As of May 19, My Two Cents is now on the new Intellaprice website. Please see this site for recent postings.

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copyright 2010 L. Kerr

Myth or reality: with the tools and technology available today, management can take it easy and let software do the heavy lifting around pricing decisions.

The truth is, I wish that was the case, but for restaurant operators responsible for pricing decisions or recommendations, it’s still necessary to devote significant thought to pricing decisions. While it’s true that automation can help greatly, making the actual decisions around pricing requires management judgment, and that won’t change.

At the upcoming NRA show, I will be giving a session on how to approach the most common challenges of making pricing decisions. Having spent much of my career in this area, it’s a subject near and dear to my heart. As part of the presentation I’ll be debunking some myths surrounding pricing (see previous blog post: Can We Talk About Pricing?) Here’s more on some of the myths surrounding pricing.

So why aren’t restaurants poised to take advantage of pricing systems? Here are a few reasons.

  1. Garbage In, Garbage Out – if your concept is lucky enough to have an accurate, state of the art Point of Sale (POS) system, then good for you. However, we all know that register coding and ringing are not exactly standard, so that if your company isn’t exactly consistent, you could be factoring in obsolete products or incorrect data depending on how sales are rung into the register.
  2. Software Sensitivities – Of the software out there that pertains to pricing, many packages are geared towards business-to-business industries. These products offer solutions for managing the sales pipeline, quoting, and discounting – all things that aren’t appliable to restaurants. Few are geared to the retail nature of restaurants.
  3. Non-Price Factors – for systems that do work with POS data, results can attribute an undue amount of weight to price, when in fact, it is rarely the most significant driver of restaurant performance. Having participated in many customer interviews and focus groups, I have heard customers mention convenience, service, quality, and location far higher on their lists than they do price as a factor in restaurant selection. Systems (or their developers or users) that do not allow for these variables – not to mention weather, advertising, promotions – are  omitting important determinants of revenue and profitability.
  4. Operating Realities – Even if tools and technology perform calculations such as price trends, comparable item price differences, price elasticity, and can point to potential price change candidates and the potential new pricing options, this is still not enough. Why? Because there are too many sensitivities that management should consider when finalizing price lists. These variables include the competitive environment, promotional activity, trade area differences, customer attitudes – and this list goes on.

I consider tools and technology extremely valuable in pricing analysis, and my firm consistently seeks to automate outdated ways of conducting analysis. But there is no substitute for management insight and review, and to think that pricing decisions can be made in the absence of this is simply wishful. A thorough approach with checks and balances to review information generated by automated systems will always be necessary to make sound pricing decisions.

I look forward to sharing more on this topic both at the NRA Show and in future blogs.

 

Photo: L Kerr

Anyone paying attention to Facebook, Twitter, Superbowl ads and newspapers knew all about Denny’s Grand Slam giveaway this week. Can you read one more article on it? For me, this had the makings of a field day, getting to watch from the sidelines and not having to work the event (as a veteran of Baskin-Robbins’ Free Scoop Day and the Scooper Bowl, I know the madness these events cause among deal-happy consumers). 

With the Burger King $1 Double Cheeseburger controversy still smoking, I saw this as the anti-BK promo, with Denny’s not just reducing the price, but giving a substantial item away to millions. I couldn’t wait to talk to customers, get their take on what this means to their loyalty and frequency, and start quantifying results.  

Arriving at Denny’s in Lawrence, MA (a working class town featured in Tuesday’s Boston Globe for its near bankruptcy and the mayor’s double dipping salary controversy) I braced myself for the lines, the crowds, and the excitement, and I got surprise #1. There were no customers spilling out of the restaurant – something I had expected based on last year’s PR reels, which featured out-of-work customers shedding tears of gratitude for the gift of a meal out. “Doesn’t anyone want a free meal or two or three in Massachusetts?” I wondered. 

Outside, I first ran into Lenny, who assured me it was packed inside and indulged me in a few questions though he was supposed to be at work. His reaction to the giveaway and the impact it has on his future visits: “I like it. If people do something like this, it does draft you to come back more often.” In Lenny’s case, that’s about once a month, at a cost of $6 per trip for him. 

Then I met Dee, a Denny’s regular who said “I’m so there” when she saw Superbowl ads. “I’m always here,” Dee told me, estimating $20 to $30 each week for breakfast for two. What will she do going forward? She’ll continue the habit, which she calls a treat for herself. 

Lenny was right – when I got inside, the lobby was full of patiently waiting guests. But Dana and Amanda, a husband and wife on their way out, were not guests – they were off-duty crewmembers who explained to incredulous customers why they were not putting in their names: they are ineligible for the giveaway. They were scheduled to work that night, and Dana was especially happy not to be in the kitchen, since “It’s crazy. But it’s good for business.” 

I heard the manager taking customer names, quoting a 30 minute wait, and offering rainchecks to anyone who could not or did not want to wait. Surprise #2 – great contingency planning which actually reduced the the burden on Denny’s in the moment. . . you are smart, Denny’s. 

Customers were happy, and even surprised – Al and Mady, who “just wanted French Toast,” and had no idea about the giveaway, said they would still buy the French Toast, but might take the Grand Slam also. While they didn’t come for the promotion, Al thought it was “awesome. I know Denny’s is always doing nice things.” The pair, who “just started on a Denny’s Binge” come once a week and spend $20 to $25, which they think is “not bad.” 

Surprise #3: Store managers were willing and happy to speak with me. I wouldn’t have dared commit the cardinal sin of bothering them had it been chaotic, but GM Keith Tinker and Assistant Manager Morgan Livingston, manning the hostess stand, were cool, calm and collected. They said the event was going much more smoothly than last year, attributing this to good planning, strong corporate support, and more customer patience this year. “We really crewed up,” Livingston said. “I thought it was overkill, but it’s not – it’s going well.” 

At one point, an official-looking man came in, said something to the managers, and proceeded to walk through the store. Figuring he was part of a Denny’s or franchisee management team, I returned to observer mode. Later I asked Keith about him, and he said the man was either a principal or truant officer, doing rounds to find any AWOL students. Laugh #1

When the coast was clear, I spoke with Keith about his view of the giveaway. “This works because we’re a franchisee – working together with corporate – they give us everything we need to do it right and it shows.” What does the store get out of this investment? “Happy customers who will repeat, and a lot of buzz. Everyone is so positive and the buzz will last a month. There is so much goodwill. It’s about what we can do to give it to [customers], not what we can do to not give it to them. It’s worth every penny.” 

Surprise #4 – have I ever heard a franchisee talk like that about corporate? Very rarely. 

So for now, business case, schmusiness case –  instead of crunching numbers, I’ll let Keith’s analysis speak for itself.

Welcome

January 27, 2010

I have entered the realm of blogging. Just on the heels of tweeting. It’s a big week for me. Having gained a bit of enlightenment on how others have benefitted from twitter, I figured I could stay on the sidelines as a well-kept secret.  But that was not to be. My friend Pamela Rosenthal, who is noted for her social media prowess (and not just by me, but others way more in the know) was quite encouraging. She insisted that I, too, should take the plunge, and after her urging and adept tutelage, I have done it.

This is primarily a business-oriented blog for me, so I will focus on the issues I deal with at my company, Intellaprice (www.intella-price.com) – restaurants and pricing, each of each boast many enthusiasts. I have a few ideas about what might be interesting and would welcome yours.  Happy reading.