Two-part pricing in the cafe

the meter is running...The Huffington Post reports:

A new cafe in Wiesbaden, Germany is proving the old adage that time is money. Instead of charging for coffee, Slow Time Cafe is charging for time.

When customers enter the cafe, they are given a wristband with the time, and charged €2.00 (about $2.59), which covers the first half hour. Then, they are charged €0.05 per minute ($0.06), or €3.00 per hour ($3.88). They are allowed to have as much coffee as they want, and can bring in their own food.

Can this make sense? I’ve posted about the two-part pricing problem here and here. We are not used to cafes following this pricing strategy, but it is not unheard of elsewhere: many attractions charge an admission fee, although the time allotted is typically measured in days (a singel visit) or years (a membership) rather than in minutes and hours, and have unlimited consumption of a product once inside: amusement parks charge an entry fee and offer unlimited free rides, lunch buffets have an entry fee and unlimited plates, museums allow people in the door and then, except for special exhibitions, allow people to see as many rooms of art as they like. In each of these cases, the organization has the option of free admission with a la carte pricing for rides, or plates, or rooms of art. And that is what almost all cafes do: free admission, and pay for what you consume. Why would a cafe try this alternate strategy?

Let’s imagine a strategy of price discrimination. The cafe offers two valuable things: a nice place to sit and talk, and coffee. There are some customers for whom the ambiance and location of the Slow Time Cafe is very attractive, and they are willing to pay a high price for the chance to enjoy its charms. There are other customers who might come in the cafe, but they are more ambivalent, perfectly happy to have a coffee in another place, and so are more price conscious. What the cafe wants to do is get the people who just love the Slow Time Cafe to pay a high price, but still offer something attractive to the less-enthused customer, who is not willing to pay such a high price. The question the manager asks is “what do the Slow-Time-Cafe-lovers most like about this place: spending time here, or the coffee?”

If the answer is that the Slow-Time-Cafe-lovers most love the time, and don’t care so much about the coffee itself, then the best strategy is to charge a high price for time (which the lovers will happily pay) and a low price for coffee (which will bring in the ambivalents, who will get their cheap coffee and not stay beyond the first half-hour). In this particular case the new, unusual price strategy is actually not such a bad one.

On the other hand, if the cafe-lovers were most in love with the coffee, and didn’t care so much about the time, then charge a high price for coffee and give away the time (and maybe even throw in some free wi-fi).

So the Slow Time Cafe is not entirely crazy, if it is the case that they really know their customers.

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