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Terra Bite Lounge: A Case
Analysis
Pay What You Want
Trust is a firm belief in the reliability, truth or ability of someone or something. Ervin Peretz, created
Terra Bite Lounge to lay on a foundation of trust of his customers, believing that his pay what you
want system would not prevent customers from paying the actual value of the services. His positive
outlook on the honesty of others was not in vain as the Lounge had proven to be financially successful
despite its many doubters. Peretz believed in this notion to the extent that he contemplated opening
a second pay what you think lounge. Before proceeding, Peretz needed to know where the best
possible location for this concept would be and what kind of consumer characteristics would aptly
match the concept.
Issue of Analysis
In order for Peretz to move forward, he must firstly take a step back and observe the whole
environment, from multiple angles of concern. Terra Bite Lounge is located in Kirkland, a suburban
community of Seattle, Washington. The Lounge is one of over three thousand businesses located in
Kirkland, sharing a city with companies such as Google,IBM Corporation, Nintendo of America Inc and
other world renowned corporations. The United States of America, governed by democracy, is
supportive of privately owned businesses. Despite the Great Recession of 2007, an eighteen month
period of economic downturn, The Lounge, which opened in 2009, was profitable and growing,
mirroring the steady incline of the United States economy. According to the Census ACS survey, the
median household income for the United States was $51,371 in 2012. To Terra Bites economic
advantage, the median income of Kirkland residents is estimated at $82,546.00 and with the fact that
the 48, 410 residents are described as highly-educated and with over 37, 000 jobs available, it can be
concluded that there is higher probability of a customer being able to afford the services being offered.
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The 2008 Economic Sutainability Study offered some insight into Kirkland and the people that reside
there. Half of the diverse population of Kirkland is aged between 25 and 54. Cumulatively, they agree
that some of the top reasons for living there is due to the location, quality of life, size and physical
environment. Crime rates are low and residents feel at ease when walking through the streets. This
sense of security and comfort is cushioned more by the feeling that Kirkland provides them with
attractive, high quality, family friendly goods. Many of the Kirkland residents offer strong support to
the continuous effort of environmental sustainability. The findings may lead one to believe that
Kirkland is serene, both by the physical environment and the behavior of residents.
Even though there is a presence of other pay what you want businesses, Terra Bite Lounge is still
considered unique. The non-standard method of payment the Lounge employs is one of the biggest
strengths the business self-generates. By providing better coffee and food, a good environment with
free wireless Internet, free console games and a better reading selection that any of the other caf
chains allows the Terra Bite to provide attractive services for the customer base. In order to cut back
on cost, the Lounge only provides one paid barista per shift and avoided costly cash and credit card
services. Another strength in Terra Bites modus operandi was through the way they train the staff.
Staff was encouraged to not give any price suggestions to customers and even implemented some
banned words such as free, tips, donation, and contribution, trigger words which may cause some
uncertainty in the minds of customers. The Barista/Cashier is never aware of how much money a
customer pays and personal customer information is never recorded, but to check the daily sales, the
amount of food and coffee was noted. The location of the Lounge itself, in a Suburban area with
above-average income families and billion dollar corporations, with well-paid workers nearby is an
advantage in itself, knowing that there are potential target customers at an influx. The company also
shares the communitys interest of protecting the environment. This common interest and most
importantly the pay as you wish theme gave Terra Bite nationwide acclaim and allowed Terra Bite
to be the center of a media attraction, possibly through good public relations. This good P.R can be
due to the fact that the type of service provided is customer oriented and is convenient for them.
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Despite the strengths Terra Bites operations served, weakness still prevailed. Most importantly,
derives from the fact that the Lounges model is based on aggregate trust. Aggregate Trust is the
premise that even though it was unforeseeable if a single customer would do the right thing, which is
paying appropriately (or even paying at all), there was a belief that other customers would make up for
the ones who didnt pay justly. The downside to this is simply, what if the basic premise of the
aggregate fails, as this concept is based on trust and honesty. The pay what you want idea may be
very attractive to some, but for others, questions lingering as to what they should actually pay and an
eventual uncertainty, can hinder them from even entering the Lounge.
