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What Happy Hour Teaches Us About Dynamic Pricing

In my last article, I talked about the all-purpose shelf. In this article, let’s talk about what the “cold” shelf. Every restaurant encounters periods of low demand. The challenge is to boost demand and revenue during these intervals without making excessive concessions or jeopardizing the brand's prestige. This is where “cold” strategies come into play.

To get us started, let me tell you about one of the most interesting questions I’ve ever heard. About 10 years ago, Eli Chait, the CEO of WholeSail, asked me how to design the optimal happy hour. Think about it—what should be included in happy hour, what sorts of discounts should be offered, when should it be offered and how can you be sure that customers willing to pay full-price don’t end up paying less? Those questions are exactly what need to be considered when developing your "cold" strategies.

The "happy hour" concept has been a long-standing tradition in restaurants to combat slow periods. These are typically time-bound offerings with special prices or deals like "buy one, get one free." The primary goal is to draw in additional patrons without overshadowing the regulars.

Promotions fundamentally aim to invigorate demand during slow intervals. It's vital to structure these promotions so that regular patrons don't switch to cheaper alternatives, a phenomenon known as dilution.

When shaping a “cold” strategy, the focus should be on:

  • Timing

  • Magnitude of Discount

  • Nature of Offer

  • Assessing Effectiveness

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