With higher costs coming around the country related to higher minimum wages, increases in overtime pay, insurance and other areas, restaurant owners may think the answer is to overhaul pricing or introduce items with larger margins in order to offset the higher costs of operation.
But often, those types of dramatic steps aren’t needed. And in this time of significant change affecting the industry, the key is to ensure that restaurants balance doing what’s right for the customer with what’s best for the business.
Of course, there is always an opportunity to drive new visits by offering new benefits to the customer. And equally important, adjustments in price that the customer accepts is a key part of growing the business on an ongoing basis.
So as you look to make adjustments to pricing or menu items, here are three things to think about:
1. Know your customers and understand their “need states.” Before you decide to implement new menu items or make other changes, you need to know your customers and be mindful of their “need states” — what they are looking to get out of their experience. Use transaction data to analyze the “need states” by the time of day, meal time and day of the week. This should be done for the overall brand as well as for each individual location.
For example, if you have a location inside a hospital, your audiences may vary from hospital workers, patients and visitors, to nearby residents or those making deliveries to the hospital. Each of those audiences will have different “need states,” which will likely be different than other brand locations in the area.
Also, a person’s “need state” may change depending on his circumstances. For example, a truck driver may decide to eat at a truck stop during the workday because he needs to have a convenient spot to park his truck, but would have different needs when he is out with his kids on a Saturday morning.
So understanding each customer’s behavior will lead you to understand what they are comfortable with in terms of menu choices and other factors at each location.
2. Don’t only depend on surveys to know what your customers actually want. Transaction-level data will tell you more about your customers than other means, like surveys. Nobel laureate Daniel Kahneman’s research challenged the assumption that people always make rational decisions, and in fact, people often say one thing but act completely contrary to that. As an example, many people may not say in a survey that they would buy a croissant with their latte, but would make that decision at the register.
Data will show what your customers are actually buying, how often they are buying an item, which items they are purchasing together, what they are upgrading, and most importantly, what they are willing to spend.
Among the data that can be helpful to analyze would include indicators on behavior (frequency and recency of customer visits and how much the customer spent), demographic data, and competitive data (nearest competitors, types of competitors, including within certain drive times).
3. Before implementing a change on a wide basis, test it and track it. If you plan to introduce a new menu item, it’s important to test the change and track how well it fares.
For example, initially run a new menu item as a special and track how many customers were aware of it, how many ordered it and how many liked it. You also want to track the mix of who orders the item and how often — did customers order it on their second and third visit?
Also, consider how a particular item is purchased with other items. Factoring in these trading relationships will help you understand whether a new item is helping or hurting your overall margins, since the purchase of one item impacts the purchase of other items.
And finally, while transactional data provides the key to insight into your customers’ needs and purchases, a good supplemental source of information can be anecdotal feedback. Have your staff talk to customers and ask about their experience. You can gain a lot of helpful information by reading your customers’ cues and body language and listening to their feedback.
John Oakes is COO of Revenue Management Solutions, one of the world’s foremost authorities on menu pricing and restaurant management, with more than 20 years of experience in the hospitality industry.