff is here to produce and it disrupts us.”

(Hat tip: Brian Doelle, via BoingBoing)


Ronnie

The phone might be used to relay information. Maybe it plays a recording of store hours, address, etc.

Devon

A few years ago I ran a fundraising event for a chairitable organization that I was working for. For our annual fundraiser the logisitics of ticket selling, ticket taking and buying at the door were becoming increasingly difficult (it was an outdoor event and people always want to pay with debit /credit).

We let people pay want they want - and advertised it as pay you own price. Beer, wine and food was included (donated by generous suppliers). Our target amount was $20 per person and while there were some pennies in the entrance bucket - there were also some $100 bills. We ended up making well over the $20 per person target.

Steve

Is anyone else offended that the owner takes the employees' tips? I don't understand this logic: "The employees are paid well, so the owner should get more money, even though said money is expressly designated by customers for employees."

Dave

I've been a regular for years at John's. The tendency is to round up and throw it into the old bus/transit box that's used to collect the money, especially since our currency consists of $1 & $2 coins, it's an easy transaction. There's also a HUGE calculator on the counter for those of us who are math challenged.

it's the best place in town and the best bagels around!! And it's funky.

Suzanne

I work at the City Café and it is a great place to work as well as to eat and meet. John the Baker has developed a great community centered on trust; our trust of the customers (which delights newcomers, esp. those who come in with credit cards and no cash and leave with food and directions to "pay next time you're in") and his trust of staff who track and report their own hours to the bookkeeper. No punch cards, no time sheets, just the expectation that we will be honest with each other.

As for a comment earlier; we ask the customers to tell us what they want back in change -not- because we can't do the math (we calculate bills all the time for those who need help), but because we don't check their bags to see what they are taking. We trust them pay for what they take.

Wrt an even earlier comment: our dough for bagels is made fresh and USED UP every day. There are no frozen rounds sitting about to toss in the wood-fired oven, whether it is being used or not.

And I understand a phone was put in when too many people would call the restaurant next door to find out if we were open, or whether or not there was bread!

Partsfather - come in on my shift and I will play you some Blues! See you at the Café.

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Dan

The concept of pay as u want/wish is highly similar to the environmental issue of common property resources .by conversion to a pay as you wish joint it wil become an open access resource,where according to conventional economics each individual will to maximise their gains for minimum cost(at least thats what a rational consumer would do) in this case the business will most likely fail becouse it is supported by irrational consumer behavior.

ecks

Poster 14, that would be a terrible idea from the social psychology point of view. You would essentially be advertising that it is quite normative NOT to pay, thus ironically making people feel far less guilty about not doing it themselves. Part of the reason these things work at all is because paying is just so normative that we all feel on some deep level that you HAVE to, and everyone would think you were terrible for not doing it.

John Bergen

I am the owner of City Cafe Bakery. This concept of trust has been so successful that we have opened a second location and are looking for more. Not only do I trust my customers but I also trust my staff, suppliers and repair people. I have no office in the bakeries,only a wicker basket for mail. The staff phones in their hours to my bookkeeper. My administrative time running both bakeries, which have a combined revenue of$1.2 million, is one hour every two weeks. What we do do is keep very current and extensive financial records. We have a soft tight control. If labour costs shift by 1/2 of a percent we know it. The unintended consequence of this for profit enterprise is that we have developed a congenial meeting place and have created a wonderful community. After 8 years of this iI have developed great friendships and keep meeting extraordinary people.John the Baker

Feedback Loop

#16,

I don't see ho conditioning a customer base to the appropriate behavior is a bad idea.

If, say, 2,000 items were purchased each week, and 168 were not paid for, who would come to the conclusion that it is normal to steal the food? The signage is bringing awareness about the minority who are dishonorable. It's all in how you word the signage. I may not have the perfect words, but the concept is sound.

Here's a similar situation about a different kind of honors system.

Many cities and towns have parks expressly for pets. They are used for training, playing fetch, etc. and everyone in the area knows what the park is all about. If the pet owners don't clean up after the pets, the park closes for regular cleanups before anyone is allowed back in. If the failure to clean up is chronic, either the park becomes closed to pets, or citations are issued, which is a hassle. This strategy teaches people to behave in the expected fashion, or lose the benefit.

