Restaurateurs who consider the psychology of how they price their food can tap into their sales potential to a greater extent. How does that work? Dr Mark Friesen, an expert in price management, offers some tips.
What is it about?
Dr Friesen, what exactly is pricing psychology?
It’s essentially about how customers perceive prices. And how they make their decisions on whether to buy something or not at a particular price . There are lots of scientific findings in this field that restaurateurs can also use to better understand their guests’ willingness to pay and to influence their purchase decisions.
But how exactly?
Traditionally, lots of restaurants calculate their prices based on purchasing costs plus a target margin. Unfortunately, this approach means that they are literally leaving money on the table. It is more important for restaurateurs to consider their guests’ differing willingness to pay and set smart menu prices based on this information.
What do you specifically recommend?
Well, there is no single golden rule but there are a few tricks. For example, price anchors are a tried-and-tested method. For example, expensive dishes should be at the top of the menu. Guests will always look for comparisons. They will use the first high price as a reference and will then perceive the prices which come after that as more reasonable. In addition, lots of guests do not want to or do not have the attention span to read through a long menu.
Do you have any more tips?
It is important to understand that not all guests have the same willingness to pay. Therefore, you need some price differentiation. Ideally, your menu would include a range of prices from a cost-effective dish for those on a budget all the way to higher-priced options. Every guest should feel that they are getting good value for money.
But how can you find out what prices are appropriate?
First and foremost, restaurateurs should try to see things from their guests’ perspective and ask: which customer segments do they have and what is their willingness to pay? You can also survey individual guests: what do you think about the menu? What would you pay for each dish? It is also worth simply testing how sensitive demand is to price changes. I believe that we can learn from other countries in this regard, for example, from the USA where people have more courage to give things a go. One example would be restaurant chains that increase or reduce their prices for delivery dynamically using artificial intelligence (AI) depending on the order you place and the time of day.
But isn’t it generally risky to increase your prices?
Not always. The key is to increase them by the right amount, at the right time and for good reasons. Right now, every restaurateur can argue, for example, that energy prices, staffing costs or purchase prices have increased and lots of guests are sympathetic to that.
So should you write that on the menu?
You can do or you can simply provide a flyer with it. Ideally, you should package this with a positive spin: we have revised our menu and are now using more regional products or something similar. Always avoid increasing your prices quietly and secretly in the hope that guests won’t notice. It is even worse when the price is changed with Tipp-Ex and the old numbers are still visible underneath. That’s just not OK.
Are there any other mistakes to avoid?
Doing nothing at all would be a mistake. It’s worth thinking a bit about the psychology of pricing. Guests will be happier and more loyal if you succeed in bringing prices and the level of enjoyment into harmony.
Dr Friesen completed an apprenticeship in banking and studied business in Oestrich-Winkel, Chicago and Madrid. He then completed his doctoral study on the topic of price fairness at the University of St. Gallen. After working for a DAX group and a mobility service provider, he founded QUINTA Consulting in 2012, a business consultancy which specialises in price management and is based in Frankfurt am Main.
