During MCA’s Food to Go conference last month there was a lot of talk about London and ‘the regions’. This is how we have been conditioned to think about the UK and in many ways it limits us: We are suffering politically, globally at the hand of binaries - the left and the right have become polarised; America has become polarised; the UK has become polarised, and we are guilty as an industry for falling in with this trend. As a result, we haven’t all been looking at pricing in as sensitive terms as we should, argues Florence Graham-Dixon, head of Innovation at JLL Foodservice Consulting.
For example, many of the big casual dining brands have a couple of pricing tiers - one for London and one for other major cities. When we look at catchment data for key UK centres, we see that there are subtler nuances to take stock of. For example:
• Westfield Stratford would typically be grouped with London but displays much more similar characteristics to somewhere like Manchester in terms of the wealth and annual eating out spend of the daytime population (i.e. residents and day trippers).
• Liverpool, which is often grouped together with Manchester as a nearby Northern City, shows a vast drop in the concentration of the most affluent social grades and average spend per meal is considerably lower.
It is these kind of nuances where price sensitivity can make the difference between a brand failing or thriving. It can make the difference between your brand appealing to 20% of the passing footfall or 40%, and in lower footfall locations that might make all the difference.
However, it is not simply a case of lowering prices. There are countless methods of swaying consumer behaviour that ought to be considered. One example is the so-called ‘truth about relativity’, which Dan Ariely explores in his entertaining book Predictably Irrational. The example he gives is a clever ploy that the Economist once used to encourage customers to subscribe to their most premium service by giving three options:
1. Online only for $59.00
2. Print only for $125
3. Print and online for $125
In Ariely’s small but telling experiment he presented 100 students with these three options, and another 100 students with only the first two options. When presented with all three, 84 students chose the print and online option, but when presented with just two options, this number lowered to 32. The simple presence of this ‘decoy’ had a vast impact on what people chose.
This insight translates directly into how we design our menus. For example, customers will often look at the price of the most expensive item to psychologically justify indulging in the second-most expensive option. So even if you aren’t selling any of those £24 rumps of lamb, they may well be pushing customers towards your £22 chargrilled onglet (which you have ingeniously engineered to deliver a particularly high profit margin).
We find these useful insights in AB testing discount levels too. For example, if we offer 100 people a 10% discount offer, another 100 people a 20% discount offer, and another 100 people a 30% discount offer, we can quickly work out the rate of redemption. For the purposes of this example, let’s say 19, 26 and 28 out of 100 used each offer within a month. If we multiply this by the average bill - here £30, with the discount applied, we find that each offer generates the following sales per 100 customers:
1. 10% discount: £513
2. 20% discount: £624
3. 30% discount: £588
In this scenario, sending out the 20% offer to 100,000 customers on your database would generate an additional £36,000 in sales compared with the next best option. If we assume food and beverage costs are around 30% of the full-price bill, this translates into around £50,000 gross profit each time you run this promotion.
Needless to say, discount levels can be flexed by region too, especially where price consistency is more important that maintaining a consistent level of appeal. Geo-location optimised marketing apps are getting smarter and operators will soon have an even greater set of tools to do this with.
As the market continues to saturate, the value we offer to customers will be key to sustainable success. Whilst margin pressures ramp up with the living wage and the drop in the value of the pound, operators will need to deliver great value without giving too much away. Brands that can leverage their data and maintain real-time dialogues with their customers will be best positioned to ride out the storm because in the end knowledge really is power.
