A La Carte Pricing - Iterative Path

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No restaurants are more laid back than those remote non-touristy ones in Italy. You get a table, it is yours until they close for the night. I remember pleading with the waiter at 1130PM for the check.

Me: Signore, il conto por fovore (delivered really badly)

Waiter: il conto domani!

Sure enough I did not get the check until 00:15. To me this screamed of the need for revenue optimization.For a restaurant, revenue optimization is all about maximizing the spend per table. It can come from two sources
  1. Increase the number of times the table turns over
  2. Increase the spend per table
From the moment the customers are seated to the time they leave the goal for any restaurant should be to ensure that the table is generating revenue.When you look at the tables at a restaurant, different tables generate different revenue even for same amount of occupied time. Since different customers have different willingness to pay, each choose to spend different amounts during their stay. Providing a menu of options at different price points achieves this price discrimination but also means difference in revenue generated per table.Wouldn’t it be great if a restaurant can get same high revenue from all its tables? What if it let in only those with the same high willingness to pay? In addition what if the restaurant took away the temptation to spend less by taking away the menu?

One restaurant in New York is trying to do just that with prix fixe menu.

Is that the path for  revenue optimization?

It is not for two reasons. One it leaves out those customers who can still be profitably served and two it leaves out up-sell opportunity. Not only do different customers have different willingness to pay, even the same customer has different willingness to pay based on purchasing occasion.

We will never know how many potential diners avoided us because of the prix fixe, or how many were displeased but too civilized or bashful to say something. All in all, check averages increased and traffic remained steady.

It is better for a restaurant to settle for lower revenue from a table as long as it is higher than the opportunity cost. For example, it is profitable to serve a customer who spends $30 if there is a 50% chance the table will remain unoccupied and 50% chance of seating a $55 customer.

So should a restaurant ever do prix fixe menu?
  1. It can if it is offered alongside a la carte option so it is not the only option and customers self-select.
  2. On specific occasions when they are capacity limited and want only those with high willingness to pay to visit (e.g., Valentine Day dinner and New Year Dinner at special high prices).

Otherwise I do not recommend prix fixe menu because even for restaurants, if one price is good, two are better.

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