Adaptive Pricing – in a Restaurant?
The most recent (Jan-Feb 2011) Harvard Business Review has a short article on page 25 which discusses the potential for restaurants to “yield manage” their pricing. The argument goes that, in times where you have higher demand, you charge higher prices and, conversely, when demand is lower, you drop your prices.
The author explains a range of options the restranteur has at their disposal and profers some thoughts as to how these will work.
With respect to the ideas detailed in the article, I must admit that some issues regarding the yield management option for pricing in the restaurant game make it inherently difficult to implement. Consider the fact that most good restaurants will already be booked well in advance. The author of the article states that they can up the minimum spend on popular nights – for example, $150 per diner on Saturday and less on Wednesday. This keeps your menu prices the same but requires customers to spend more on busier nights thereby giving you a better “pay off” on the occasions of higher demand. I can see some merit in this argument but care would need to be taken for your “regular” customers who can “pop in” nearly any night. Again, your bookings should give you a guide as to how things are and your regulars will already know that they can’t just “pop in” at 8.30pm on Saturdays!
With the restaurants that we go to, most of them know that we’ll be in and out before 7.00pm due to the need to have our little girl tucked up in bed nice and early – they know this and understand this so we can often get a “late notice” table at the places we go to – one of the benefits of being a regular and having the mutual understanding about the needs of us and of the restranteur – they get 3 more covers and still have the table available at period of peak demand.
So, I suppose yield management in the restaurant business is a definite possibility – you need to be careful how it is introduced and you need to manage it properly but it can be done. In many respects, it’s already being done. Just formalise it so that it’s systematised and you’ll get better yield and profit from the same space – remember, you can sell each cover only once – how many you sell on a night depends on how well you manage the “funnel” of potential diners. Yield management might just enable you to manage them better!