The opportunity lies for Terra Bite to open a second location, however, strategic research on the
location and local residents needs to be conducted prior. The opportunity of appealing to the
emotional desires of people is also very common. Peretz wrote on his website we also base it (the
business) on peoples notion of wanting to be good. I believe that this personal notion of I am a good
person is quite universal. We all want to be good in some way; and everyone can agree that
supporting Terra bite when you are able is the right thing. Peretz reaches out to individuals with the
idea that Terra Bite is doing a good thing (providing food and drink with the option to pay what you
deem just) so when one takes part and patron the Lounge, one will feel like a good person,
something that most people want to be assured in. Conversely, the threats for Terra Bite exist as well.
The most imminent threat comes from the same people he is trusting to make his business successful,
if the customers do not pay properly, the business will fail. Conventional cafs, such as Starbucks, are
still prevalent, and do the hard work of deciding the price for the customer. The actual location of the
Lounge can be a detriment to the business, Washington, located on the North Western coast of the USA,
hosts blistering hot summers and treacherous winters, possibly affecting customer turn out on days
when the weather does not permit being outdoors.
At the Terra Bite Lounge caf/deli, food and drinks are not the only products served, with the
availability of free wireless internet, reading material and a comfortable environment all for the
customers convenience. The price of Lounges products is solely based on customers intentions. There
are no prices and customers are allowed to pay whatever amount of money they want, ranging from $0
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to $infinity. The Lounge is located in an affluent Suburban community that is described by the majority
of residence as an excellent or good place to live. The only promotion Terra Bite has gotten is
through public relations and social media buzz.
Immediate & Basic Analysis
It is of great importance to Peretz and the Terra Bite Lounge to become fully and completely aware of
the customers they service by understanding the characteristics of these customers. Knowing their likes,
dislikes, wants and needs would give Terra Bite a competitive advantage by being able to cater to the
preference of the target market. The defining of the customers characteristics would give Peretz the
inside knowledge of, for example, what are the most popular foods, what type of music do the
customers want to hear, what purpose is the free wireless Internet used for (should he increase or
decrease Internet speeds etc). Understanding the consumers would give Terra Bite a clear path to
corporate success. Penetrating the market, with greater emphasis is of high importance to the Lounge.
One of the basic ways companies begin penetrating a market is through Price Adjustments, but seeing
that the concept is a pay as you want this tactic would not be suitable, but rather increased
promotional strategies, highlighting the concept may work to the advantage of the business.
Expanding his business and also facilitating new technological amenities, such as providing desktop
computers, E-book readers, hosting game console competitions etc will not only attract more business,
but satisfy and match the ever evolving technological society in which Terra Bite resides.
Important and Urgent Analysis
The Immediate & Basic analysis brought forth the premise that understanding the customer
characteristics is quintessential for the long term survival of Terra Bite, Upon knowing the desires of
the target market, Peretz can then be able to start wooing or influencing them. Robert Cialdini
(1984) states that there are six ways you can get people to say yes to what you are asking. Cialdini,
highlighted in an article by Mark Macdonald (2013), is said to believe that reciprocity, commitment and
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consistency, liking, authority, social proof and scarcity, are the six tactics that can be utilized to
persuade potential customers into becoming regular customers and regular customers become more
loyal. The principle of reciprocity lies on you get what you give and you give what you get, falling
with Peretzs notion of wanting to make his customers feel like good people is quintessential to his
tactic. His standard of service needs to remain consistent in order for people to make a commitment to
Terra Bites brand. It is important for Peretz to hire Barista/ Customer Service Representative that a
friendly and generally liked by the customers: the principle of liking says that we are more likely to
say yes to a request I we feel a connection to the person making it. Peretz can make others become
fond of his brand by making public the reasons behind Terra Bite, a more in depth explanation,
stemming from the one on his website (The caf chains bases their business on the popularity So I
believe that were on solid ground basing a business on that). Social proof is almost like validating your
existence in todays society. People are more likely to purchase something if its recommended to
them by someone they know and trust, Terra Bite should up their technological standings and
immediately create a business page with links to commonly used social media websites such as, Twitter
and Facebook. Scarcity, Caldinis final principle states that people are highly motivated by the
thought that they might lose out on somethingMarketers trigger this effect by using all kinds of tactics
to suggest that products (or low prices) might soon be gone, conversely, Terra Bite has no prices, but
sporadic sales and bonus product offerings can be made available.
