Our Menu pricing method

In this article, I introduce you to our in-house developed new-age menu pricing system RVP to stay with the changing industry times and standards.

I discuss with you as to why the traditional Dynamic menu pricing (market-driven menu pricing method) is dead. I then, share with you a more efficient pricing system to drive restaurant sales, manage inventory better minimising losses and get more customers and loyalty in your restaurant.

Our perspective

Remember, If your customers don’t think the prices on your menu are reasonable, how great your concept or your food is won’t matter much.

While it is natural to want your prices to be on the higher end, being overly aggressive with your pricing structure can drive customers away. Whereas being too meek can cost you valuable profits.

Market driven pricing is the practice of setting prices based on what customers are willing to pay. The idea behind market-driven pricing is that if you price your product too high, customers will buy something else.

Traditionally, the method is used where the demand fluctuates frequently and affects product availability and prices - more or less hospitality based business used frequently; and in this age the methods does not work anymore.

The failure of traditional ways of dynamic pricing largely stems from restaurants’ biggest concern: Consumer perception.

Our reasons

Given these challenges, the opportunity for restaurants lies not in real-time in-store dynamic pricing but in more tailored price differentiation strategies. Consumers have varying perceptions of different pricing methods, where the majority view happy hours, customized promotions, and weeknight specials as positive, while the opposite is true for terms like peak pricing, dynamic pricing, and surge/demand pricing.

It is critical that restaurants prioritize widely accepted price differentiation methods rather than fluctuating in-store menu prices, as this helps preserve consumer trust while still enabling brands to leverage strategic pricing to drive traffic and revenue.

And I introduce to you our system -

RVP

Based on the current market scenarios and my deep engagement with it, I have modified the old dynamic menu pricing method into a value based menu pricing system. The purpose is primarily to increase customer flow into specific restaurants locations.

Restaurants and consumers alike are less interested in real-time in-store dynamic pricing and view customized promotions as the top price differentiation method.

Instead of raising or lowering menu prices in real time, restaurants can leverage customer data to offer targeted discounts and promotions that align with individual purchasing behaviors. This approach allows restaurants to further optimize pricing without triggering negative reactions from consumers.

Ideally, it is another name for being flexible with your product items as per the market you're in.

In my method, menu pricing does not always mean increasing or lowering of menu prices; it most often means adjusting prices to be more attractive to consumers during off-peak hours in an effort to increase traffic during an otherwise slow time and similarly engage better during peak periods.

There are two primary strategies devised to deliver market-driven pricing for restaurants. My method is based on the principle of Value based pricing which is set on the presumed value of a good or service that we offer to our customers.

The first is a TDa (Top to Down approach) where I align less price items across brand units on the same scale but modify high margin items, based on market demographics.

And the second is BTa (Bottom to Top approach) where the primary focus of the pricing strategy is to invite more customers in the restaurant and then use aggressive ‘cross and up’ selling to improve upon the bill value by offering them higher value.

How is the market-driven pricing advantageous to your restaurant ?

• Enhances flexibility to clear away excess inventory and control it better and to sell high-margin products.

• Maximizing Profits with a better understanding of consumer demand and then pricing accordingly.

• Increases Sales by being able to predict foot traffic and demand more efficiently.

• Attracts diners looking for a good deal by generating excitement and a sense of urgency.

• Higher promotions and events engagements, with goodwill enhancement.

The decision to implement RVP is based on due consideration to the listed factors -

• Transparency: Customers tend to accept price changes more readily when they understand the reasons behind them.

• Customer Segmentation: Understanding different customer segments can allow restaurants to tailor their dynamic pricing strategies effectively, perhaps by offering off-peak discounts or loyalty perks.

• Market Conditions: Implementing dynamic pricing during high demand or significant cost fluctuations can help businesses stay competitive and profitable. However, it's crucial to balance profitability with customer satisfaction.

• Technological Integration

• Menu update logistics

Avoiding the risk of negative perception

The old Dynamic menu pricing can sometimes make customers feel like they are being taken advantage of, especially during peak times when prices go up. If customers think your restaurant is just trying to make extra money without adding value, it can hurt your brand’s reputation.

The key is to balance the benefits of market-driven pricing without the risk of appearing unfair or greedy, which can alienate loyal diners.

And also too much movement on menu pricing regularly makes your menu unpredictable and sort of irritating. So a fine balance has to be made in deciding the pricing and then stay onto it for a brief period, maybe extend it if the market accepts it and your numbers are doing okay.

While using our RVPs, I tend to use either of the two approaches but not both to arrive at the optimal standards for deciding on menu prices.

The focus remains the same - to build Sale Leadership in the market you operate in. Period.