Variable pricing has worked well in the airline and hotel industries for years, but could it work in the restaurant industry? Yes, we have happy hours, coupons, and day of week specials, but could we do more?
Restaurant demand varies by day of week, time of day and time of year, so it seems like that there’s potential for variable (or dynamic) pricing. About 20 years ago, I posed just that question to several restaurant operators and to say that I encountered resistance is an understatement! The basic reaction was ‘we’re running a restaurant, not an airline. That sort of pricing would never work for us.” As a researcher, these are fighting words, so I wanted to study it.
Before I get into the results of my research (which by the way, show that customers are fine with variable pricing policies), let’s talk a bit about pricing in general. As I mentioned in the first article of this 5-part series, what I find particularly interesting about pricing is that it’s a mix of science (think price elasticities and such) and art.
Let’s say we have a restaurant that sells a hamburger for $10 regardless of the day of week, time of day or anything else for that matter. Well, some customers would be willing to pay more than $10, but they’re certainly NOT going to go to the manager and ask to pay more. Conversely, some people don’t want to, or can’t pay $10. If the restaurant charged multiple prices (let’s say $12, $10, and $8), it would be able to increase revenue.
In this article, I talk about rate fences and how restaurants can use them. Here's the link to the article.