How Restaurants Bite Into Price Research

It’s no secret that pricing research is critical to supporting decisions that contribute to the bottom line. Not only is it practical, it’s also one of the most cost-effective ways to use a research budget. Among the many questions operators have is how often they should conduct pricing research. I can answer in many ways, of which this is the simplest: once or twice a year.

For a more nuanced explanation, read on.How Restaurants Bite Into Price Research

Is Once a Year Enough?

Depending on your needs, conducting pricing research once a year might not be enough, but for many operators, it’s more than they are currently managing. Some operators review pricing once every two or three years. This is definitely not enough. Given the controversial and sensitive nature of pricing and pricing decisions, many other operators avoid them and engage in what I call panic pricing. They react only to commodity hikes, wage increases or a dip in performance. At that point, they decide to address pricing as a last resort.

An annual pricing review allows for the regular evaluation of an operator’s position relative to competitors, and of the operator’s goals and performance relative to internal metrics. Given how dynamic the world is, understanding price in light of economic factors and the competitive environment allows us to assess how customers and competitors are responding to these changes.

Is Twice a Year Enough?

In the restaurant industry, price changes can occur more than just once a year. Menu printing or menu board changes can affect the timing for price changes just as much as cost increases can. Franchisee decisions can result in multiple price increases during a year. Conversely, just because a menu is updated due to seasonal item changes, prices might not necessarily change.

Depending on the frequency of competitive changes, the answer may be that more than one review per year is necessary.

How Do I Decide On the Right Frequency?

In thinking this through, consider several factors:

  • How frequently does your restaurant plan to adjust price? If it’s only once a year, then annual research and analysis are a great step in the right direction.
  • How much capacity do you have? If you are short of resources, don’t burden your team with work that detracts from other projects. Build research capacity over time to handle two pricing reviews. I once had a client plan for three waves of pricing research a year. Given the magnitude of this endeavor, there was simply not enough time to handle a third round of research. The client settled on two and has reached a good balance of pricing activities.
  • What are your overall goals? Keep in mind your business objectives, and understand how price changes will help meet these. It could be that a thorough pricing review sheds light on price change opportunities, but not all changes need to occur at once. Staggering any changes based on season, promotional programs or menu changes could be warranted, but it need not require two waves of pricing research.

The bottom line is to develop a research schedule that makes sense for your brand and its goals and to manage this activity as the world changes around you.





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