Business Administration Education Guide

Wednesday, February 07, 2007

Starbucks 2.0: Terra Bite Lounge, Where Coffee is prices are based on the people who are inherently good….

Ohhhh this should be interesting…and only in the area of Seattle could I se this working. Kirkland

area, people tend to be a bit more honest.

If it's Web 2.0, it's free - we're quite used to that, but would you expect it in the real world?

Terra Bite Lounge is an upscale cafe in Kirkland, WA that doesn't list any prices on its menu. That doesn't mean it's free either. The owners' definition:

"Terra Bite Lounge is an upscale voluntary payment cafe/deli.We serve espresso, blended drinks, baked goods, sandwiches, and desserts in a hip upscale setting.

Patrons choose what to pay, and are encouraged to pay what they would elsewhere. You may use this as a convenience feature, e.g. get your daily coffee and drop in a $20 at the end of the week.

We also cheerfully serve those who cannot pay, in a non-stigmatizing customer setting, with no political or religious message, and with full-time availability. "

The idea emerged from a debate where founder Ervin Peretz, a Google programmer (ahhh, is Google moving into the cafe business? smile_tongue) argued that people are inherently good. To prove his point, he create Terra Bite. Talk about putting your money where your mouth is... to the tune of 6 figures. But he does not run a charity, he plans to build a growing for-profit business. Will people pay (enough)?

"Even without posted prices, "social monitoring" — the feeling that others are watching what you do — can enforce payment, said Erica Okada, assistant professor of marketing at the University of Washington Business School." But Terra Bite employees are instructed not to look at the drop box where patrons can discreetly drop payment - if they so chose:

With its anonymous drop box, Terra Bite has minimized, if not eliminated, that effect. Under these circumstances, Okada said, the economic model predicts that Terra Bite customers won't pay anything.

The Professor's pessimism does not deter Ervin, who plans to expand Terra Bite into a chain - last time we checked, Starbucks hasn't crumbled yet.

What do you think? (If you can't see the poll in your feed, please click through to cast your vote).

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