Peretzs dream of opening a second pay what you want lounge is feasible, however, immediate
consultation with trustworthy, reputable realtors is recommended. Added to this, advice from experts,
familiar with the social construct of the intended area, who is aware of the demographic, to inform
Peretz if the proposed area is suitable for the Lounges concept. The information rendered from the
customer characteristics will be able to short list the locations.
Advertizing on social media websites, traditional media channels, flyers, banners, even a mascot
outside the store front can bring new customers into the channel. It is understood that the only public
recognition Terra Bite Lounge has received was through word of mouth and social media highlighting
Terra Bites concept. Improving the products served in the Lounge, in a cost effective way, may work
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to the benefit of the business, allowing a new and improved claim to be made, in an attempt to
entice new customers and cause regular customers to pay according to the new and improved
standards.
Cause & Effects
The most easily recognizable cause and effect would be on the part of the customer. The customer has
a lot of power in determining the success/failure of Terra Bite. If the majority of the customers decide
to not pay, or grossly underpay, the business would crumble. It is crucial for Terra Bite to attract
customers best suited for his model, ones that do not necessarily need to benefit off of the free food
and drink aspect, it is also important for the Terra Bite to maintain an atmosphere that is indicative
of the customers he wants to attract. Attracting the wrong customer base may lead to the businesss
steady decline. The competing coffee shops, which are available in close vicinity, can cause Terra Bite
to lose customers, if they decide to offer special deals and incentives to customers. Peretz should
insure that his customers remain loyal, by providing the quality service and products just as the
competing cafes.
A cause and effect that is uncontrollable is the issue of the weather and the economic climate. Severe
winter weather was expected to put a dent in growth. The BEA accounts for seasonal factors in their
estimatesslightly less economic activity in the winter, more in the summerbut the severity of this
past winter likely had an effect. Another large chunk of the 2.9 percent decline, 1.7 percentage points,
was due to a drop in inventories, which are counted as private business investment in the data but its
implications for future growth are ambiguous And then there was a decline in consumer spending on
health care that shaved off 0.16 percentage points in growth, another rare occurrence (Bunker, 2014).
In the first quarter of 2014, the U.S GDP decreased at 2.9% as stated in a release by the Bureau of
Economic Analysis. The weather, if harsh, can prevent customers from engaging in the caf. However,
if the economy is declining, it can either work in Terra Bites favor or detriment. If the economy is
declining and people cannot afford traditional prices, there would be an influx of customers to Terra
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Bite. If double the amount of customers go to Terra Bite paying less than the average sale, Terra Bite
would still be able to generate a profit.
Constraints & Opportunities.
Terra Bites concept, as profitable as it can be, still hosts many constraints that may lead to the
detriment of the business. For example, the voluntary pricing strategy is attractive and serves a great
purpose, especially for the community. However, this pricing strategy can lead to the demise of the
Lounge if people do not live up to the Lounges concept of aggregate trust. The fact that the
business isnt well advertised is another internal setback for the company. It is of dire importance that
Peretz creates some platform for Terra Bite to be seen by a larger scale, but still targeting the
demographic of customers he wants. The lack of promotional strategies immediately puts Terra Bite at
a disadvantage, for example the Starbucks logo is so advertised that it has become almost a cultural
icon. Terra Bite can expand, simply by promoting the brand.
