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Restaurant Menu Pricing

neurosciencemarketing.com

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Re: Restaurant Menu Pricing

#11

Post by georgieporgie »

nkurz wrote: post #7
byoung2 wrote: post #2

The decoy pricing trick is easy to spot when pasta is on the menu. Pasta is one of the highest-margin items on the menu, so restaurants will place it next to overpriced chicken dishes. Next to a $12 chicken dish, $9 for pasta seems reasonable, even though the noodles and sauce only cost a few cents.

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' The $12 chicken is what they actually expect to sell, based on how reasonable it seems. It is not a decoy, rather the dish that the restaurant wants you to buy. The pasta is a concession to the value c…

It works both ways. From the article:

> In Decoy Marketing, we learned that adding an inferior but similarly priced product

> to one’s lineup can boost sales of the better product, and in More Decoys: Compromise

> Marketing we found that an expensive product added at the top of one’s line may not

> sell well but can boost sales of the cheaper products.

Re: Restaurant Menu Pricing

#12

Post by byoung2 »

nkurz wrote: post #7
byoung2 wrote: post #2

The decoy pricing trick is easy to spot when pasta is on the menu. Pasta is one of the highest-margin items on the menu, so restaurants will place it next to overpriced chicken dishes. Next to a $12 chicken dish, $9 for pasta seems reasonable, even though the noodles and sauce only cost a few cents.

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' The $12 chicken is what they actually expect to sell, based on how reasonable it seems. It is not a decoy, rather the dish that the restaurant wants you to buy. The pasta is a concession to the value c…

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.'

This is an extreme example, but what I'm talking about is more common. Think about chain restaurants like CPK, Macaroni Grill, PF Changs, etc. These restaurants just need to keep you seated long enough to sell you drinks. In order to do that without losing money on dishes, they need to funnel you into higher margin entrees. All other things being equal (i.e. the fixed costs of keeping the restaurant open), they want you eating pasta, not chicken.

It's simple math...pasta costs pennies per serving in raw materials, can be stored for long periods of time, and is easy to prepare (you boil and simmer it, and it is easy to keep warm while you prepare other dishes). It is by far the highest margin food item on the menu. Salad would be close, but it has a short shelf life. Chicken and other meat dishes are more complicated because they have a short shelf life (you don't freeze these because it kills the flavor and texture), and they need to be cooked just right and served quickly or you risk serving it cold or drying it out under heat lamps (resulting in expensive do-overs). The $15 (or $20) chicken entree is the real decoy...the restaurant would love to serve everyone pasta because it is a much higher margin (all other fixed costs being the same).

EDIT: I just googled "restaurant profit margins" and the second result gives the same example: http://articles.moneycentral.msn.com/SavingandDebt/ConsumerA...

Given the slim profit margin, many restaurants rely on savvy pricing to create the illusion of value. Putting a chicken dish on the menu for $21 will make a $15 pasta dish, where the restaurant is making a big profit, seem like a bargain, says Gregg Rapp, the owner of consulting firm MenuTechnologies.net.

That's funny...good thing I'm not the only one who noticed that at restaurants!

Re: Restaurant Menu Pricing

#15

Post by sleight42 »

jdeeny wrote: post #9
sleight42 wrote: post #5

Clearly, these sorts of strategies have applications well beyond restaurant menus. About 15 years ago, taking a usability engineering class from Randy Pausch at UVa (yes, that Randy Pausch), I worked with a team that was determined to develop a "cheat sheet" to help CS students debug the awful HP Laserjet IV printers in the UVa CS lab. Think "PC LOAD LETTER?! What the f * does that mean?!" After several user rounds o…

I would love to see a few examples from the printer cheat sheet. I'm sure this would be helpful in structuring user manuals and other documentation.

I wish that I still had it! It was, as I alluded, a while ago!

Re: Restaurant Menu Pricing

#16

Post by dkarl »

How about if you make diners pay for the menu before they're allowed to order? And also kick them in the nuts while they're reading it. But then you give them the food for free. (This requires pricing the menu appropriately, of course.)

Re: Restaurant Menu Pricing

#17

Post by [deleted] »

JeffL wrote: post #6
patio11 wrote: post #4

I think the restaurant with the iPad menus in Japan isn't doing it yet, but if I had a very forward thinking restauranteur friend I would offer to A/B test to victory. Increase average ticket by 10% and you print cash.

But people don't want to know you're A/B testing on them with prices. Didn't Amazon get in trouble over that and have to back peddle? Seems like you have to A/B test over time and not offer different prices simultaneously or else you risk pissing people off.

[deleted]

Re: Restaurant Menu Pricing

#18

Post by ccollins »

re1s wrote: post #3

"Predictably Irrational" Dan Ariely is a book on exactly such marketing tricks, it's a really good read.

Looking through Amazon comments [1], there seems to be some agreement that Ariely's studies lack any statistical significance.

Are there any solid statistics-backed intro books to Behavioral Economics?

[1] http://www.amazon.com/Predictably-Irrational-Revised-Expande...

Re: Restaurant Menu Pricing

#19

Post by sandGorgon »

sleight42 wrote: post #15
jdeeny wrote: post #9

Earlier quoted context omitted.

I would love to see a few examples from the printer cheat sheet. I'm sure this would be helpful in structuring user manuals and other documentation.

I wish that I still had it! It was, as I alluded, a while ago!

another request here. Sorry to hound you, but digging that up would be awesome.

The Ubuntu documentation could use some help.

Re: Restaurant Menu Pricing

#20

Post by rajatsuri »

byoung2 wrote: post #12
nkurz wrote: post #7

Earlier quoted context omitted.

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' The $12 chicken is what they actually expect to sell, based on how reasonable it seems. It is not a decoy, rather the dish that the restaurant wants you to buy. The pasta is a concession to the value c…

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' This is an extreme example, but what I'm talking about is more common. Think about chain restaurants like CPK, Macaroni Grill, PF Changs, etc. These restaurants just need to keep you seated long enough…

Not true. Actually nkurz was right - margins are generally fixed to be 20-30% in pretty much every single chain restaurant. All else being equal, restaurants want you to buy that expensive steak because their profit is the highest. ($20 steak - $5 cost > $12 pasta - $3 cost)
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