Revenue management is all about pricing strategies to allocate the right capacity to the right customer, at the right place, at the right time. Airlines and hotels use such practices, and their customers seem to see the benefits. However, for the restaurant industry, things are different.
Based on our research, we found that the majority of revenue management practices in the restaurant business are perceived as unfair (see Table 1). Customers though seem to accept price variations between lunch and dinner, as well as cancellations due to late arrivals.
As it has taken some time for revenue management practices to become acceptable in the hotel industry, it might take more time for such policies to become acceptable to customers in the restaurant industry. At present it seems they are not yet ready for these practices.
Restaurant managers, who want to apply revenue management practices, should be aware of the above findings and seek to 'educate' their clients about the advantages of such practices for themselves. This must be the priority for the company before applying these practices.
Restaurateurs should communicate to clients the benefits of these practices via their employees. Indeed, when we talk about service companies, employees who are dealing with customers face-to-face are effectively our best channel of communication. So what are the specific benefits for customers? For example, price variations based on the date of booking can be very useful for clients.
Nevertheless, it is the responsibility of the restaurant to make sure that this kind of practice is well understood by clients to create positive word-of-mouth.
Another important issue is the profile of restaurant customers.
Indeed, we discovered that young people accept better practices related to booking policy and table management than older people. The reason for that stems from the fact that they are more aware of such practices and try to keep a rein on their spending. So, they can see financial benefits for themselves from these practices.
Restaurants wanting to adopt revenue management practices should also take into account the profiles of their clients.
The bottom line is: applying these practices can only work if they create value for your customers, even before creating value for your restaurant.
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Ecole hôtelière de Lausanne (EHL)
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Phone: 41 21 785 1111
Dr. Reza Etemad-Sajadi is currently Associate Professor in EHL. He holds a Ph.D. (Management) from the University of Neuchatel, MA and BS (Computer and Communication Sciences) from Ecole Polytechnique Fédérale Lausanne (EPFL).