Paper: “Norms, moods, and free lunch: Longitudinal evidence on payments from a Pay-What-You-Want restaurant”

The restaurant “Wiener Deewan” in Vienna is among the 11 existing restaurants allowing customers to determine the price, a.k.a. pay-what-you-want (PWYW). Due to the adoption of the pricing model from the beginning, Riener and Traxler (2011) could study the evolution of payments for PWYW at the restaurant and the corresponding influence of norms and moods. Here are some more facts about the study:

Main findings

The first research contribution of the paper shows patterns found in the collected data:

The revenue was increasing as the number of visitors was increasing, but the average payment declined from approx. 5,5 to 5 euros.

The second research contribution provides an explanation of the previously presented results. Social norms affect long-term fluctuations in payment distributions as regular guests adjust their perceptions of social norms over time. Moods are the main source of short-term fluctuations as people in a good mood are expected to pay more. The number of sunshine hours is selected as an influencer and indicator of mood.

Evaluation

The greatest strength of this paper is the lack of pre-existing payment recommendations such as reference prices or prior prices, which is a rare opportunity and an important prerequisite for the study of norms’ influence. The variance and evolution of the average price also serve as a proof of the gradual formation of social norms as repeating visitors steadily shape their perception of the pricing norm.

This study is the first continuous longitudinal study of PWYW as previous studies were conducted for a short-term (e.g. Kim et al., 2009) or for a discontinuous period (e.g. Regner and Baria, 2010). As a long-term study, it provides useful insights into the specific developments and evolution of mean and median PWYW payments, showing that payments’ variance decreased over time as the majority of payments came closer to the mean.

Figure 1. The evolution of daily mean and median PWYW payments

The inclusion of both new and returning clients make the study applicable to regular business situations. However, as 81% of the guests visited the restaurant repeatedly (Riener,2010), it would have been interesting to distinguish between the new and returning customers to study behavioral changes after each visit, i.e. if people are (and how) affected by social norms development.
Although mood has a strong correlation with sunshine and weather, as confirmed by various studies, the research doesn’t provide a convincing explanation and prove that sunshine is one of the main reasons for lower average payments. Sunshine might not influence all visitors equally as mood also depends on other external factors.To confirm the hypothesis, it would have been more useful for the researchers to conduct a survey, and quantify and establish the presence of corresponding mood conditions. 

Insights for businesses and academicians

Businesses might be surprised that PWYW pricing models don’t necessarily lead to clients paying nothing or a much lower price. The examined study shows that PWYW can bring a higher revenue and increase the number of visitors, presenting a long-term business strategy (Greiff et al., 2013). However, it is not clear if the model will be that successful if there were competitors using the same pricing model, which is an idea for future research.

Figure 2.Distribution of payments

Additionally, it will be interesting to observe if there are any differences in the evolution of payments between products and services (and further between commodity and luxury/enjoyable goods) as services have an inconsistent quality (e.g. a dish will taste slightly differently each time) while many products have a consistent one (e.g. a model of t-shirt looks and feels exactly the same).

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References

Greiff, Matthias, Henrik Egbert, and Kreshnik Xhangolli. “Pay What You Want-But Pay Enough! Information Asymmetries and PWYW Pricing.” Management & Marketing 9.2 (2014): 193.

Kim, J., Natter, M., Spann, M.. “Pay what you want: a new participative pricing
mechanism”. Journal of Marketing 73 (1), 44–58.

Photo: Inês Lizard.  https://static1.squarespace.com/static/552a6bb1e4b010138baaaca6/t/55630de7e4b004a8dfc9c839/1432555867407/vienna-restaurant?format=750w.

Regner, T., Barria, J. Do consumers pay voluntarily? The case of online music.
Journal of Economic Behavior and Organization 71 (2), 395–406.

Riener, G., 2010. How Free is your Lunch? University of Jena, mimeo.

Riener, Gerhard and Christian Traxler. “Norms, Moods, And Free Lunch: Longitudinal Evidence On Payments From A Pay-What-You-Want Restaurant”. The Journal Of Socio-Economics, vol 41, no. 4, 2012, pp. 476-483. Elsevier BV, doi:10.1016/j.socec.2011.07.003.