Dynamic Pricing: How did that work out?!

The idea of altering price based on demand (dynamic pricing) is not new to other sectors and clearly works when done right.  In fact through the use of early-bird deals, set menus, voucher sites and other methods hospitality business are using similar methods to alter their pricing at different times of the day/evening and also days of the week.

Those of you that have read these blogs or visited Norse or Baltzersen’s will be aware that I am always keen to try out new things in my business.  For the last 6 weeks or so we have been trying out some very rudimentary dynamic pricing within Norse to see how price influences a guest’s choices as to when they will dine.

The idea was to try and move some guests away from the popular Friday and Saturday evening at 7.30 pm slots and incentives them to dine at other times if that fits with their plans.  I’m going to share some of the data below and pull out a few early ideas that I am going to use to inform the next step of the strategy…..

I will say that as always this is real data from my business.  The challenge when running new promotions and tactics to improve your business is that it can be difficult to run things in isolation.  I have had to remove some bookings that have come from different avenues (Travelzoo being one….more on that soon) and also take into account the decline in take up of our Champagne Thursday offer with neighbours ‘The Champagne Concept‘.  It’s business not a science project though so I hope you’ll understand!

Revenue

A graph showing a comparison between revenue generated pre and post introduction of dynamic pricing.The revenue by day of week shows a promising trend on Tuesdays.  Revenue is significantly up on that day, actually an increase of 42% on pre-dynamic pricing.   It suggests guests are keen to get the best value available.

Wednesday is a similar revenue but because covers are up it is a negative result because this will decrease gross profit margin (GP).

Thursday is significantly down on pre-dynamic pricing.  This is partly explained by decreased uptake in a joint offer we have with our neighbours ‘The Champagne Concept’ but could also be because the relative discount is smaller than earlier in the week.

Revenue is slightly up on Fridays due to increased covers, but by applying the 10% discount to the whole restaurant then realistically a drop in GP will cancel out any benefit.

Saturday is a small drop in revenue of 2%, cover numbers are the same so it is linked to spend in the restaurant – must do better!

Covers

A comparison of the number of covers Norse restaurant served before and after it's dynamic pricing campaign

With the exception of Thursdays covers are up throughout the week – most significantly on a Tuesday.  The reasons for the drop in covers on Thursday is likely to be as per the reasons for the drop in revenue given above.

Spend per Head

A comparison in the relative spend per head after dynamic discounts were introducedThe spend has increased in line with the discount offered on Tuesday and Friday.

Spend has increased on a Thursday likely because previously guests were getting excellent value as part of our partnership with ‘The Champagne Concept’.

On Wednesday guest spend is down on top of the further discount we have offered via dynamic pricing.

Early Conclusions

I always said this would be an experiment and this first attempt has been quite limited in the way we have been able to offer incentives.  To get some more reliable data and take out more weekly fluctuation this would need to be run for a longer period, however we’re planning some changes so we aren’t going to be able to do that.

The data shows that guests can be encouraged to visit the restaurant by offering increased value, certainly on a Tuesday this appears to have been the case with a significant upturn in the number of covers served.

I was interested to see whether guests would spend a similar amount as they would originally have budgeted – perhaps by trading up to a more expensive bottle of wine or maybe opting for the tasting menu rather than eating a la carte, but that doesn’t seem to have been the case so far.

The 10% discount on Friday evenings has attracted more diners, but the effect of applying a 10% discount to the whole restaurant has negated any benefit in terms of increasing revenue.  I’m sure it was a nice bonus for some guests and I have had feedback via comment cards as such.

There  will be intangibles like having attracted guests to dine at the restaurant for the first time who may now become regular customers.  The trial has also attracted some attention on both a local and national level in both regular and trade publications with inclusions in The Observer, Caterer Magazine,  Harrogate Advertiser and  potentially Olive magazine in July/August 16.

What’s next for dynamic pricing at Norse?

The effect of the experiment so far has been to deliver only very marginally higher revenue with a lower gross profit margin overall – not the result I was after!

An awful lot of guests have been unaware of the situation regarding the discount so the data is probably not truly reflecting the driver behind many guest bookings.

Coinciding with reviewing these results and also our recent change in Head Chef we are going to alter the format at Norse slightly and move to the much more flexible Tock booking platform.

We will offer a choice of a 4 or 8 course menu at £40 or £60 respectively.

Tickets will be part of the dynamic pricing strategy

Tables will be available to book using two methods.  The first is a deposit method where each guest will be asked to provide a £15 deposit and this will be removed from the bill at the end of the evening.  The second method is a ticket based option for those that wish to achieve added value by securing a table at a reduced rate.

We will release reservations out until the end of September later this month.  Advance tickets will range from £25-35 for the 4 course menu and £40-55 for the 8 course menu.  Prices will change based on demand and will alter based on time of sitting and also day of the week.

It’s a while since I’ve blogged but I have another couple lined up for the next week or two including a look at how we’ve used a Travelzoo promotion with Norse and also some thoughts about craft beer.

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