My awesome breakfast at Selma Cafe. You can pay whatever you think it's worth.

Generally speaking, the economics profession swears by the notion that people are primarily motivated by self-interest. Put it plainly: “What’s in it for me?” So it’s not really surprising that one of the most interesting questions that economists face is the simple: “Are people altruistic?” We were brought up with tales of Mother Theresa and her like who grace the earth with their presence by always leaving it better than when they first arrived. These stories are nice and dandy but we can safely say that’s more often an outlier than a norm. We were told by our parents to not follow strangers; never to be too trusting of people – yes, even your friends: you’ll never know when they’ll brandish the dagger; to not give donations to random beggars you see – they might be a fake or a part of a larger syndicate. If your experience is like mine, we were brought up with a cautious outlook on life.

We were told it’s better to be safe than sorry.

Definition of Altruism: unselfish regard for or devotion to the welfare of others – Merriam Webster

I brought up this up because I was intrigued by a business model where the customers can pay whatever they think their product/experience is worth. Yes, they can technically pay the business nothing. I arrived at the United States four years ago during its worst financial crisis since the Great Depression. One of the most intriguing things that I’ve came across during that time is this not-for-profit business experiment conducted by Panera Bread, which happens to be a major public listed bakery {PNRA – NASDAQ} here in America. It does it via its not-for-profit charitable arm.

Pay What You Want

Source: here.

Their business model is simple: You come in, grab/order anything you like. When you are done, you can pay whatever amount you feel your experience was worth. In fact, they call it “donations.” There won’t be a price list; instead, there will a suggested donation amount instead, to give the customers a ballpark on what the product is worth. Can you leave the store without paying? There won’t be anybody pointing a gun to your head forcing you to do otherwise.

If the first thing that goes to your head is the picture of you grabbing everything you want and bolting off, I don’t think you are alone. [Oh come on! Admit it! *snickers*] To be honest, my first reaction was: “Wah! Liddat sure die wan la! How to do business?” Well, fact check: Not only is it a hit, they are in fact expanding! The company brings in $100,000 a month in gross revenue, with $3000-$4000 profit after cost. Here’s the exact quote [source]:

No, the original cafe brings in about $100,000 a month in total revenue — and a profit of $3,000 to $4,000 after costs. Roughly 60 percent of patrons pay the suggested amount, with 20 percent giving more, and 20 percent giving less. Indeed, some people vastly overpay.

Selma Cafe - a very unassuming place, but trust me, this is one of Ann Arbor's jewels.

The reason why I brought this up is because a friend and I just had breakfast at a place in Ann Arbor called Selma Cafe that employs the exact same concept. I have to digress by saying that it was one of the best jewels of Ann Arbor and the breakfast was amazing! Selma Cafe is basically a community affair. How it works is that a person named Lisa Gottlieb, literally opens her house [yes, HER HOUSE] to the community every Fridays and invites a different local chef to prepare a meal. The entire operation is manned by her spouse, herself and a team of volunteers. There will be a menu to choose from and a pickle jar will be placed at every table for you to cash in your donations when you are done. There is a suggested donation amount of course. If you are indeed extremely heartless, you can literally walk away with nobody noticing. It’s akin to the business model mentioned above and needless to say they are not in the red.

The Menu for the day! The first option is always the one that's rotating every week. I had that.

Some might conveniently point out that there’s an element of peer pressure that prevents people from gaming the system. True, I will not deny that for Selma Cafe. The people who go there every Friday are most likely the same people who live around the immediate or nearby vicinity. If you are going to meet the same people again and again, and in the process becoming warm acquaintances, then it’s not advisable to screw things up. However, I would argue that this is not the case for the Panera Bread model – at least for the most part of it. It’s not someone’s house. It’s open like a business. And it’s designed to cater to help those who are in need: the unemployed, the homeless etc. And I don’t it’s too far-fetched to say that the rich who eat there will not necessarily be acquaintances with the less fortunate.

And my conjecture is that the business model would still succeed even if Panera Bread were to conduct this via the parent company as opposed to its charitable arm. Firstly, Panera Bread isn’t associated with a non-for-profit company. It’s a well known public listed company that trades on NASDAQ. It only opted for this ‘charitable arm’ route due to fiduciary obligations to its shareholders. Cause let’s face it: it’s a pretty risky business model to attempt [source]. Besides, the CEO was determined to replicate the full Panera Bread experience [ibid]. This means that with the exception of the odd pricing mechanism, the customer would not be experiencing anything different than what he/she would expect if it were a for-profit restaurant instead.

Lisa's Kitchen (Selma Cafe) - Very Homey

So does this mean that people are indeed altruistic? Nah, I’m not prepared to jump into bed with that notion just because of two observations. The only thing I can conclude from them is that we have insufficient data to validate/dispute any hypothesis. There are alternative economic theories that suggest that people behave altruistically to minimize their guilt or maximize their social image. While it leads to the same outcome, it puts in question the notion that people are inherently altruistic. Who knows? Maybe all the angels do congregate at the neighborhood where the Panera Bread is located. Would it survive if it were to establish itself at a posh neighborhood? Say, upper east side of New York? Panera Bread encountered some issues in Portland where the homeless did overstay their welcome. It had to hire “bouncers” instead! Oh gosh, bouncers at a bakery? [source]

Or better still. Would this model work if we were to do it in Malaysia/Singapore? My friend who had breakfast with me is one of my closest Singaporean friends and we just burst out in immediate laughter at the thought of it. Have you ever been to one of our festive open houses before in Malaysia? We have had incidents of people ta-paoing [taking back] food! We promptly dismissed the idea, but it was only when I returned to my room that I started questioning myself.

My Singaporean friend and the LOW-FAT Ketupat. SHUDDDAAAAPP!!!! I know what you are going to say!

Why did I conclude that way?

What is it about Malaysians and Singaporeans that makes this model a little hard to swallow, if not totally impossible? True, we have seen a lot of things that made us think that way. But I distinctively remembered my experience volunteering to distribute aid during the unfortunate tsunami crisis that hit Southeast Asia many years ago. Malaysians are also remembered for their enormous generosity when the time calls for it. Perhaps maybe that’s it: there are times when we are the image of God on Earth and there are times when we are just assholes. If that’s indeed the conclusion, then the next step would be: what are the characteristics of those moments when Malaysians tap into their altruistic state? Are they replicable as a business model?

I was just recently informed by Dhruva, one of the authors at TehTarikEconomists – the other blog that I write in, that we have a similar business model in Malaysia at the Brickfields Temple of Fine Arts. I was really excited to hear about it! Not only because I’ve never come across such a thing before in Malaysia, but I also attend the Buddhist Maha Vihara that is literally located next door to the venue stipulated! Gosh, all these while it’s been happening under my very nose! We have agreed to check it out! Who knows? We can probably unearth more of this similar practices around Malaysia.

That goes to say, if you do know of any – do let me know! It’s something that I’m pretty keen on sticking my nose into.

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PS: I would really appreciate it if you could share this post on your Facebook wall, especially if you are a Malaysian or in Malaysia. One of your friends might know a place that adopts this altruistic business model and I am really interested in tracking these places down!  

PS2: An article on “pay-what-you-want” business model by the NY Times.

99 Days to Graduation.