Weekly Thoughts - Lemonade Stands
Despite a damp start to the summer in New England, it’s clear we have entered peak lemonade stand season. When this happens it takes us a little while longer to get around town because we have an unwavering life rule that if you see kids running a lemonade stand, you stop and buy a cup. It’s just what decent people do.
We have sampled more than our fair share of lemonade stands and always enjoy seeing what is on offer. What is the signage like? Are they serving fresh squeezed or powdered lemonade? What size are the cups? Are the kids practicing salesmanship? Are they playing upbeat music? Do they give a free “thank you” chocolate? Have they implemented ancillary sales (last weekend we saw a stand selling sea glass; another was selling popsicles). It’s all fun stuff and we love seeing kids out exercising their raw entrepreneurial instincts.
What’s even more fun is that this year, some junior Chenmarkers (i.e., our kids) have FINALLY reached the stage where they can do their own lemonade stands. Excitement abounds.
Despite our parental enthusiasm, we have tried our best to let the kids lead strategy, marketing, operations, sales, and everything in between. We will admit that we did provide a working capital loan for the ingredients; the kids are on the hook for paying us back from their proceeds. We also take a couple dollars off the proceeds for “taxes”.
What’s interesting about the @mainelemonade stand (yes, they accept Venmo) is that the kids stumbled onto quite a lucrative pricing strategy. When asked how much they wanted to charge for their lemonade, they didn’t want to set a price; they wanted people to pay whatever they wanted. Being super experienced adult small business owners, we felt that this was a misguided strategy, but we kept our mouths shut. After all, this was their lemonade stand.
Thankfully we did, because the results were surprising! Yes, some people paid $0.25 for a cup of lemonade. But most people paid way more than we ever would have charged. Some guy in a Porsche spent $20 for a cup of lemonade! The first day, the kids sold $50 worth of lemonade in less than an hour. After paying back the $12 for cost of goods sold and $2 for taxes, they netted $36. Not bad for a management team with the average age of 4.5!
As it turns out, this approach to pricing is a strategy in the real world as well. For instance, in 2007, Radiohead’s album In Rainbows was available only on their website and could be downloaded for any price the customer wanted. Given Radiohead’s previously established fanbase, the approach paid off and the band made more per album than they would have with a label or via iTunes (not to mention the value of the publicity). Other institutions, from established players such as the Metropolitan Museum of Art, to hyper local coffee shops have used this targeted strategy to broaden their audiences and/or increase revenues. Of course, it doesn’t work all the time, but in some situations, it seems that consumers with control of pricing end up being more generous.
In our situation, the PWYW lemonade stand is genius because the kids are not actually selling lemonade. They are selling a feeling of careless childhood summers and support of entrepreneurship. That Porsche guy probably never even drank the lemonade but felt he got more than his monies worth. It’s the perfect PWYW scenario.
While we are not quite at the stage where we would feel comfortable implementing this pricing model at a Chenmark operating company, our lemonade stand endeavors are a good reminder that business ideas can come from anywhere, so long as we are open to them.
Have a great week,
Your Chenmark Team