Surge pricing
Surge pricing may come soon to a restaurant near you.
Most of us know surge pricing from ride-hailing companies that charge more for a taxi ride when ridership spikes. The idea is simple economics: When demand exceeds supply, prices go up.
The higher prices, though, also shift the supply and demand curves. Higher prices encourage more drivers to enter the market but also convince more customers to seek alternatives. Eventually, prices return to balance.
Today, computerized reservation systems allow airlines, hotels and the Houston Astros to raise or lower prices as demand changes. Restaurants with printed menus have not been able to change prices as nimbly.
Long lines outside new restaurants reveal excess demand, but prices rarely react. New pricing strategies and technology, though, are starting to emerge.
Some fine-dining restaurants have introduced all-inclusive tickets for multicourse meals. Instead of asking for the bill at the end, you buy a ticket beforehand that covers everything, including gratuity.
The approach is a spin on the French prix fixe meal. Chicago restaurateur Nick Kokonas tested the idea at his properties and founded the online reservation site Tock, which specializes in restaurant tickets.
Tock offers reservations at some of the best restaurants in the world, including The Fat Duck and The French Laundry. I’ve used the site to book tickets at Otoko, a gourmet sushi bar in Austin that offers only a tasting menu.
San Antonio’s Restaurant Mixtli sells tasting-menu tickets through Tock, and Toro Kitchen + Bar-Downtown sells tickets for meal-and-music evenings.
Houston restaurants are only experimenting, using Tock to sell tickets to special events, such as a champagne masterclass at Pappas Bros. Steakhouse or a brandy tasting at Public Services Wine & Whisky.
The practice is growing globally, though, and more Texas restaurants will soon sell tickets instead of a la carte meals. I found prepaying at Otoko much
more pleasant and convenient for a special event dinner.
Once consumers become accustomed to buying tickets for restaurants, surge pricing is the next logical step. A meal on at 7 p.m. on Friday will soon cost significantly more than at 9 p.m. on Tuesday.
Restaurateurs must ask themselves what kind of business they want and whether they are willing to alienate some customers. It’s one thing to overcharge wealthy people willing to pay almost anything for a unique culinary experience, and it’s something entirely different for an esteemed barbecue joint to price out working-class patrons and allow the rich to buy their way to the front.
After all, isn’t a customer’s willingness to stand outside for an hour an act of devotion? Shouldn’t business owners respect the sentiment? Owners should beware of other potential pitfalls, too.
If not carefully deployed, dynamic pricing can charge customers different prices for the same product. Some customers will get angry when they find out.
My wife and I once went to a fine dining restaurant and found it full of people who booked using online coupon company Groupon. We left frustrated at paying full price for an experience diminished by the overcrowding and poor service triggered by the crush of Groupon customers.
The owners used Groupon, though, to address the industry’s biggest problem, which is underutilization. Most of the time seats are empty, and this is where surge pricing, also known as dynamic pricing, can help.
A consumer survey by Technomics found that Americans, including nearly half of millennials, are looking for deals at restaurants. Fine-dining restaurants can use lower prices during slow periods to hook a new generation of diners on their food.
Some are already offering future discounts if the patron posts an image on Instagram or a positive review on TripAdvisor.
In the not-too-distant future, restaurateurs will also gather enough data to customize a meal at a price point that suits a customer.
A camera will recognize your face and pull up your order history, and an algorithm will determine which dishes you might enjoy and at what price. The machine could also scan your social media history to see what you’ve said about the restaurant before.
When you order, a digital menu would highlight suggestions based on your history and include loyalty discounts. You wouldn’t need to ask for a check, because the machine will automatically charge your card, whether you eat in or take out.
The restaurant industry is on the cusp of a technological revolution, but will customers see these changes as convenient or creepy? Other sectors will watch for lessons learned.
Tomlinson writes commentary about business, economics and policy. chris.tomlinson@chron.com twitter.com/cltomlinson