Happy hour pricing - race to the bottom?

Is your restaurant deal strategy building or killing margins?

Even successful restaurants have trouble filling tables in the late afternoon, early evening, and from nine to close it can be a real challenge. The key to building your business during those hours is understanding what your customers are seeking.

According to the National Restaurant Association in USA, with 77% of adults and a staggering 85 percent of millennials saying they would likely go to a restaurant during off-peak times if they received a discount. Pricing is important, but it isn’t the only important thing. Variety of menu options, food quality, service, and ambiance all count.

Off-peak hours can still be profitable for your restaurant. You just have to get strategic.

Menu pricing strategies are critical to a restaurant and bar operation. Get it right and you pricing strategies lure guests in, or get it wrong and turn guests away. When an establishment charges too high a price guests do not return. When an establishment charges too low a price the firm is not profitable. Finding the right mix is more an art then a science, but the information from past studies will help to paint the picture.

Do Happy Hour Bar Strategies Increase Bar Sales?

The short answer to this question should be yes. In a University of Nevada study to check if the success of happy hour strategies, it was found that sales during happy hours in a bar doubled as compared to sales in the same bar just an hour prior to the start of the scheme. The study on the success of happy hours is a part of a paper on ‘Beverage Operations Pricing Strategies’ conducted by the University Of Nevada. But of menu pricing strategies are a challenge, happy hour pricing is one for the expert if it is to build revenue and not destroy margin.

So how can happy hour be made into a sales success?

Dynamic pricing?

Happy hour is just another form of dynamic pricing, a rather archaic one admittedly, but nonetheless a dynamic pricing - the same strategy that has been used in the hotel and airline industries for years with stunning success. The likes of Agoda, Booking.com, Treveloka and many other websites have changed the industry with demand driven pricing. It is now the norm for customers to pay more or less and fixed pricing has been a positive change for customers and companies who have grasped the opportunities. The difference in the success in the hotel and airline sectors is the digital and online impact, which has been felt far more strongly than within F&B. Most restaurateurs still use paper menu's and orders are placed verbally to servers. Changing prices is slow and very cumbersome, which is why happy hour, late night deals, and lunch specials are the norm, not agile and demand driven dynamic pricing. Companies like menuvenu.com are changing this by allowing restaurants to have online ordering and which can be changed 'live'. This brings restrant pricing into the realms of hotels and airlines, where pricing doesn't mean new menu printing, new marketing, and all the other paraphernalia.

Test & review

Any marketing is an art and not a science and that means a core principle is 'test & review'. And this is especially true for dynamic pricing where the variables of time chosen and price charged can vary from restaurant to restaurant. There is no hard and fast rule. No business wants to give discount, and the purpose is purely to generate either new customers or increased revenue, so the secret is to test and review, then refine from the evidence and build a clear understanding of how to hit targets whilst giving the least.

Specific menu

Building a specific menu and finding the right product mix for your promotion is key to success. Find what pulls customers in, then see how you can upsell, with full price items. Airlines have become masters at advertising low, low prices, then up-selling seats, baggage, etc, as we all know. They use variable pricing to market and gain interest, then gain revenue and profit by up-selling. This is the key to success, but depends on online ordering as it needs the flexibility and instant impact this offers.

Focus on income not discount

Every restaurant incurs cost 24 hours a day, but revenue has traditionally been focused on the main meal times, breakfast, lunch, dinner.... and drinks! This means the quiet times are used for stock, preparation, etc, but not usually for revenue. But there is evidence that savvy restaurateurs are missing a trick. Take London, Soho restaurant Bob Bob Ricard hit the headlines earlier this year with its simplistic take on the dynamic pricing model. This eatery now offers a regular menu and an off-peak menu depending on what day and time a customer visits. All lunchtimes are classified as off-peak, as are dinner times on Sundays and Mondays. Founder Leonid Shutov says “it evens out demand  between our more popular and less popular times. I guess I was inspired by how other industries use it, but really it’s basic supply and demand economics.”

A few months in, the strategy has improved the restaurant’s overall profitability according to a NPR report. “Perhaps the most positive thing about the project is that spend per head has remained pretty much the same,” says Shutov. “That means that our off-peak customers are using the saving to enhance their enjoyment of the restaurant with more dishes or perhaps more fancy wines. That’s good news for both parties.”

It is all about putting bums on seats and getting new customers. Traditional tactics for filling quieter periods – including early bird menus, coupon discounting, and offers through the likes of Groupon – are by and large less sophisticated than a well thought out dynamic pricing strategy. The advent of mobile presents restaurateurs with a new tactic in the battle to build their customer base and revenue. Now their greatest threat, empty tables, can be used as the prime asset in marketing and building brand and success.

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