Pricing Strategies in the Restaurant Industry

Abstract

Pricing is known by economists and managers to be an important tool for increasing revenue and thereby ensuring the success of the company. However, practical experience shows that companies rarely consider the development of a strategic pricing program to be a priority. Furthermore, when times are getting tough, pricing issues tend to be ignored and priority rather given to various cost reduction schemes. In this paper we investigate different pricing strategies and assess their relevance for a segment of the restaurant industry, the pizza chain market. The reported study examines the potential for using pricing strategies as a strategic tool for revenue enhancement, both through increasing the number of customers and by capturing a larger share of the consumer surplus. The findings indicate that there is potential for increased use of several pricing strategies such as price discrimination, peak‐load pricing and bundling. Managerial implications and suggestions for future research are highlighted.

Keywords:

• Pricing strategies
• revenue management
• demand‐based pricing
• restaurant industry
• Norway

Notes

1. These terms were first used by Alfred Marshall (1842–1924) and Jules Dupit (1804–1866).

2. For readers interested in exploring further issues related to bundling, please check e.g. Adams & Yellen, 1976; Dansby & Conrad, 1984; Guiltinan, 1987; Gaeth et al., 1990; Yadav & Monroe, 1993; Yadav, 1994; Salinger, 1995; Herrmann et al., 1997; Bakos & Brynjolfsson, 1999; Nalebuff, 1999; Naylor & Frank, 2001; Stremersch & Tellis, 2002; Legarreta & Miguel, 2004.

3. The government population statistics do not give figures for the 15–29 years group. As children aged 10–14 years are not included in the survey the sample size should be less than 0.167% for this quota group.