Dave Gullo

July 26, 2013

The evolution of frozen yogurt stores and startup pricing

The other day while taking my kids out for some frozen yogurt I realized an interesting change in the “user experience”.  In our regular fro-yo trips, we had become accustomed to our favorite place “YogurtLand” which is a serve-yourself establishment.  You choose a cup size, and you fill it with whatever you want — toppings and all, they weight it at the end, and you pay by the ounce.

This time, however, we were off the beaten track and at an older chain called Golden Spoon.  This was more like the experience I grew up with where you tell the person behind the counter what you want, they fill it up, and put a conservative amount of toppings on your cup. The prices are fixed into 3-4 sizes, and toppings are a fixed price. (Hang with me a minute, I’m trying to get somewhere with this…)

What I realized is that the experience at Golden Spoon was old hat and was not setup like the “modern” frozen yogurt chains. Rather than allowing you to dial up or down your price, they box you into a few select choices, and take away the sense of control. It’s marginal, but I think it makes a difference.

Looking at the consumer experience with the new style of stores, consumers are provided with the sense of choice, and are able to build whatever mix of flavors of yogurt and toppings.  Thinking back to YogurtLand, most of the customers (my kids included) had these towering bowls, with a cacophony of toppings that would make most grownups hurl.  And these portions (health aside) are actually larger and more expensive than the largest choice at the old-school place.  I know my kids usually make a towering bowl, and take 1/2 home for later.

The difference I’m highlighting here is choice.  Let the consumer pay for as much or as little of something, and they will often times buy more, and return more often.  This is reinforced by who frequents each store.  In Golden Spoon we saw two senior citizens, and lots of empty tables on a hot summer afternoon.  All things equal, you see a line out the door filled with rambunctious kids at YogurtLand.

So while sitting there at old-school Golden Spoon with my Wifey and kids deconstructing a mini peanut butter with cookie dough, I realized this was similar to one of my favorite startups, Lyft.  The coolest thing that hit me after my first ride with Lyft was the pricing scheme.

When your ride is done, you are given the ability to pay what you want. They average the starting price around what the cab fare would have been, and allow you to dial up/down the price.  This is a little different in my mind than a traditional cab because you could also dial down the price as well, something a regular cabbie would get irate if you tried to do.

By allowing me to pay based on perceived value vs. a prescribed and set price (plus a tip), I was able to tell Lyft what I think of their service by voting with my $$$s.  So upon paying for my first ride, I thought this was an ingenious way of using their customer’s payments as votes about how their customers perceive the service.

Now granted that it also allows people to underpay and basically short the system.  However this works itself out over the long haul because a driver can rate a passenger as a poor ride, and Karma takes over when drivers are scarce and have a choice who to pickup during that next big dental convention at Moscone Center.

It’s debatable if Lyft can survive long-term on allowing passengers to pay what they want, but I think it’s an ingenious strategy in the early phases of a startup to let people vote with their $$$s.  Rather than discretely bucketing into fixed price buckets, offering a sliding scale of price to perceived value gives consumers a sense of control, a reason to come again, and gives data points on how they view your service.

I am interested to see how long Lyft continues with this model, and if they have to someday set a hard price floor, but in the mean time I have to imagine they are getting valuable data about consumer sentiment which can inform all kinds of marketing decisions.


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