Dynamic Pricing for Your Pub … 

… taking a leaf out of the retail giants’ books!

“You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time.” – Abraham Lincoln – 1809 – 1865

With changes in consumer spending brought on by the financial crash and the recession added to increasing inflation in necessities such as fuel, energy and food your customers are having to make tough decisions on where and how they spend their dwindling discretionary income.

As early as February 2009 market research by the aptly named Booz and Company (The Morning After, The Night Before. UK Consumers in the Recession) showed the following key results:

  • 41% of expected a decrease in their spending and 28% a decrease in their income
  • 42% planned to spend less on food and drink outside the home
  • 56% were already eating out less often, 50% going to pubs less often and 44% eating a less expensive restaurants
  • 64% of ABC consumers (top end spenders) were cutting or going to eat our less often; 70% of DEF consumers (lower end spenders) would be doing the same
  • 37% viewed price promotions on selected items very helpful, 44% somewhat helpful; price cutting across the board 36% and 37% and using coupons 33% and 37%
  • 56% would buy their usual alcoholic drinks but only those “on offer”; 19% would buy a cheaper brand

 

I think most pubs have seen this come to fruition in recent times.

Booz and Company concluded from their research that “successful retailers and manufacturers will combine their market segmentation and pricing capabilities to demonstrate their empathy for consumers, and their willingness to help lead them through this recession. The retailers and manufacturers facing up to these challenges, while developing or exploiting their capabilities to navigate the shifting tides of consumer behaviour, will be ultimate winners.”

In other words providing perceived value for money and helping your customers get “more bangs for their buck” is a winning strategy. However, this reduces margin and for the average pub, margin reduction is not an attractive proposition, unless it is mitigated by a mechanism for recouping margin elsewhere in the business.

You can give with one hand and take with the other … it’s what big business does all the time.

What is Dynamic Pricing?

The big retailers, hotel companies, airlines and utility providers all practice dynamic pricing by relying on differential pricing. For instance a large packet of breakfast cereal will have a lower price per gram than a smaller package in a supermarket. Airlines charge more for flights to destinations that business travellers fly to and less for flights to places where families go. Timed-based pricing is prevalent in the electricity industry, with “real time” pricing, where they take advantage of peak consumption to make the consumer pay more – just look at your energy bill.

What benefit to my pub is there in Dynamic Pricing?

For most businesses it means squeezing extra margin out of one’s products and services – for some of the big boys this can mean as much as a 25% increase in margin.

They do this by relying on what is called “consumer surplus” – that is, the difference between what a consumer is willing to pay and what they actually have to pay for your goods and services.

This is notoriously difficult for big business to put into practice, but I would contend it is very easy for pubs to do as we know our customers more intimately than supermarkets and airlines.

How can I use Dynamic Pricing in my Pub?

If you run any kind of promotion, for instance meal deals, Buy One Get One Free or happy hours/early bird promotions, you are already practicing a form of dynamic pricing.  This takes care of the “empathy” element of giving your customers a helping hand through the recession.

What you generally cannot do is increase prices at times of peak demand (like electricity companies do) – for instance on a busy Friday night with customers six deep at the bar you would have to be extraordinarily brave to put the price of your drinks up!

The increase in margin might be attractive – the riot that would ensue certainly wouldn’t be!

However, there are three areas of your business in which you can do what the big boys do to recoup your some of your promotional or price discounting strategy – time limited drink offerings, functions and food.

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