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Dynamic pricing is historically a tactic employed most widely by airlines and hotels. Now, restaurants are beginning to consider the pros and cons of changing their pricing, according to consumer demand. But is dynamic pricing likely to appeal to guests and boost profitability when applied in a restaurant setting? Or could it be a risky move for operators to attempt?
Seven years ago, Chicago’s Alinea was the first restaurant to experiment with dynamic pricing, according to a report by econlife. Using its Tock online booking system, the restaurant offered guests the chance to enjoy a 35% discount on menu prices, if they booked a table during quieter times of the week.
In other words, why not focus on attracting those people who want to pay less than missing out completely?
Airline customers may be savvy to how the system works, scouring times and dates for the best deals, but the argument against dynamic pricing for restaurants is that the competitive restaurant sector is based on securing the goodwill of guests. It’s unlikely that a guest dining at their favourite restaurant would react well to discover a fellow diner, booked at a slightly different time slot, is paying significantly less for the same meal. Strategies that discount rates at quiet times, rather than inflate at peak periods, are less likely to dishearten regulars, but strategies need to focus on avoiding eating into tight margins.
In order for restaurants to make dynamic pricing work, they need to use data to understand the key drivers for why customers have chosen their venue. This will enable meaningful offers to be pushed out at the best times.
Trying to usher guests through the door with multi offers via social media and email, however, could result in the impression a business prizes value over quality. Discounting prices based on the risk of losing or winning a guest changes the offer from an incentive to a bargaining chip. This tactic is something hospitality operators need to avoid or they could end up competing in a race to the lowest price, thereby jeopardising their brand or guest experience.
In fact, to maintain a top guest experience while attempting flexible pricing, it’s important to use data to not only identify when you have a drop-off in guest numbers but to understand when the service level drops and what drives this. It could be that during quiet times, service quality drops because the team is less focused on the guest experience and minds begin to wander. This is something that we can help you measure via mystery visits and online feedback, whilst looking at which dishes are most popular at different times of day to help you limit the menu choice in a flexible pricing structure. While pricing might be changeable, service never should be.