Don't clean up after your pet, everyone loses the benefit of a nice, pet-friendly park.

Don't pay for food at the bakery, everyone loses the benefit/convenience/speed of no cash registers.

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Chris

City Cafe Bakery is quite a strange place. I once tried to purchase a bagel after noon on Saturday. The woman behind the counter laughed told me that I've have to come a whole lot earlier that noon. "You wouldn't believe that number of people who come in asking for bagels", she added, shaking her head.

It's not like the oven was even being used at the time for anything else!

kinglink

By kicking out people who aren't paying and they don't want tips, this seems to be more of a "no one is watching the cash register" business model, rather than a pay as you wish. A pay as you wish would allow a person to pay 1 dollar for a bagel, and another to pay 3 dollars for the bagel.

Kyle S

Last weekend, I saw a very small scale but ingenious pay-what-you-want "store" in operation. I was playing golf at a course that was surrounded by homes. Nearby one green, in someone's backyard, was a large bucket of used golf balls. Next to the bucket was a smaller, covered bucket with a slot in the top, with a sign that said "$3 / 3 Balls" on top.

Rugbar

Good distinction, Chuck. You're right. Radiohead asked consumers to determine the value of their music, truly "Pay-as-you-wish". The City Cafe Bakery in Dubner's post uses an honor system.

I agree with A E Pfeiffer's post, too, that it's in the customers' interest to pay--even to be occasionally extra generous--so that the cafe succeeds. I credit the cafe's appeal to what I'll call their low PITA (Pain In The A**) Factor. The City Cafe Bakery has eliminated an expected PITA--waiting in line to pay for your lunch. Everyone appreciates fewer PITA's (or is that P'sITA...?) and City Cafe Bakery is being duly rewarded.

Feedback Loop

The store could put up a weekly poster stating the amount the customers are shorting the store in aggregate.

-$142

"Last week, 96 bagels and 72 doughnuts were not paid for, totalling $142 in food that was taken and not paid for. If this continues, we would go out of business in a few months. You can make a difference. Pay for your food. If the number does not drop to under $25 per week for each of the next 3 weeks, we will be forced to abandon the honor system and use a cash register for every order."

If the payments are over the retail price of the items (extra, unexpected profit):

"Thank you for paying for your food last week. To show our appreciation, if you purchase two items, you may take a third with our compliments this week. Your honesty is always appreciated."

You don't have to do this every time, but often enough to generate goodwill with the regular customers. Maybe even have a "Free Doughnut Day" for the first 100 customers one morning as a thank you.

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Cindy

A big part of their incentive system is the presence of staff and other customers. It is easy to notice if someone did not pay. When people are all around, you don't want to walk out without putting something in the fare box. At an empty fruit stand or an empty office kitchen, nobody sees what you did not do.

It would be easy for an owner to underreport income and sale tax because there is no cash register printouts...

sygyzy

I have the same question as matt. What's the point of the phone then?

Chuck

It seems there's a distinction to be made between a true pay-as-you-wish business that asks you to assign a value to the product (like the Radiohead model) and one like this, where there are in fact set prices--"bagels are three for $2"--but only an appeal to conscience is used to enforce the price.

Matt

Why have the expense of the phone, then? Is it just for emergencies--for calling out? If that's the case, then wouldn't the store's cell phone work just as well? (And, honestly, isn't it likely that 99% of the employees and customers have cell phones, too, if they needed to make an emergency call?)

Bag A. Donuts

I'd like to see how payments would be affected if they put a "dummy" camera in front of the honor box. Would poeople assume someone was watching from a back room?

Better yet, mount an inexpensive close circuit camera and pipe the image to a wall-mounted screen. Anyone in the store could see whether people were paying for their food.

It doesn't have to record or store any of the video data. Just its presence would probably bump up payments.

discordian

Here's an idea for a study - look at the cases of obesity relative to the proximity of pay-as-you-wish food service.

Also - "but Bergen says they will ask the customer how much they want back because they don't want to have to do the math."
CAN they do the math? The other day two teenagers working in a pet store near me couldn't figure out change for $17.70 from $20.00 WITH A FREAKING CALCULATOR.