Billion Dollar Company Taps Individual Charity

BOULDER, CO – Most of us know that if you want a fast, healthy meal for a reasonable price you can head to Panera, but what about getting the same meal for a suggested price?

That’s the business model at one of their locations in St. Louis and it seems to be working quite well. According to one employee we spoke with, 85-90% of customers give at or above the suggested price to pay it forward. Company higher-ups have commented that they plan to open two other locations in other cities in the coming months.

Pretty innovative – the interaction is voluntary and it lowers the transactions costs associated with helping others. Hopefully other companies take a cue and roll out similar concepts in their stores.

Thanks to Kelly Owens for putting this on our radar! If you have story suggestions for us as we continue our Tour please let us know!

For more on the very real and powerful incentives of civil society check out David Beito’s excellent From Mutual Aid to the Welfare State.

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10 Responses to Billion Dollar Company Taps Individual Charity

  1. Rev. Debbie Kalinowski 2010/08/25 at 2:45 AM #

    Great video! I read something about this community cafe a couple weeks ago. Glad you got to visit it and introduce them to Shire Silver, as well.

  2. TC Bell 2010/08/25 at 2:03 PM #

    Wow! I had no idea Panera was doing something so innovative. Out here in Denver there is a place called SAME (So All May Eat) Cafe that offers similar services but mostly helps feed the homeless. Check out their website here http://www.soallmayeat.org/

  3. Jason Brizic 2010/08/25 at 3:12 PM #

    I believe this will backfire economically in the long term once buyers (customers) realize the mistake the seller (Panera) has made. Panera has placed the entire price system determination in the hands of the buyer by pre-agreeing to sell them their product at the price the buyer wants.

    Self interest compels us to seek the lowest prices for the good we wish to purchase. The seller seeks the highest price he can get for his goods. The market price is determined by buyer and seller value scales plus supply and demand for the good. This is all basic econ 101. See Murray Rothbard’s Man, Economy, and State chapter 4 “Prices and Consumption” available for free at http://mises.org/resources/1082/Man-Economy-and-State-with-Power-and-Market.

    The sale of food was already a voluntary exchange. This isn’t more voluntary. It just puts the seller at a great disadvantage in determining the exchange price of the good.

    I expect the 85-90% of individuals that pay the suggested price or more to decline over time.

    I would much rather see Panera refuse to collect government sales tax on behalf of the government to gain more customers.

  4. KBCraig 2010/08/26 at 5:34 AM #

    Living in the South all my life, I’ve always know of one or two diners around that ran on the “honor system cash register”. They tend to always be very small and very local, but they always work. Nobody shorts the system in the long run.

    Jason, the reason it works is because people still order based on a price (or “suggested donation level”) that is listed by the product. Rational self-interest includes living honorably, and either paying the listed price or negotiating for a better deal, because it’s in our rational self interest to promote a society in which people behave honorably, and to help set that example.

    Even in a pure set-your-own-price system, Radiohead did very well with their release of In Rainbows, where fans were free to pay whatever they wanted for an electronic download of the album. Most paid around the normal retail price, with very few opting to pay nothing.

    Liberty On Tour charges me nothing to read their reports and watch their videos, but I just sent them money anyway. I did this because I desire to keep them on the road and see more of their reports. Many other people are doing the same.

    It’s true that human nature compels some people to take advantage of “free” stuff, when it’s offered as such; they assume someone else is picking up the tab. But everyone knows that these sandwiches cost money. Instinctively, all people know TAASTAFL.

  5. KBCraig 2010/08/26 at 5:36 AM #

    Ugh! “TANSTAAFL”. Should have proof-read!

    • Sandra 2013/01/13 at 11:00 AM #

      Okay, I need your expert opioinn. I have now had Shades of Grey in my hand around five times, and always put it down again in indecision. Do you think it would appeal to me? The whole failed high concept scifi thing does appeal to me :D

  6. Dr. Q 2010/08/26 at 5:47 AM #

    According to Jason’s reasoning, no one ever leaves tips for waiters and waitresses.

  7. Pete Eyre 2010/08/26 at 2:51 PM #

    TC – thanks for the 411. Actually the folks at the Community Cafe location told us about SAME.

    Jason – I hear you re: the tax. Individual entrepreneurs and smaller companies are already doing that. Eventually a big company will become the first. The way I look at it, this business model underscores that folks will help each other voluntarily. Hopefully the thousands who patron that establishment have less and less support for claims that the State needs to steal money from some to give to others. And the legitimacy of that institution based on violence continues to erode.

  8. Jason Brizic 2010/08/26 at 5:36 PM #

    My main point is that I don’t think that the donation business model will work well in many industries due to the razor thin profit margins of many industries. It has nothing to do with voluntary exchange or involuntary exchange.

    There are several forms of voluntary exchange:
    1) Direct exchange via barter (e.g. eggs for fish)
    2) Indirect exchange via a medium of exchange (money)
    A. Auction = The buyer determines the price he is willing to pay. The highest bid among bidders in the limited auction time wins. (e.g Ebay)
    B. Tradional point of sale auction = Price is fixed by the seller and buyers have time to puchase at the sellers price so long as the supply of goods lasts (e.g. Wal-Mart or most retail stores)
    C. Negotiation = Buyer negotiates with seller on price of good (e.g. car sales, swap meets, flee markets). The key difference with donation method is the sellers agreement to the price. The goods are not provided in advance.
    D. Donation = Seller provides goods in advance and buyer determines how much to pay for them (e.g. charities, Free Talk Live, Liberty on Tour, the bread company we are discussing).

    KBCraig,
    The price of digits are very cheap. It costs Radiohead almost nothing to delivery their music via download using the donation method of voluntary exchange. The same can’t be said for the costs associated with ham sandwich delivery via a brick and mortar store staffed with employees. The sandwhich shop probably has rent and labor costs that comprise a much larger percentage of their revenues than Radiohead or Free Talk Live. Profit margins are thin in the food service business. The sandwich company will go out of business if its customers (in agreggate) pay less for the sandwhiches than they cost to make and delivery over a long enough time. I’m not saying that everyone will not pay, just that if enough people underpay the suggested price then they will lose money and go out of business eventually.

    Let’s use another example, FTL sends digits (the near instantaneous digital recordings of their voices) to the Genisis Communications Network and they broadcast them to their affiliate radio stations. FTL doesn’t bear the costs of radio towers, electricity costs, and radio repairmen; GCN does. GCN makes most of its money from radio advertisements; not donations from its listeners. Liberty on Tour receives direct donations (gifts from people like you and I) and some money from the sponsors on MARV’s exterior. All I’m saying is that the bread company probably needs to augment its donations with some advertising revenue when free market competition challenges their “suggested prices”.

    Dr Q, I tip geneously. I believe that most people will reward a waiter that provides good service with a tip. Some will give extra and some will give little to none. However, let’s focus on the waiter for a moment. If a waiter discovers that the costs of driving to work and maintaining his work clothing exceeds the revenue he makes through tips, then what is he to do? Should he keep working until he is broke? At some point he will seek a different job despite the fact that most of his customers tipped and some tipped rather generously. In the end his costs exceeded his revenues (tips). This is the risk that the sandwich shop is taking with their donation pricing.

    See you all in Denver tomorrow night.

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