06 May 2016 20:14 IST

Using trust as a business model

Kunzum Travel Café | Pic credit: kunzum.com

Many have used the pay-what-you-want model with varying degrees of success

iD Fresh Food, the ready-to-eat food maker, is doing an interesting experiment that explores the question: Can trust be the cornerstone of a business model?

Recently, the company installed visi coolers in Bengaluru and Chennai, mostly in residential and commercial complexes. Each cooler is packed with its products such as dosa batter and parathas. Attached to its door is a money box. All you need to do is open the door, take your product and put the money in the box.

And even if you don’t have the money then, you can come back anytime and complete your purchase. There is no guard, no camera to record the transaction. iD trusts your conscience to pay the price.

Reports have quoted company officials as saying that most days, the coolers get 90 per cent of the payment. Some days, the returns exceed 100 per cent, as people pay for previous purchases! So is there no gap at all in payments? That question remains unanswered.

The company is scaling up this initiative to other cities. But at the moment, the trust shops look more like a good marketing campaign to build the brand than a revenue generating option. To that end, the campaign has served its purpose. But can it bring in brand loyalty among its customers, and drive sales? That would be interesting to watch .

Pay what you can

The trust model might sound like a sure shot formula for business failure — after all everyone likes a freebie, isn’t it? Turns out, that’s not true. The human mind reacts differently to a ‘legitimate’ freebie, when compared to the one where there is an option of paying. And that is why many have used the trust model with varying degree of success.

One of them is the Kunzum Travel Café in Delhi’s Hauz Khas Village, a unique shopping destination that oozes history and high fashion. Started by Ajay Jain, who left his corporate job to become a blogger and travel writer, the café lets its customers laze around the whole day, drink, eat and enjoy the Wi-Fi — all for free. The customers, however, can put whatever they feel like in a small box kept at the entrance of the outlet.

When I met him in 2012, Jain said he has got everything, from a torn ₹5 note to ₹500 and even some dollar/euro bills. That money was enough to cover the overheads. He was beginning to arrange events such as book readings and movie screenings to generate more revenues. There were also plans to start a travel agency under the Kunzum brand. The Café has survived and Jain continues to be in business.

Similarly, a popular hair stylist in Mumbai lets his clients pay what they can. Down south, a vegetarian restaurant chain Annalakshmi, treats its customers with sumptuous food and then lets them decide the bill amount. But all of its branches don’t follow the model. The restaurant chain, which has considerable international presence, is part of a non-profit organisation and works through volunteers.

Internationally, even the music industry has used the pay-what-you-can model with considerable success. In 2007, singer Prince, who passed away last month, gave his album ‘Planet Earth’ for free in the UK. Though he was initially ridiculed, the response turned around when he subsequently announced 21 consecutive concerts in London, and sold out each of them.

Does trust work?

In a trust model, consumers pay for several reasons. It could be the “guilty feeling,” as one of the Kunzum customers told me in 2012. Other times, the customer is ready to pay for strategic reasons. Explaining in the book, Pay What You Want: A New Participative Pricing Mechanism, economist Martin Spann reasoned that customers paid because they didn’t want the business, which they like, to close down.

For a company that is just starting out, the concept helps, especially if it is launching a new product or wants to make its presence felt in a new market. If the product has a low production cost, the trust model works even better, as the more affluent customers could end up paying a high price, increasing the product’s margins.

For iD, the trust experiment with its visi coolers can have multiple advantages. Apart from the brand publicity, the campaign can bring in first-time customers curious to experience the product.