Menu Pricing: Frequently Asked Questions
There have been a few great questions in response to last week’s post Menu Pricing: What is the Right Price? I wanted to share them and the answers because they are a very important part of maximizing profit through menu pricing.
Why do some restaurants end the price in $0.00, $0.49, $0.95 etc.? What is the right way?
There are many opinions on this question, and it comes down to the type of operation and price range.
Here is what I think.
Fine dining operations
These establishments have a high price range, and the customers are less price sensitive. The menu price should be rounded to the next dollar. When decimal points, such as $0.95, are added to the end of a price it clutters the menu and comes across as cheap.
This has created many great debates, primarily because it contradicts other pricing strategies. For example, that adding $0.95 allows you to charge more without breaking the price barrier. And if you can get an extra $0.95, why not? I would argue that if you can get $0.95, you can round up to the next $1.00. If a customer is paying $65 for a steak, $66 is not a price barrier.
The other advantage to not having the decimal point is it draws less attention to the price, and you never want to draw attention to the price. Yes, I just said that people are less sensitive to prices in this type of operation, but some people are price sensitive and will shop.
What about the other types of dining establishments?
Some people say, “All prices must end in $0.95 or $0.99! That way you maximize every penny.”
That is true, and to end with $0.99 doesn’t break the next pricing threshold.
Now, say you need to raise the price of a menu item that is selling for $8.99. To stay true to that theory, you now need to increase your price to $9.99. That $1.00 doesn’t seem like a lot on more expensive menu items, but for menu items under $20it is a steep and noticeable increase.
Again, there are other factors. If you have a low number of repeat customers no one will know the difference, but if you are in a competitive market with repeat customers that $1 will not go unnoticed.
What is the best way to price a menu and raise prices in a high frequency market?
The more gradual the price increase the better. This will increase your menu printing costs but having a heavy and expensive menu to produce is not the best way to go anyway. You should be able to change your menu and pricing to move with the market quickly and at a lower cost.
The best way to do the smaller increase is to not have predetermined numbers after the decimal point.
Why? It makes it easier to do the smaller increases that will virtually go unnoticed (unless you do it too often).
The barrier to pricing is not at the decimal point, it is when you go over the dollar. For example, if the price is $11.99 the barrier is $12.
You can break that barrier with a $0.10 increase (assuming you have regular customers that would notice an increase).
Going from $11.99 to $12.09 easily breaks the barrier, and since your next barrier is $13, you can do smaller increases that are not as visible until $12.99.
$0.09, $0.19 $0.49, $0.79, $0.99 whatever numbers make you happy. I will say that the last digit should be consistent because if makes the menu cleaner.
What about the $ sign?
It goes back to not drawing attention to your price and the $ sign draws attention, so leave it out.
Cornell University conducted a study in 2009 and showed that diners in an “upscale casual” restaurant spent 8% more when the $ sign was not used. That is the easiest 8% increase you will ever make.
What is the most effective way to place a price on the menu?
Don’t list the price like an index in a book, as this tends to make people price shop. Disclaimer: I have listed Fine Dining menus like an index only because it is cleaner. But I have a strategy for that through menu engineering (which I will discuss in a later blog, or you can call me to discuss more in depth).
Here is what the index looks like and a better way to add the price:
Really Good Sandwich All your favorite ingredients, topped with something else you love $16.79
Pretty Good Sandwich Most of your favorite things, remove the rest $14.29
Really Good Sandwich
All your favorite ingredients
topped with something else you love
Pretty Good Sandwich
Most of your favorite things,
remove the rest 14.29
- Less likely to price shop as the price moves
- No $ sign acting as a beacon
- Smaller font for the price
When pricing your menu, the goal is to not draw attention to your prices and not to create sticker shock when it is time for an increase. In future editions of CORE Tips and Strategies, we will dive into menu engineering and how to draw attention to the right items.
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