Should Restaurants Start Fluctuating Their Prices?
If QR codes are here to stay, is this an opportunity they should grab now?
By Jamie Mah @grahammah
Over the past month or so I’ve started to examine potential new areas of growth for the restaurant industry. With the pandemic still a menace to all things hospitality, my aim with these short column ideas is to look outside the box. In essence, consider concepts that restaurateurs may not have thought of. You can read my first two articles here and here.
For today’s idea I want to discuss price fluctuations, specifically why restaurants should start implementing the practice. Full disclaimer: this thought is not mine. It came my way via this twitter exchange between John Lefevre and Nick Kokonas.
Now Kokonas bless his heart is correct in stating that Tock, the reservation platform he founded back in 2015 did start with this premise in mind — that guests would pay premiums for select tables, evenings and so forth. The concept was there, sort of. It wasn’t something the industry could implement with ease because most did not run or use Tock, as the vast majority still utilized handheld menus. But, since the beginning of the pandemic this pitfall is no longer an issue. Today, the vast majority of restaurants use QR codes, and seriously why would’t they?
Kokonas sold Tock to Squarespace a few weeks back. I analyzed the sale. You can read it here.
Put the pandemic aside, why would restaurants go back to the old status quo? It makes no sense from a business or logistic perspective. What an online menu offers is ease of tailorability. Full stop. Printing new copies is expensive and time consuming, and as we’ve come to learn, menus carry a lot of germs.
The pandemic has changed how restaurants operate, this shift is here to stay and with it comes opportunity.
Price shifting isn’t new in business. Uber and Lyft employ the practice and we accept that they do. If a massive concert lets out and thousands all of a sudden need a ride home, both ride hailing companies have it in their best interests to price their services in step with demand. Is this annoying to would be consumers? Sure. But that’s capitalism. And if other sectors are going to take advantage of market demands, why shouldn’t an industry which deals with similar issues on the daily? They should, and it seems silly they would not. A QR code based menu gives them this freedom.
I’m certain there’s a way pricing can reflect all the suggestions Mr. LeFevre has proposed above. Busy Friday night? Prices should go up and reflect the drive in business versus a slow Monday.
Now one of the early criticisms I see coming from this idea deals with our own biases, most notably the anchoring bias. I touched on this in a column I wrote back in 2018 titled, Diner Misperception — Why The Price We Expect Our Food To Cost Is Wrong And Why It’s Ruining The Restaurant Industry.
Behavioural scientists have studied these past experiences for decades, most notably by Daniel Kahneman and Amos Tversky. In their 1982 paper “Judgment under uncertainty: Heuristics and biases”, Kahneman and Tversky looked at the idea of how past experiences, or priming as they would say, is an “effect whereby initial exposure to a number serves as a reference point and influences subsequent judgments about value. The process usually occurs without our awareness.” This essentially confirms the concept that your first experience with anything will invariably become the benchmark for any and all related experiences.
This concept as it relates to heuristics has been called “Anchoring.” To better illustrate what heuristics are, here’s a paragraph from author Lorraine Black from the University of Puget Sound. She states in her paper “The Science of Decision-Making: Heuristics” that: “Heuristics are deviations from rationality formed by previous experiences. Instead of relying on the information at hand to make a decision, an individual might reference past decisions or events that may not be directly relevant to the current problem. Stereotyping, “rules of thumb” and the concept of common sense utilize heuristic methods.”
The key takeaway I’d like you to grasp here is how previous experiences can have a profound impact on the decisions we will make today.
The trick I see in overcoming this bias is what I’d call a market price fluctuation. Guests will struggle with these adjustments if they know that the burger they bought on Friday is $20 but only $15 on Monday. Once they realize, it might impinge on them coming at all on Friday, obviously something restaurants don’t want to happen. How you alleviate this problem is with how you list the price on the menu. It could be a simple:
Burger: $15 — $20
What this does is touch on our anchored bias. When a guest looks at the menu, they’re usually hungry and in a hurry. The vast majority often just glance without so much of a thought. Similar to how we know that pricing something at $1.99 versus $2 works to your advantage with regards to how we perceive the cost of said good, showing this range of price will lead the consumer to view only the bottom number, that is unless the variation is remarkably big, in which case, your whole agenda is fraught. I have a variance of $5 here, which is considerable percentage wise. Probably too much at that cost. I’d suggest an increase of no more than 10% on most items. It’s a boost, but not one the bulk will notice.
Now the catch here, the only real issue I can see currently is how a restaurant justifies charging what they do. Diners may wonder and want to know. This is where analytics and guest covers come in. The bill, the long white piece of paper we all dread once we’ve filled our faces to the brim has barely seen any change or advancement since its inception. A funny quote at the bottom is about as close as I can think of as adaptation. With the widespread use of QR codes today, the bill could provide some of this information.
Overall, as scary as this idea may seem, once adopted, restaurants could target their pricing schemes towards volume and interest. The kicker to this is that even if customers complained, it’s not as if they won’t still go out on Friday night’s, similar to how they still need a ride home after that big concert. Diners may not like the practice, but that’s business, and for an industry that’s been through hell and back, any opportunity for it to regain some of the money it has lost is fine by me.
Anyways, food for thought.