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Stop Pricing Menu Items the Old Way. Start Pricing the Smart Way.

By
Supplyve Team
11 Jan 2022
5 min read
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Blog
Inventory 

Stop Pricing Menu Items the Old Way. Start Pricing the Smart Way.

Supplyve Team
October 29, 2023
7 Mins
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In the highly competitive world of restaurant management, setting the right prices is not just a necessity—it's an art. Understanding this art can significantly influence your restaurant's profitability and brand reputation. A recent case study by Uzair Ahmad, Maxime C. Cohen, and Srikanth Jagabathula reveals insightful strategies that restaurant owners can adapt to their unique market dynamics.

Understanding the Power of Pricing

The case study highlights a critical aspect: the impact of strategic pricing on consumer behavior and sales conversion. Sheets & Giggles, specializing in sustainable bedding products, conducted a pricing experiment that yielded intriguing results. They tested three distinct price points—Lower, Regular, and Higher—for their products. Notably, the "Lower Price group had a 40% higher conversion rate than the Regular Price group" (p. 1). However, the conversion rate didn't significantly differ between the Regular and Higher Price groups.

For restaurant owners, this finding is a golden nugget. It suggests that customers may be more sensitive to perceived bargains, but not necessarily deterred by prices if they believe they're receiving value. This balance is crucial in a restaurant setting, where the perceived value often includes factors like food quality, portion size, and overall dining experience.

Applying Data-Driven Decisions in Your Restaurant

One of the key strategies employed in the case study was A/B testing, a method of comparing two versions of a variable to see which performs better. In the context of a restaurant, this could involve testing different pricing strategies on menu items or specials.

Imagine you're considering introducing a new dish to your menu. By initially setting a lower price point and later adjusting to a higher one, you could assess customer reactions and sales data, helping you determine the most profitable price. This approach removes guesswork, allowing for decisions driven by real-world customer interactions.

Balancing Quality and Affordability

The case study underscores the importance of finding a "sweet spot" in pricing. If the price is too high, you risk losing customers. If it's too low, you might undermine your restaurant's perceived value and hurt your profit margins. The study's approach aimed to identify this sweet spot, ensuring prices were neither driving away potential customers nor undervaluing the product.

In your restaurant, this could translate into carefully structuring your menu prices. For instance, premium dishes could be priced slightly higher, justified by superior ingredients or more complex preparation methods. Simultaneously, offering competitively priced options for budget-conscious diners could attract a broader customer base.

Continuous Experimentation for Long-Term Success

A vital takeaway from Sheets & Giggles' strategy is the continuous nature of their experimentation. They didn't just set prices and forget them; they were constantly testing and tweaking. For your restaurant, this could mean seasonal adjustments, special promotions, or event-based pricing. The key is to keep assessing customer response and adjusting accordingly.

Your Strategy for Success

In conclusion, the case study offers valuable insights that restaurant owners can apply in their pricing strategies. By understanding customer behavior, utilizing data-driven decision-making, balancing quality and affordability, and committing to ongoing experimentation, you can optimize your pricing for profitability and customer satisfaction. Remember, the right price can make your customers feel they've received a great deal, encouraging repeat business and fostering long-term success for your restaurant.

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Stop Pricing Menu Items the Old Way. Start Pricing the Smart Way.

Inventory 
Published
October 29, 2023
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In the highly competitive world of restaurant management, setting the right prices is not just a necessity—it's an art. Understanding this art can significantly influence your restaurant's profitability and brand reputation. A recent case study by Uzair Ahmad, Maxime C. Cohen, and Srikanth Jagabathula reveals insightful strategies that restaurant owners can adapt to their unique market dynamics.

Understanding the Power of Pricing

The case study highlights a critical aspect: the impact of strategic pricing on consumer behavior and sales conversion. Sheets & Giggles, specializing in sustainable bedding products, conducted a pricing experiment that yielded intriguing results. They tested three distinct price points—Lower, Regular, and Higher—for their products. Notably, the "Lower Price group had a 40% higher conversion rate than the Regular Price group" (p. 1). However, the conversion rate didn't significantly differ between the Regular and Higher Price groups.

For restaurant owners, this finding is a golden nugget. It suggests that customers may be more sensitive to perceived bargains, but not necessarily deterred by prices if they believe they're receiving value. This balance is crucial in a restaurant setting, where the perceived value often includes factors like food quality, portion size, and overall dining experience.

Applying Data-Driven Decisions in Your Restaurant

One of the key strategies employed in the case study was A/B testing, a method of comparing two versions of a variable to see which performs better. In the context of a restaurant, this could involve testing different pricing strategies on menu items or specials.

Imagine you're considering introducing a new dish to your menu. By initially setting a lower price point and later adjusting to a higher one, you could assess customer reactions and sales data, helping you determine the most profitable price. This approach removes guesswork, allowing for decisions driven by real-world customer interactions.

Balancing Quality and Affordability

The case study underscores the importance of finding a "sweet spot" in pricing. If the price is too high, you risk losing customers. If it's too low, you might undermine your restaurant's perceived value and hurt your profit margins. The study's approach aimed to identify this sweet spot, ensuring prices were neither driving away potential customers nor undervaluing the product.

In your restaurant, this could translate into carefully structuring your menu prices. For instance, premium dishes could be priced slightly higher, justified by superior ingredients or more complex preparation methods. Simultaneously, offering competitively priced options for budget-conscious diners could attract a broader customer base.

Continuous Experimentation for Long-Term Success

A vital takeaway from Sheets & Giggles' strategy is the continuous nature of their experimentation. They didn't just set prices and forget them; they were constantly testing and tweaking. For your restaurant, this could mean seasonal adjustments, special promotions, or event-based pricing. The key is to keep assessing customer response and adjusting accordingly.

Your Strategy for Success

In conclusion, the case study offers valuable insights that restaurant owners can apply in their pricing strategies. By understanding customer behavior, utilizing data-driven decision-making, balancing quality and affordability, and committing to ongoing experimentation, you can optimize your pricing for profitability and customer satisfaction. Remember, the right price can make your customers feel they've received a great deal, encouraging repeat business and fostering long-term success for your restaurant.

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That probably sounds obvious. But stores can put so much effort into crafting world-busting menus and items, that they forget the soul-crushing, manual upkeep involved in tracking their finances or updating their point of sale. We'll do the boring work for you.

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