07/18/2023
Buxton Road Strategy & Insight specializes in relationship-based pricing for restaurants. What does that mean, and what are the benefits of relationship-based pricing evaluation and strategy?
Relationship-based pricing means the focus of evaluating price is the relationships between our client's item price and the competition's price, or, between two different item's on the client's menu.
As for the benefits of relationship-based pricing, let's start at the store-level.
1. Consumers weigh and compare options. Guests may know neither your menu prices nor your competition's by heart, but over time, they recognize which options are priced above their expectations and act accordingly.
Price point, on the other hand, tends to be most meaningful around major dollar thresholds or where promotion of a price point has been sustained long enough for the price to become second nature to a guest.
2. Relationship-based evaluation is especially useful for restaurant groups that are line-priced. Comparing the success of different menu prices for one item is difficult when there are no different prices. Price relationships, particularly competitive price relationships, offer a glimpse into how your guests change their behavior in the marketplace based on price.
Now, let's consider the big benefit of relationship-based pricing at the brand level.
For brands looking to provide the most effective general brand pricing guidance for franchisees, price point-based guidance at any level above store-level immediately reduces relevance, usability, and effectiveness for the consumers of the guidance.
While DMAs (defined market areas) are local, pricing even at the DMA-level with respect to item price points is rarely consistent.
Consider a DMA like Dallas-Ft. Worth, which combines large geographical area, a vast array of location types, and number of unique restaurant owners and franchisees.
Another case is the Wichita DMA, which though named for a metro area of ~500,000 people, geographically covers the western 2/3 of Kansas, combining urban, suburban, and rural locations alike. If you've driven to Keystone, you probably have a good idea of how much area we're talking about here.
In these cases and others, recommending a single price point for an item nearly guarantees most of your system will not align with the recommended price. It may also lead stores to take unneeded and detrimental action on price, whether via large, volume-busting increases or unnecessary and unrewarded decreases to comply with what turns out to be irrelevant guidance.
Setting pricing guidance to relationships allows all stores in these vast markets to use and apply pricing guidance effectively to their unique circumstances. More usability = more utilization, more utilization = more effective pricing, more effective pricing = higher profits.
