All of us would have experienced the frustration of waiting to find a table in restaurants during weekend nights. In fact, in Hyderabad it is fast becoming some achievement to find place at certain popular eating places, even on weekday nights. I am sure, a popular eating place would be turning away a good number of people over the night. What strikes me about this massive demand for restaurant tables is the amount of deadweight loss due to the failure in capturing the full willingness of customers to pay.
The utilities (for eating at the particular restuarant) of those on the waiting line would obviously be varying. There will be the group of eaters, willing to pay a premium for jumping the waiting line. The ardent fans of the restaurant would derive additional utility from eating there. Some others are there to check out the place and would be indifferent to eating there or elsewhere. There would be others with demands on their time, and therefore not willing to accomodate long waiting times. In contrast there would be those willing to hang out, and patiently wait out their turn.
A restaurant that does not discriminate between this wide spectrum of customers is surely losing an opportunity. For those indifferrent to the outcome, it does not matter when they eat, or even whether they eat at all at the restaurant. Any outcome that does not take into account the differential preferences of the consumers, lowers the utility gain of even those willing to pay the premium. With uniform pricing, we will therefore have a situation where more people are worse off than with any system of differential pricing. Those disappointed are more disappointed, than those happy are happy!
If we try to capture the full willingness to pay of the customers, a few options come to mind straight away. Would it not be a good idea to have differentially priced eating areas, so as to capture those customers willing to pay more than the regular menu fares? Maybe, during the weekends, when the demand is much higher, the prices can be marked up from the regular fare. Or else, the restaurant could have a higher rates during the peak hours, say between 9.00 PM and 11.00 PM. How about even auctions among those waiting in the ques, with the option of three to four categories being put for bid?
Sounds simple. Then why are not restaurants implementing the same? Difficulty in implementing cannot be a reason, since administering it appears fairly simple. (Though a few embarrassing situations can emerge, if not properly managed) I am inclined to believe that one reason is that it conveys a wrong impression to the customers. An eating place which appears to put profit over its customers, may put off its customers. There could also be the fear of seats going empty, with the retaurant pricing istelf out of the market. There is also the general inertia to not deviate too much from a well established market and its conventions. Thus differential pricing may paradoxically end up turning away more people than it is able to attract. But I suspect that the resurant business is waiting for the tipping point, where a few such deviations from the norm and their demonstrable success will make differential pricing the norm.
3 comments:
Wouldn't work. They've been tried out at different places at different times. Differential pricing et al aren't new. It's possible that they've not tried them in India, that's all.
I intend to agree with footnotz. But as Mr. Gulzar has pointed out it may invoke negative reaction among the consumers thereby reducing the appeal of the restaurant. Differential pricing is tried in India in form of 'happy hours' where discounts are given in certain time periods in the day. Nice blog. My compliments to Mr. Gulzar.
I had in my mind the recent emergence of "happy hours" concept in restaurants in Hyderabad, while writing the post. The concept has caught on, and I have come across people hurrying to have early dinner or lunch and thereby avail the discount. There are other interesting concessions like unlimited free drinks for single women in certain pubs, during specified days and hours. (My guess is that single woman customers in pubs may attract more male customers to the pub!) In fact, a more adventurous single woman can by availing of this offer in different pubs, free load on drinks for the entire week.
Anyway, the purpose of the post is to bring out the deadweight loss to the hotel, in not being able to capture the full willingness of the customers to pay. I am convinced that some form of differential pricing can be tried out - times, category of customers, type of food, areas in the restaurant etc. The success lies in the balancing act and the detail.
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