The concept of revenue management is relatively new in the hospitality industry; the first Cornell Quarterly article referencing it was published in 1988*. Today, every hotel company imaginable has their own revenue management department, as if their very survival depends on it. Restaurants on the other hand, seem relatively reluctant to adopt such techniques.Revenue management is, “in essence…managing (of) customer behavior at the individual level via price and availability of constrained resources to maximize profits”**. In other words, it is the practice of revenue optimization. Hotels change their pricing consistently depending on supply and demand, yet food and beverage prices remain relatively static.
The practice of discounting during low demand periods (happy hours and early bird specials) highlight the very essence of revenue management techniques, and can have success. On the flip side, the idea of charging a premium (increasing the price of food during peak times of the day or during weekends,) remains very negatively viewed by restaurant consumers***.
Is it equitable to charge a premium for a table with a view of a landmark? Could a high end food and beverage outlet succeed by charging different amounts to different guests, depending on where they sit and what time they dine? Could this practice succeed in a wine bar in NYC, or just in a TGI Fridays at a baseball stadium? Please feel free to comment.
* Cornell Hospitality Quarterly, "Improving Hospitality Industry Sales" February 2010 55.
** Cornell Hospitality Quarterly, "Improving Hospitality Industry Sales" February 2010 54.
*** Cornell Hospitality Quarterly, "Percieved Fairness of Demand-based Pricing for Restaurants" February 2002
"I have seen restaurants use different menu's for different times, different rooms and different days. They usually change the recipes or portions slightly to avoid customer dissatisfaction. Lunch and dinner are the most common examples of this trend. In a standard restaurant, repeat customers will memorize the menu and prices, and insist on their "usual" prices, or stop frequenting the establishment.
ReplyDeleteI think any eatery in a sports arena could easily implement varying charges, since customers expect to pay a premium there, although I have seen rising discontent at the incredibly high prices at ball games, to the point where many people I know will not go to a game because while the ticket may be discounted, the cost of hot dogs, beer and soda is absurd. Has anyone else seen this attitude? "
Duane CHS ‘96
(Project Manager and Information Technology and Services Consultant, on the Hospitality Finance & Accounting Group discussion board on LinkedIn).
"I agree with your comment that a restaurant would be negatively perceived if they charge a premium for highly sought after reservation times or tables with a view. This could be especially detrimental with your most important customers, regulars, who would be likely to notice a change in pricing. One way a restaurant can manage revenue is by offering prix fixe menus on days with high demand such as Valentine's day or Mother's Day. A guest is less likely to notice an increase when items are bundled."
ReplyDeleteLori Johnson
(Accountant at NetFinancials, posted on the Hospitality Finance & Accounting Group discussion board on LinkedIn)
I agree with you Duane in the use of different portion sizes/ prices for different meal times, but I think the true evolution to RRM will be in the same meal period having different price points (for example Clyde's Restaurant Group in DC, www.clydes.com, offer oyster happy hour from 5-8PM and 11PM-1AM, filling seats during down times only in the Summer months...). As far as the overpriced F&B at sporting events, I believe that will always occur with a captive audience at an expensive event (concerts as well...)
ReplyDeleteLori, prixe fixe menus on special holidays are a great way to disguise price increases, and can be an effective way to increase revenue. I feel that is commonly used in the industry, and I am encouraging ways to take this thinking to establishments on a weekly basis. Maybe a weekend prixe fix, etc? Thank you very much for the feedback.
"Exactly, a weekly Sunday night "chef's table" is a great example. It could even be taken to dining package available at table with good views of TVs during sporting events."
ReplyDeleteLori Johnson
(Accountant at NetFinancials, posted on the Hospitality Finance & Accounting Group discussion board on LinkedIn)