If your business has fixed capacity, if it’s perishable, meaning that if it doesn’t sell by a certain date it’s gone forever, and if different people are willing to pay different amounts for it, you’re a prime candidate for a powerful pricing practice known as Yield Management.
We’ve all been “yield managed.” It’s the reason we pay more for airfare during Thanksgiving and Christmas. It’s the reason we pay more to sit in the front row instead of the mezzanine. And it’s the reason we’ll pay a ticket scalper to get into a Bruce Springsteen concert after the box office is sold out.
We’re used to this. It seems fair and just and part of the normal course of business. Right? Good. Because it looks as if restaurants are about to get into the yield management game as well.
Want a reservation at your favorite restaurant at 8 on a Saturday night? Pretty soon, it may not just be a matter of calling sufficiently far in advance to beat the rush. You’re likely to have to pay more for your meal. And, for the most sought-after tables at the best time slots, you may even have to pay a scalper.
Serious money is behind this. Priceline, the online travel-booking site, just gobbled up OpenTable, the giant of the restaurant reservations business, for $2.6 billion.
New tech companies — backed by some of the biggest names in Silicon Valley — are scalping reservations for tables at the country’s hottest restaurants as if they were seats to championship games at AmericanAirlines Arena. Recently, the trend hit the front page of The New York Times, which described scenarios in which restaurant reservations cost more at 8 than at 6; more on Saturday than on Tuesday, and more for a corner booth than a central table. Just the reservations themselves, without any food or drink, can cost as much as $25 or more.
Some restaurants are taking things even further. Philadelphia’s Volver, operated by Iron Chef Jose Garces, actually sells tickets, just like an entertainment venue. Diners pay $175 — in advance — to experience its 15-course tasting menus at 8 p.m. on Saturday nights. These prepaid tickets give restaurants more control over their bottom line, virtually eliminating no-shows and ensuring that the kitchen has just the right amount of food.
Other restaurants are doing the same thing. Prices can vary greatly between weekends and weeknights. Many restaurants are implementing new, early-dining concepts that fill empty seats between 5:30 and 8 without the stigma of the early-bird special. A few restaurants have even found ways to offer unsold “tickets” at the last minute in order to ensure 100 percent occupancy.
These innovative restaurateurs — some of whom come from outside the industry — are clearly onto something. Restaurants are a perfect venue for the application of yield management techniques.
They have a limited number of seats. Their capacity is perishable, meaning that an empty table and time slot can never be sold again. And people are willing to pay different amounts for different times of day and different days of the week.
So why not apply one of the most powerful pricing techniques available? One that allows the restaurant to charge more for meals during peak hours, while also lowering prices in order to fill off-peak hours as well?
The implications for restaurant profitability are incredible. But will diners accept the new approach? No one knows for sure, but it looks like a good bet to me. It’s already nearly impossible to make reservations at the best restaurants. At others, people wait hours for a table.
As a consumer society, yield management has already permeated so many of our purchases, why not one more? The train is running. Smart restaurateurs will get on board.
Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a consulting firm that specializes in designing and executing innovative pricing strategies. He can be reached at email@example.com, or via the company’s website at PeakRevenuePerformance.com.