Ever fantasized about your favourite food, but stopped short of ordering due to the price? Mouthwatering food doesn’t seem enticing enough if it is priced too high. For a restaurateur, getting the pricing right is as crucial as getting the taste right. The expenditure of Indian households on eating out is rising rapidly and it has become imperative for established as well as new restaurants to formulate a dynamic pricing strategy. As per reports, an average Indian household spent over INR 2500 per month on eating out in 2019.
If one goes by the common wisdom, a restaurant owner is supposed to maintain uniformity in price across locations. A customer in Kolkata is not supposed to pay higher for a McDonald’s burger than an individual in Delhi. But a number of Indian restaurateurs have chalked a different pricing strategy more in sync with Indian realities. “India is a huge country in terms of its length and breadth. One pricing system for a chain is never going to work. Pricing has always been considered as one of the major factors in customer acquisition,” Harmandeep Khurana, Barbeque Company, Brand owner said.
Local restaurant chains have opted for a tiered pricing strategy considering the wide disparity in spending power and consumption patterns across the country. “Commonly known as the (good-better-best) pricing strategy works much like you would guess it does from the name. It can be a fruitful initiative as it provides choice and flexibility to meet their individual needs as we know a one size fits all option doesn’t work anymore,” Yogesh Sharma, Director, Futomic Group pointed.
While large multinational chains with supply lines spanning the globe can maintain uniformity in the price due to tight control on the cost of raw materials, the model may not be practical for relatively smaller chains. Besides supply-side limitations, demand-side factors too work in the favour of a tiered pricing model. With Tier-2 and Tier-3 cities becoming hospitality hotspots, a number of restaurant operators have entered or are planning to start operations in small cities.
It has often been observed that people in smaller cities focus more on the value for money and a pricing model more in tune with metro cities may not find many takers. “Pricing will always be a great factor to attract customers along with the deals and offers. After the pandemic, we have to target the economic segment rather than the luxury or elite market. Today's market scenario is to get into QSR along with the cafes rather than big hotels or luxury and fancy restaurants,” Jagdish Kumar, NRI CHAIWALA, said elaborating on the effects of the pandemic on consumer behaviour.
Having a tiered pricing model in sync with the local socio-economic conditions also helps the restaurant owner accelerate his/her returns on the investment. “When the Barbeque Company decides to open an outlet we deeply study the customer’s nature and behaviour in the city where we are opening the outlet. This has always helped and that is how our outlets reach break-even point within three months of opening an outlet,” added Khurana.
The tiered pricing model has worked for different restaurants in different ways. Some restaurateurs use differential pricing for customer acquisition in newer geographies, others take into account competition and discounts while finalising the pricing strategy. “Getting the pricing right is critical to sales. Every geography has a different "sweet spot" in terms of price. You also have to consider other factors like competitor pricing, discounts, etc. This is definitely not a one solution fits all environment,” Rahul Seth, Co-founder, Burger Singh commented.
Restaurant owners, however, have to maintain a fine balance between reduced pricing and quality of food and service. The experience for the final consumer should be the same, irrespective of the pricing. “On the flip side, you want to have as consistent a customer experience as possible. We control the prices centrally but discounting is outlet specific, Seth cautioned.
If not in restaurants, the concept of tiered pricing has been adopted by many aggregators abroad, including UberEats and DoorDash. To empower every restaurant to meet their individual goals, U.S. restaurants on both DoorDash and Caviar have a choice of three different partnership plans, with commission rates that vary based on the level of marketing support included, similar to the concept of UberEats. Introducing this new pricing structure offers more transparency, aggregators have claimed.