Surge Pricing Comes To QSR, Enabled By Digital Menu Displays
March 10, 2023 by Dave Haynes
In the early days of digital signage, management software and screens were promoted as a way for quick service restaurant operators to much more easily and quickly change what was on the menus posted behind order counters – notably removing things like breakfast items that are unavailable the balance of a day. Years on, with digital menu boards pretty much a standard in QSR environments, there’s now a lot of discussion, at least, about using that technology to do what amounts to surge pricing.
The base idea is that software integrated with restaurant management systems can make it possible – and easy – to change pricing several times a day, based on factors like demand. So an item that costs $3.50 in the morning might be $4 at lunch. And so on.
Anyone who has ordered a rideshare car can tell you about surge pricing – with rides that were $10 a day earlier becoming $20 rides because that area is busy and more people are asking for rides. Same idea with QSR, though it can also have the effect of lowering prices to help move overstocked items and perishables.
The restaurant industry calls this dynamic pricing and, as you might well expect, the vendors selling the capability and operators using it do some spin doctoring to say it is not all about varying prices based on demand.
In a QSR magazine piece about dynamic pricing, a firm called Juicer – which has software enabling dynamic pricing – says “dynamic pricing is ensuring the right price at the right time for each sales channel to optimize a restaurant’s profitability and the guest experience.”
Others manage to describe it as personalized pricing.
QSR did a Linkedin poll and heard from 274 respondents involved in some way as vendors or operators. Thirty-five percent of the respondents said they were doing hourly price changes, about a quarter are doing daily changes, about one-sixth do weekly changes and another quarter just change pricing monthly.
The post continues:
Let’s go back to the fundamental pricing questions of revenue management. The first question was about determining which prices to charge (that’s what we just talked about) and the second is on determining which customers pay the different prices.
The answer to the first question is more based on math (forecasting, elasticity and the like) while the answer to the second question is more based on market segmentation and consumer psychology. This segmentation can be done by things like day of week, time of day, by meal period, by loyalty status and by frequency of purchase. Essentially these are the reasons WHY customers pay different prices (in revenue management, we refer to these as rate fences).
When there isn’t a particular reason (other than high or low demand) why customers pay different prices, customers may view the prices as unfair and choose not to patronize that restaurant. I talked about rate fences in an earlier article, but as the airline and hotel industries have learned, the way that different prices are communicated to their customers so that customers have some control over the price that they pay is crucial for the success of dynamic pricing and revenue management.
Denver-based Noodles and Company told Nation’s Restaurant News that dynamic pricing is part of its go-forward strategy. “Digital menu boards allow us to adjust by market, by tier, by menu item and really implement the pricing we want to take as we test the menu price,” says CFO Carl Lukach, adding that the technology allows them to be “more prescriptive and surgical” in their pricing.
“We are getting way more nimble about our ability to test menu items, enact pricing changes and just react to guest preferences,” he adds.
Lukach said that, although 80% of meals from Noodles & Company are eaten off-premises, most guests — almost 75% — still enter the restaurant either to eat there or to pick up their orders, so having digital signage is helpful.
“We can use digital menu boards to feature items that we want to push heavier. We can feature more premium-margin products, [or] LEANguini, which is the high-protein low-net-carb dish that we innovated with last year,” he said.
Another post in QSR gets into the psychology of variable pricing, making the point that consumers are familiar with it for everything from rideshares to airfares that fluctuate wildly even though the distances and fuel costs don’t.
The challenge for operators is to properly communicate the pricing policy and frame it properly, which is much more possible when QSR operators have screens that can push out messaging as well as items and prices. More than airlines and even rideshares, QSRs are dealing with guests who have options. If prices change and customers sense pricing is based main on “because we can,” there’s very likely another QSR option nearby.
Whatever the case, digital menu boards are even more mission critical in the QSR sector – which means more business for digital signage vendors and service providers.
I think what is important to note is that this is just one example of a business capability at the enterprise level which is being activated on digital menu boards at the channel level (i.e. it is also activated on web and mobile commerce channels too). Other business capabilities are being developed in larger companies, like suggestive sell or customer identification to unlock things like user preferences or order history. This is going to be very important for folks in our industry to understand – there will be times where the digital signage/CMS itself is providing ancillary services/capabilities and also times where the client is bringing a suite of services/capabilities that we need to connect to. In the longer run, as some of these technologies are being democratized as the pricing comes down (and they are accessible to brands like Noodles and Company vs only the McDonald’s of the world) it will become more and more incumbent on us to be able to integrate seamlessly and have enough flexibility in our interface management to be able to really maximize the value of the capabilities our clients are investing in at the enterprise level. Exciting times 🙂
What she said 🙂