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Terra Bite Case Study Solutions

Terra Bite Lounge: Pay What You Want Cafe Harvard Case Solution & Analysis

In April 2009, the founder and owner of Terra Bite, Lounge considering opening elsewhere. Lounge Terra Bite, a Kirkland, Washington coffee shop, without prices, and voluntary payments. The owner believes that Terra Bite, was a demonstration of a high level of honesty and trust between him and the client. There are several considerations to evaluate when deciding to open a new location. Where is the new place to be? The current location was in a wealthy suburb, but the owner thought that several types of areas will be receptive. What types of consumer characteristics best suited to this model believe that payment will be made? Is there anything that can be added to the current model to make Terra Bite more successful? He was careful to consider those amendments that are consistent with the current social component of the original model of trust Bite Terra. 

Q1. What is the retail value proposition for Terra Bite?

A –The Terra Bite Lounge is a café which offers the following value proposition:

1. Good-quality coffee and other related beverages like tea2. Fast food menu3. “Hang-out” place for younger customers4. Free wireless internet5. Gaming consoles6. Good reading selection7. Refreshing and welcoming environment8. ‘Pay what you feel like’ – voluntary payment system under which

customer can pay whatever they feel like paying.

Q2. Will Terra Bite survive in the long run? Will it thrive?

A – Terra Bite operates on the experimental concept (or philosophy) of public honesty and trust and relies on the fact that people are essentially good or want to be good. This concept of ‘pay what you want’ would surely sound suicidal to most of the businessmen and entrepreneurs. But this business model is like a magnet for positive public image and word-of-mouth publicity provided every aspect or SOP of the business is carefully planned-out. For example suggestive pricing, you don’t want to confuse the customer by

creating a negative environment when it comes to payment, the customer should not feel that either he is paying ‘too less’ or ‘too much’.

Also, the location of the café is an important factor which plays a major role in the venture’s success. The demography of the location has to be carefully studied before opening because getting the “right-kind” of customer base is the key to making profits.

So, if the café is strategically placed and rightly operated, it would not only survive but could also give a tough time to prominent café chains like Starbucks.

Q3. Can such a concept be replicated in India? If yes, then where? Give reasons to support your answer.

A – This concept can definitely be replicated in India. In fact, there’s already one such café called ‘Kunzum Travel Café’ in Hauz Khas area of New Delhi. Hauz Khas is a posh locality in South Delhi which is an ideal location to open such café. It is a hub of well-read and affluent strata which received Kunzum Café with a good response.

And the reason for its success is quite apparent, it offers a good place for students and young working population to hang-out complimented by good quality coffee, service and a fine reading selection. So, this model can be successful in areas like Hauz Khas where there’s a fair level of customer trust and honesty combined with economic well-being.

Q4. When can a retailer opt for voluntary pricing mechanism?

A – A retailer can opt for voluntary pricing mechanism when he is located in a place where the target audience is financially sound and well-educated and there is an environment of honesty and trust.

Also, this concept could only be applied to food and beverages or service oriented businesses because the unit cost is relatively lower and thus the stakes involved are less. So, even if some customers pay less it doesn’t affect the retailer to a large extent.

Terra Bite Lounge: Pay What You Want CafeTerra Bite Lounge: Pay What You Want Cafe

1. What is the retail value propositions of TERRA BITE?At Terra Bite they propose to customers that they can pay whatever they think is a fair price for the meal they ordered. The entire concept of the store is based upon honesty and trust. When customers order they place their self-determined amount of cash into a locked box so nobody will know how much each table paid. They do not track how much each customer pays but they do track how much food they serve and when that is compared to the money taken in it shows that almost everyone paid fair price on their order.

2. Can TARRA BITE survive?Yes, it can survive. The original Terra Bite Lounge have been financially successful (had been breaking even with a five per cent profit margin each year) and gained efficiency (simplify the process). The basic conception or core values, social trust (aggregate trust), is common social value or ethic accepted or identified by residents. Terra Bite Lounge also pursue to provide a better overall product, therefore it will better compete in the long run and build a strong and loyal customer base. The only risk is the location of opening another cafe. The income and demographic of residents (new cafe) will influence the performance of TARRA BITE.

3. What is trust?“Trust is both and emotional and logical act. Emotionally, it is where you expose your vulnerabilities to people, but believing they will not take advantage of your openness. Logically, it is where you have assessed the probabilities of gain and loss, calculating expected utility based on hard performance data, and concluded that the person in question will behave in a predictable manner.”http://changingminds.org/explanations/trust/what_is_trust.htm

4. Could any retailer use voluntary pricing strategy?The voluntary pricing strategy I don’t think would work at any retaliator.  Lots of customers would take advantage of the situation.  Clothing and shoe stores could not use this strategy because the business is buying the product which can be expensive.  Their customers wouldn’t want to spend a lot, so the business won’t be able to make any profit and the business could go under.

TERRA BITE LOUNGE – PAY WHAT YOU WANT CAFÉ

1.       What is the retail value proposition for Terra Bite?

The retail value that Terra Bite has inherited would the following values;

1.      Pricing – Allowing the customer to choose the cost of the product would affect the

ability for customers to choose what price they would pay for a certain product. Some

would pay more or less for the value of the product. In-turn Terra Bite would benefit

from people who over-pay for their services.

2.      Location – Terra Bite is located in an upper-class neighborhood which draws in

customers who would spend more because they have more disposable income.

3.      Convenience - Timeliness of payment, if you do not have cash one day, you are still

able to eat and access their services and pay for it down the road.

2.       Can Terra Bite Survive?

If located in a similar market, Terra Bite has a sustainable profit model because they

offer a service unlike others. Since 2006 they have been breaking-even and there are

signs in the US market that other firms operating similar to Terra Bite have earned a

profit. We believe that Terra Bite can survive due to a loyal customer base, location and

efficiency advantages (fewer employees and less operating costs).

  

3.       What is Trust?

Terra Bite offers a service which relies on the bond of trust between the company and

its customers. According to the Wikipedia, Trust is defined as;

In a social context, trust has several connotations. The typical definition of trust follows

the general intuition about trust and contains such elements as;

the willingness of one party (trustor) to be vulnerable to the actions of another party (trustee);  reasonable expectation (confidence) of the trustor that the trustee will behave in a way beneficial to the trustor;  risk of harm to the trustor if the trustee will not behave accordingly; and the absence of trustor's enforcement or control over actions performed by the trustee

4.      Could any retailer use a voluntary pricing strategy?

Not any retailer could use a voluntary pricing strategy. This strategy only works well for

only inexpensive goods and services, general food items and in a neighborhood where

you have the customers trust. The manager must be constantly aware of the cash flows

of the business. In a down month the business could easily lose money and the owner

needs to have a strategy in place to overcome this challenge.