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Menu Pricing’s Theory Of Relativity



Menu Pricings Theory Of RelativityIn a previous oldie-but-goodie Back Burner post I talked about menu engineering – how to put together a menu that effectively markets your dishes and makes customers want to spend more and buy high margin menu items.  One thing that post did not touch upon, however, was how to price and organize those prices on the menu.

Research has shown that organizing prices the right way can affect what customers order and what they consider to be a good deal, and often will encourage them to spend more in your restaurant.  How?  Call it the Theory of Relativity.  When someone looks at a menu, they will inevitably comparing prices.  If you’ve read the post I mention above, you have already helped the customer make an emotional rather than monetary attachment to the item they want to order by de-emphasizing the price altogether – removing the dollar signs, placing it below the description rather than by itself out to the side, etc.

Even so, people are going to compare prices.  That’s where the Theory comes in.  More often than not, customers will choose a middle-of-the-road option.  The trick is to define “middle-of-the-road” for your customer.  That’s why a smart restaurateur will create one entrée that is ridiculously expensive – absolutely and shamelessly high end.  You may never sell a single one, but it doesn’t matter.  That unaffordable entrée will give your customers a compass by which they will judge the rest of the menu.

The research shows that customers will pay more on average if they have a higher priced item to compare against.  Their perception of value changes the higher the number they are comparing against is.  This phenomenon was illustrated very well in a recent study that took a completely irrelevant number – the last two digits of the respondent’s social security number – and then asked participants to bid on different items for sale.  Those with social security digits in the upper 20% bid 200% – 300% more for items than those with digits in the bottom 20%.  Why? Because people innately base their perceived value for a product on the next relative number, whether it’s the last two digits of your social security number or a $25 prime rib.

That means you can price your bread-and-butter, high margin, best selling dishes a little higher and still convince your customer they’re getting a great value.  And you never know, someone just might order that high end entrée once in awhile, which won’t be bad for your bottom line at all.

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3 Responses to Menu Pricing’s Theory Of Relativity

  1. Ken Burgin March 15, 2010 at 1:34 pm #

    Good reminder – I like the Einstein connection. Sometimes that high price is called a ‘decoy price’ – designed to distract us!

    Ken

  2. Aaron March 23, 2011 at 12:28 pm #

    An article on Pavone’s food and beverage trends blog talks about this, how menus use decoys to raise the price overall on their menu. Also, skepticism about how waiters run up the price of a meal. There is currently a study taking place to get to the bottom of this.. http://www.pavonefoodandbev.com/waiters-lie-and-other-tricks-the-restaurant-industry-doesn%E2%80%99t-want-you-to-know/

    • Greg McGuire March 24, 2011 at 5:11 am #

      Hi Aaron,

      Of course waiters tell you about the more expensive menu items first. Of course they leave the price off specials. And of course waiters will try to upsell you with extra side dishes or bottles of water.

      Restaurants are a business, remember. They are here to make money. In the process they make a lot of people very happy with their culinary efforts, but in the end, money is what pays the bills. So they are going to try to get as much of your money as you’re willing to part with. Just like any other business.

      I have seen more than one article similar to the one you reference here that tries to make it seem like there’s some massive conspiracy in the food service industry to “cheat” restaurant patrons out of money.

      Hogwash.

      Every business uses tactics to encourage their customers to spend more. Wal-Mart places their cheapest items at the ends of aisles. By the time you get to the middle of the aisle, where the products aren’t just some worthless piece of plastic shipped in from China, their prices are comparable to most other major retailers. You just think everything at Wal-Mart is cheaper. Only about a third of their stuff actually is. That’s called “relativity,” just like on a smart restaurateur’s menu.

      Nobody is accusing Wal-Mart of cheating or duping their customers.

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