It is mentioned in the analysis that Terra Bite did not track by individual customers, it did track how
many coffees and food items were served and how much money was taken in. The fact that the
money was placed in a locked opaque box and cashiers were unaware of the amount of money per
transaction and also the fact that credit and cash transactions were not used served two constraints in
one. Firstly, there would be issues in accounting, meaning that revenue per coffee and food item
would be calculated on an average basis and there would never know the exact figures received per
item. Secondly, the fact that only cash was used, which is public knowledge, poses a security risk of
theft to the Lounge and can potentially affect the lives of employees and customers alike. Cash is a
risky item to handle, but another unforeseeable constraint is the economic climate of the country. Not
knowing the economic shifts of the country a business resides is detrimental to the business. Peretz
needs to be aware of the economy is order to prepare business strategies to deal with any unplanned
events.
As much as constraints to the business are present, opportunities are still readily available. Firstly the
opportunity expand and to open a second Terra Bite is an idea that can take the business far. Opening
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in a second location that shares similar characteristics as the original Lounge location would be a
profitable asset. Another opportunity lies in the customers again, Peretz should encourage his workers
to be customer oriented and provide service with a smile. Developing strong customer relations can
lead to better Public Relations, loyal customers and new customers altogether. A tactic of getting
better P.R is to work on their Corporate Social Responsibility. Terra Bite shares the communal belief
system of environmental sustainability, so if this is used as a marketing tool, more people can become
aware of Terra Bite, and if they are already aware, be persuaded to partake in their offerings.
Forming alliances with other business that share the good nature of the caf can cause new doors to
open for Terra Bite. In the business realm that Terra Bite is located
Quantitative & Qualitative Analysis
CATEGORY STAY ANALYSIS MOVE ANALYSIS
PRICE Pay what you
want
Qualitative Place two cash
boxes one for
food, one for
drink.
Quantitative
PLACE Store located in a
well-liked area.
Qualitative Option to move to
another affluent
suburban area.
Qualitative
PROMOTION Word of mouth
(personal P.R),
social media buzz
Qualitative Standard
advertizing
Quantitative
PRODUCT Coffee & Food
(deli)
Qualitative
Increase food
variety
Quantitative

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Recommendations
Terra Bite can improve its business model by allowing for extra services to be made available. These
services can be in the form of food, where, for example, environmentally friendly food or vegan food
can be served. Not only is eating vegan healthier, it is less expensive as well and will match well with
the companys and societys want of a healthier environment. Extra services can come in the form of
hosting, for example, pay what you wish to enter, competitions (karaoke nights). Terra Bite can
become a home for people of Kirkland to showcase their talents. If Terra Bite was to host garage
bands and showcase the work of novice artists, not only would Terra Bite be helping others to expand,
the people who come to support the artists would be made aware of Terra Bite and more than likely
frequent the Lounge again. If Terra Bite is marketed in a way to appeal to all ages of the population of
Kirkland such as kid sized drinks (drink one before you play), market to teenagers/ students (coffee
can make you focus) and adults (tea to relax), Terra Bite may then reel in new customers.
Case Questions

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

A value proposition is a promise of value to be delivered and acknowledged. It is the customers belief
that the value will be appealed and experienced. A value proposition can apply to an entire
organization, or parts thereof, or customer accounts, or products or services. A value proposition can
also be defined as A business of marketing statement that summarizes why a consumer should buy a
product or use a service.
Terra Bite Lounge, a pay as you want caf/deli, conveniently located in the affluent Kirkland
community of Seattle, Washington is not an average coffee shop. The Lounge is designed around a
system that believed in the trust, honesty and integrity of its customers, allowing them to choose
whatever amount of money they want to pay for the services that they receive. Supporting a business
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that tests peoples innate characteristics, helps people feel better about themselves when they pay
appropriately, for their engagement in the Lounge. The Terra Bite is designed to make each patrons
visit so heartwarming that shorting us would be an unthinkable cheap shot.

