Set Your Own Price:

The band Radiohead has set the marketing world abuzz by offering music and allowing the consumer to set the price. Would such an idea flourish in the restaurant space? A first pass would yield an unqualified NO! The cost to create the music is the original investment. The distribution cost using the internet is virtually nothing. Restaurants have a huge upfront capital investment and the distribution cost is the ongoing operating expenses (i.e. labor, COGS, occupancy and a host of direct and indirect expenses). The idea would seem to have no relevance whatsoever to discussions involving restaurants.

Ignore the economics for moment and consider the dynamics of a marketplace. You the entrepreneur create value, whether a product or service and then decide on a pricing strategy for the marketplace in which you operate. To a very large degree you are surrendering yourself to that marketplace. The marketplace decides whether to purchase your product or not. You make adjustments in your price if the marketplace gives you indications that your pricing strategy is flawed (i.e. no one visits your restaurant). Allowing the guest to set the price, thus creating the equilibrium in the supply demand equation, would seem to be the logical destination for that strategy.

The Internet has created an auction economy where information is readily available and consumers make pricing decisions. That information has shifted the balance power from the producer to the consumer. Producers as a group no longer have the pricing power that they once enjoyed.

“Discussion in Theoretical Economics is always fascinating” you might be saying to yourself, “yet there is no way I can operate a restaurant with the hope that my guest will pay the correct price for my menu”. There is to my knowledge no restaurant that allows the guest to set the price today. There used to be very few restaurants that would let the guest have a menu item prepared their way. That has changed.

Let me know what you think, however the day is coming quickly when the guest will Set their Own Price!