Variable Pricing for Restaurant Reservations

http://www.nytimes.com/2012/09/05/dining/restaurant-prices-can-vary-by-reservation-time.html?hp

by tomkit • 14 years ago

23 20 14 years ago

greeneggs• 14 years ago

Sheryl Kimes: “If you said it’s 20 percent cheaper to come during the week than on the weekend, people thought that was more acceptable than if you said it’s 20 percent more expensive on the weekend.”

Yes, we are mathematically illiterate, thanks for digging it in.

eclipxe• 14 years ago

Really interesting psychology involved with pricing and how we deceive ourselves when it comes to prices and anchor points. I recommend Dan Ariely's work (http://danariely.com/) - Predictably Irrational

drbaskin• 14 years ago

To belabor the point: Keeping one of the prices fixed, you should prefer that it be 20 percent more expensive on the weekend. Assume for example that the price on Saturday is $10 and the price on Tuesday is $8. It is then "20 percent cheaper to come during the week" but it is 25 percent more expensive to come on the weekend!

larrys• 14 years ago

"Yes, we are mathematically illiterate"

I think it has more to do with how people respond to the word "cheaper" vs. "more expensive" actually.

A discount is a positive while "more expensive" is a negative.

tzs• 14 years ago

I disagree that this shows mathematical illiteracy. What you've overlooked is that eating at a restaurant is, in game theory terms, a repeated game. You have to analyze it in terms of multiple plays.

If I go into a restaurant on some random night, and their price list tells me a steak is $25, but they also tell me they are having a discount that night and I can have the steak for $20, then they have established in my mind that a steak at that restaurant costs $25, and that sometimes they offer discounts.

If I go in some other random night, and am charged $25, I'm OK with that. I've planned for it. I've decided my budget can handles a $25 steak. If I happen to hit some kind of discount night, great. I save some money.

Suppose instead the first time they charged me $20, but did not tell me that was some kind of discount. I see $20 printed on the menu, and no indication that the price is higher at other times. That sets in my mind that a steak at this place is $20. I expect now to be able to go in any time and get a steak for $20.

I then go in another random night, and it is $25. Now I'm not OK. I had planned on $20. They've stuck me with an extra $5 that I had not budgeted for. No I can't have popcorn at the movie I'm going to afterward. :-(

What it comes down to is that people want the "normal" price to be the highest price that the place charges. They can then plan for that, and if they happen to hit a sale, then they get a windfall. Windfalls don't screw up budgets. They are surprises--but they are pleasant surprises.

When the "normal" price is not the highest price, people get surprises, but not the pleasant kind.

When I go out to eat, I do not want unpleasant surprises. Hence it is more acceptable to me for restaurants to offer discounts on non-busy nights rather the surcharges on busy night. The former only gives me pleasant surprises, the latter only unpleasant surprises.

philwelch• 14 years ago

This is why you sometimes see retailers where literally every single item is on sale at all times, but they still get to post a nominal "full price" that no one ever pays.

krallja• 14 years ago

This is also known as "happy hour".

jbigelow76• 14 years ago

Everything old is new again.

klochner• 14 years ago

. . . or "early bird special"

tsotha• 14 years ago

Or nearly every restaurant in America that charges you twice as much in the evening for the same thing they served at lunch.

jhermsmeyer2• 14 years ago

If this attempt at price discrimination does indeed become popular it will be via digital menus that update their pricing automatically, not via fiddly coupons. We are quite aways away from this still due to hardware costs and the sheer number of tablets that would be needed at most full service restaurants.

I have no doubt it would be a hit with consumers. Tuesday nights out would become "a thing" for the price sensitive. That's good for everyone.

endersshadow• 14 years ago

I'd imagine that making easily-printed menus that are weekday/weekend prices (only two ways to discriminate) would be the way to go immediately.

One way to go that would be interesting is to remove the prices all together, and do a prix fixe menu, with the price variable depending on when you get there (have a chalkboard or a waiter tell you upon arrival). This would be low cost to implement, and certainly something worth investigating if you're a high-end restaurant.

sadga• 14 years ago

Different menus for lunch vs dinner vs weekend brunch?

Chalkboard menus?

"Market price"?

Gosh, what will the next innovation be?

K2h• 14 years ago

I was pretty impressed with the low tech solution in the article. I thought of the same thing as you at first, digital menus online, or on the table, or.. digital paper menus.

They instead just offer a discount up front. 10-30% if you book a particlular time. So most everyone except the fractional multiplier afraid will know how to adjust the prices on the fly.

as an aside - many cheap places that I end up at have menus posted outside for the foot trafic, that may be the perfect place to replace it with a digital sign for dynamic pricing.

jhermsmeyer2• 14 years ago

Agreed. There are low tech ways to achieve a similar result. But operators, servers and managers absolutely loathe anything that changes their steps of service.

The winning solution will be completely transparent to their current workflow, and will also be seamless to the customer. Until this happens I don't think we'll see widespread adoption of new pricing strategies.

For instance, a pricing increase when many/most seats are filled is probably best way to discriminate in a restaurant. Sophisticated pricing strategies like those could become commonplace with digital menus, and the staff wouldn't have to think about it - but they would see the effect in their tip total.

michaelt• 14 years ago

Vouchering is a type of price discrimination http://en.wikipedia.org/wiki/Price_discrimination

If I drop my prices from $30 to $20 and sell out 200 seats, I've made $4000. If I fill 100 seats with walk-in customers at $30 and 100 with voucher customers at $20, I've made $5000.

travisp2• 14 years ago

How does this article not mention one of the pioneers of this, Next in Chicago, which uses non-refundable tickets for reservations and costs a different amount on weekends and weekdays?

http://www.nytimes.com/2011/08/17/dining/reviews/rstaurant-r...

The restaurant is always sold out, so I guess it's been successful.

tptacek• 14 years ago

In fairness, they could probably require chicken sacrifice and still be sold out; Grant Achatz is among the most celebrated chefs in the country.

Also, I think the Next/Alinea ticketing system is addressing a related but different problem. Next and Alinea are restaurants that casual diners can't get into at any price. It's hard to plan around a table at Next except to call, ask for the next available table a few weeks out, and rework your whole schedule around it. If you're traveling to Chicago, even with a few weeks notice, it's a crap shoot.

What the Next ticketing system does is give tables some predictability and transparency. Instead of calling the restaurant and squeamishly asking for a table on a date that you probably won't get, you hit a website and get a choice of dates.

Most restaurants don't have that problem; with a few days notice, you can get a table almost anywhere else in Chicago (except schwa, but no reservation system is going to help those guys).

travisp2• 14 years ago

Oh, I certainly agree with much of what you say about this restaurant being a bit of an exception. And, I recall an article that discussed their thinking on the ticketing. Their main reason was that even at the high prices that their first restaurant Alinea charged, margins were actually fairly small and last minute cancellations cut significantly into those margins.

But, it's still worth pointing out that they are still using variable pricing and are one of the first to really do so. From everything I've read, there's no reason to think that they wouldn't charge the same high rate every night if they didn't think they could get it, so even they seem to have found value in offering different pricing for days with different levels of demand.

doggonematte• 14 years ago

The best strategy for getting a little spike in reservations may actually be something as simple as getting mentioned in the NYT. Getting mentioned in NYMag might be even better. No software needed for that; just some old fashioned PR.

Power of the press.

Variable Pricing for Restaurant Reservations

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