On “The Price is Right,” sometimes all it takes to win big is a little guesswork – but in business, developing a winning pricing strategy is quite complex. For years, organizations ranging from airlines to hotels and restaurants have leveraged variable pricing strategies, adjusting prices based on historic demand during the given day of the week or time of day. For restaurants in particular, this approach is key to effectively driving traffic during off-peak hours. Since an empty table is lost revenue, a menu item that sells for fifteen dollars on Friday evenings could be profitably sold for much less on Wednesdays, for example.
Traditionally, variable pricing strategies for restaurants have included initiatives like happy hours and “Kids Eat Free” programs on slower days of the week. However, as an increasing number of restaurant chains opt for digital menu boards or tablet-based menus, the variable pricing opportunity is evolving. Research from Applied Predictive Technologies’ 2017 State of Business Experimentation Report shows that 65 percent of restaurants surveyed experimented with pricing in the past year, and 10 percent of respondents tested variable pricing-specific strategies.
The increased popularity of digital restaurant technology is enabling more cost-efficient and easy-to-implement variable pricing, allowing restaurants to move beyond shifting price just by day and time to implement real-time pricing shifts based on other factors like weather. But how can restaurant decision-makers ensure that these variable pricing programs are profit-positive?