2. Can Terra Bite survive in Trinidad & Tobago?
It would be unfair to say either yes or no to the question if a Terra Bite outlet would survive in
Trinidad & Tobago. Peretz argued that people were essentially good but could be influenced by their
environment. Kirkland and Trinidad share may share a few similar characteristics, such as beautiful
scenaries and is home to several globally recognized business. However, the median income of
Trinidadians is $56, 075.72, a far cry from the USD $82, 546.00 median income of Kirkland residents.
The crime rate in Trinidad and Tobago is much higher and the unemployment rate at the end of 2013
was 4.7%. An article published in the Newsday newspaper stated that only 6.5% of Trinidad and
Tobagos population has a Bachelors Degree or higher, at the end of 2013. Trinidad and Tobago is rich
in natural oil reserves, flora & fauna, a healthy economy and is a generally comfortable place to live,
depending on where you live. Social settings a far reaching; from affluent, million dollar houses in
exclusive, gated communities, to destitute slums where running water and adequate toilet facilities
are scarcely found, from posh North-American influenced nightclubs to run down bars and rum shops -
environments in Trinidad and Tobago are so close in proximity but are at opposite sides of the
spectrums in many instances. Peretz believed that people can be influenced by their environments, so
it would be unwise to set up a Terra Bite in a place where people who are surrounded by crime and
poverty would frequent. It is safe to give Trinidadians the benefit of the doubt that they do in fact
possess the moral and ethical fiber, to justly pay their dues at a Terra Bite location. However, in
comparison to Kirklands population it seems as if Trinidad and Tobago are vastly different. Taking the
differences into consideration, coupled with the fact that people from different environments behave
differently, the same result from Kirkland customers should not be expected from Trinidadians. For this
to work in Trinidad, Terra Bite would need to be marketed to upper, upper-middle and middle class
people, at an exclusive setting inviting to the customer that is desired.
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3. What is trust?
Trust can be defined as a firm belief in the reliability, truth or ability of someone or something.
According to Changing Minds, trust is both an emotional and logical act. Emotionally it is where you
expose your vulnerabilities to people, but believing that 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. The Terra Bite was not only an experiment of public honesty, but it was also a visible
demonstration of a high level of honesty and trust. In regards to Terra Bite, trust is Peretz believing
that the people would aptly and fairly pay for the services that they receive. Trust is Peretz investing
his own money into a type of business that did not have much previous market entry.
4. Could any retailer use a voluntary pricing strategy?
Any retailer can employ whatever pricing strategy they believe can work and generate profit for the
company. However, any and every retailer using a voluntary pricing strategy, without assessing the
market, looking at the political, economic, social, technological, legal & environtmental aspects of the
business, conducting a SWOT analysis, understanding the rivalries, competitive and new entrant threas
and the supplier and buyer power, would be unwise. Essentially, for a pay what you want business to
thrive, intense market research needs to be conducted and sound business and marketing strategies
need to be developed prior to opening the business.
5. Where should Terra Bites second location be?
The second location of Terra Bite should be one similar in demographic and environment as that of
Kirkland, Seattle, Washington. The reason for this is that we realized that this location works via a
combination of people, product services and of course, the voluntary pricing strategy Terra Bite
employs. The second location should have the following characteristics: affluent suburban area, low
crime rate, people who live happily and comfortably in their environment, home to a prestigious
business arena, high employment rate, high median income.
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6. What are the consumer characteristics best suited for the success of a voluntary pricing
strategy?
Firstly, the consumers should be honest, trust worthy people who would pay the worth of the products
being offered to them. They should be able to afford a cup of coffee at a regularly priced caf. The
best suited customer should not have a need for a free food service but rather one who can afford
the service several times over.