How would customers react if the prices of their favourite restaurant foods changed from time to time? This is a critical question that restaurants are considering as they test and apply dynamic pricing to their menu offerings. Without a doubt, demand-based pricing is an excellent way to maximise profits. We’ve seen it in a variety of industries, including eCommerce. Even the music industry is trying it. But one thing is certain: it will not serve its purpose unless it is focused on customer value drivers. So, is dynamic pricing a good example of a restaurant pricing strategy?


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In this article, we will look at the most effective ways for a restaurant to implement a dynamic pricing strategy with an example. We argue that dynamic pricing can only work if restaurants become more customer-focused and support their pricing decisions with concrete evidence. At Taylor Wells, we believe that the restaurant industry can increase its margins by trying out new pricing strategies. By the end, you’ll know if dynamic pricing is right for your business and how to get it started effectively.



Is Dynamic Pricing An Excellent Example Of Restaurant Pricing Strategy?


Dynamic pricing has been making headlines in recent weeks as industries that are not known for utilising it, such as the music industry, are now using it to increase profits. Now, the restaurant industry, which tends to have small profit margins, is wondering if dynamic pricing will work for them too. The most common examples of restaurant pricing are cost-plus pricing strategy, bundling pricing strategy, portion pricing strategy, and premium pricing strategy. What will customers think of dynamic pricing?


Here are some tips for an effective restaurant dynamic pricing strategy with an example:


1. Don’t go all out on the first run.


Customers are not yet accustomed to dynamic pricing for restaurant orders, as they are for airline and hotel reservations. You will undoubtedly benefit from taking your time and not implementing large price differences on the same products all at once.


Allow your customers time to adjust to your new pricing and understand why. You must properly communicate why your items’ prices began to fluctuate and how it adds value to them. For example, if your prices are higher during lunch, the goal is to deliver their orders on time and with the same quality regardless of the higher number of customers.


Some restaurants that are hesitant to implement full-fledged dynamic pricing start with simple rate guidelines that are easy to communicate to their customers and frame price differences as discounts when prices are lower.


2. Don’t make the same price changes for all of your products.


Every item on your menu is valued differently by each customer. Remember that dynamic pricing is all about pricing based on demand. You can’t make the same price changes in all of them. That is tantamount to setting yourself up for failure. It’s the same as giving the same value to your best-sellers and other products that don’t sell well.


So, for example, know which of your food items are the best-sellers. Priority should be given to them. Do your customers prefer your pasta, for instance? How about your sandwiches? Examine how much your customers value these products and when are they likely to buy them. This allows you to set rules for how frequently and how much you will change their prices.


You can also change the prices of your non-best-selling products, but make sure that they are still affordable to customers. Furthermore, price changes in these menu items can be used to increase demand for your best-sellers if it emphasises their value more.



3. Gather evidence to challenge your assumptions about your customers before implementing a dynamic pricing system.


All strategies — even top-down strategies — need to be tested. You cannot solely rely on intuition with dynamic pricing. To be more certain and guarantee the accuracy of your assumptions, back them with evidence. In this regard, leverage your historical purchasing data to get a clearer view of your customer behaviours and buying patterns.


If you can, you will also benefit from employing advanced data analytics and tools to help you optimise your prices in real time. Just make sure that you find one that is most suitable for your business operations.


restaurant pricing strategy example


Discussion On The Best Restaurant Dynamic Pricing Strategy With Example


To make dynamic pricing an effective example of a restaurant pricing strategy, there is a simple rule to follow. Don’t use dynamic pricing unless you’ve thoroughly considered who, what, where, how, and why customers buy. Consider the following two scenarios: a fast food restaurant and a gourmet restaurant:


If you own a fast food restaurant, you know that your usual customer prefers a meal that is not only quick to prepare but also inexpensive. People who eat at fast food restaurants are most likely looking for less expensive options. That means you can’t have high prices and huge price differences because it will drive customers away, especially when there is intense competition.



If, on the other hand, you run a restaurant that specialises in fine dining with top-of-the-line beverages, atmosphere, and offerings, you’re likely catering to a more affluent customer base. These customers come to your restaurant expecting high prices. In truth, setting low prices in such a place can question the quality of your food. This will harm your brand and, as a result, your profits.


You can hire or build a pricing team to help you develop target prices and to determine optimal menu prices over time. Our findings show that with the right set-up and pricing team in place, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, the team can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year. As they identify more complex and previously unrealised opportunities, efficiencies, and risks.



Implications And Advantages Of Restaurant Dynamic Pricing Strategy


The large bulk of your sales as a restaurant owner will occur during peak hours such as lunch and dinner, and it may even be higher on weekend nights. However, outside of these times, it is no longer common to receive even 30% of the orders that you handle during these rushes.


As such, how do you get people to come to your restaurant besides lunch and dinner, for instance? Using dynamic pricing could work. For instance, you may be able to attract people to buy your food by briefly reducing the price of certain menu items off peak. This will significantly increase your revenue. However, you will have to consider whether the increase in volume offsets the increase in labour costs too.


Aside from increasing sales during slower hours, dynamic pricing can help you increase sales of a specific menu item. For example, if you notice that sales of your classic hamburger have recently declined, you could trial dynamic pricing tests. Choose a day or a few hours each day when classic hamburgers are cheaper than usual. This can help boost sales for this specific item.


Dynamic pricing is the easy part. Making it fit with your business model and your customers is another story. So you have to make the core basis of your pricing decisions based on your operations, pricing strategy, how people buy from you now and how you want them to buy from you in the future.


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Strategic pricing remains one of the most important profit generators in any industry. It’s encouraging to see restaurants think more broadly about pricing and experiment with new pricing strategies that work best for them. Dynamic pricing seems to be a good example of a restaurant pricing strategy. Don’t lose sight of your customers in the process! They are the key to your success.


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