Dynamic pricing is the rage among restaurants, but it’s difficult to pull off especially as inflation may be starting to ease. “Everybody seems to get into it at the late end of the cycle. When it gets to the late part of the cycle, people make bad decisions,” said Mike Lukianoff, founder of analytics firm Extropy 360, at the Food On Demand Conference May 4.
“What’s worrying me now is what’s happening as inflation starts to taper off, and how the industry is going to manage the other side of this. I’ve seen this ballgame before and I know how it ends. So, I’m not popping champagne because I’m a little worried.”
Ashwin Kamlani, CEO of Juicer, said dynamic pricing is an old game. “That’s something people have been doing forever. Restaurants have lunch menus and dinner menus. Restaurants have happy hour.” What’s different today is data, specifically “using data to do that correctly in a dynamic environment.”
He suggests a shift in thinking. “The mentality has been, based on my cost, how low am I willing to go?” What operators should ask is, “What can I charge? What is the customer willing to pay?” He cautions against a controversial practice. “We at Juicer are anti-surge pricing. You have to think about the lifetime value of the customer. You can’t think of these things in isolation.”
He also addressed the recent industry chatter that DoorDash would require restaurant customers to charge the same for dine-in as they do for delivery, something Food On Demand Editor and panel moderator Tom Kaiser said has not been confirmed.
“One of the interesting things that happened last week is that DoorDash started a very dangerous game of chicken with the restaurant industry. It’s going to be interesting to see how that plays out,” Kamlani said.
Sherri Kimes, emeritus professor at Cornell University who’s made a distinguished career in teaching and studying multi-channel pricing, said the practice isn’t done in the hotel business. “The first time I heard that restaurants could charge different prices for different channels, I just about fell off my chair. By contract, hotels have to have the same price across various channels. The hotels hate it,” she said.
“Well, what do they do about it? Well, they bitch a lot,” she said. “They’ve had to learn how to deal with it. We could all say ‘no, we’re never going to do that.’ It’s something to think about. What can you do to make the reservation, to place their order directly with you? Make it worth their while.”
Colin Webb with Sauce Pricing advises restaurant operators to determine “which items on your menu have a higher retention,” meaning customers order them even as they manage their check by dropping other items as prices rise.
“It’s not necessarily your most popular item. We found that for dynamic pricing strategies, you can do things like provide a discount on that particular high retention item. That can actually get people to order more,” Webb said.
“It’s the same approach that Amazon has. They’re essentially decreasing the prices of items you can find anywhere, and increasing the prices of items that you don’t know where else you can find them,” he said.
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