BrainTrust Query: Should Restaurants Change Prices By the Hour?
Through a special arrangement, presented here for discussion is a summary of a current article from Applied Predictive Technologies’ Food For Thought blog.
Like an empty hotel room or airline seat, a restaurant table without guests is lost revenue. The New York Times recently reported that some restaurants are now introducing variable pricing models to capitalize on changes in demand by day and by hour.
The premise is that the price of dinner at 8 p.m. on Saturday should cost more than at 5:30 p.m. on a Monday. The Times reports that restaurants are "betting that consumers, used to paying extra for holiday-weekend flights, V.I.P. seats at the theater or umbrellas on the street after the first raindrop hits, will also pay more for their Friday-night dinners out."
Social tools are helping, such as a Groupon or Gilt City coupons to support slow days or hours. A mobile app, Leloca, sends out first-come, first-serve deals when, for instance, a restaurant faces a host of open tables with a sudden cancelation. A website, Savored, offers discounted meals based on reservation time.
"The challenge that every single restaurant is faced with is the elasticity of demand from consumers," Ben McKean, Savored’s co-founder and CEO, told the Times. "In an off-peak hour, you might get only a couple people who want to go to the restaurant, and in a peak hour you might get people out the door." Restaurants are "leaving so much on the table," he said.
As restaurants explore variable pricing by day and daypart, executives will be faced with important decisions about how to choose the best pricing strategies. For example:
- Does increasing prices on the weekend simply shift demand to other days?
- Can we selectively increase the price of certain items during specific times?
- Should we explore daily deals to boost slow hours?
These types of questions present an exciting avenue for testing over the next few years.
- Should Restaurants Change Prices by the Hour? – Applied Predictive Technologies
- When It Comes to Reservations, Time Is Money – The New York Times
What are the pros and cons of variable pricing for restaurants? How would you expect diners to react to such pricing tactics?