menu driven pricing – pumping profits the easy way

check, please...i thinkA recent New York Times article on the creeping – make that galloping – upward price spiral at the nation’s best or otherwise restaurants got me to thinking about how discretionary selections are made in general and how they might be manipulated in the competitive aftermarket powersports sector.

To recap, the piece begins with the premise that in many parts of the country entrees are now topping the $40 mark, and that’s often without any side item; $6-dollar brocolli, anyone? We’ll leave aside comments regarding value, as that invariably involves judgements based on ambience, location, and how much we care to contribute to the owner’s IRA.

Instead, I focused on one aspect of this new trend that in hindsight seems obvious: restauranteurs discovery that even though diners may not order the most expensive item on the menu, the presence of even one over the top dinner pushed the per ticket price of other entree selections up as a result.

In other words, if the price spread were from $20 to $40 with stops in between, the higher the top price, the greater the likelihood diners would bump their choice to a higher priced entree that stopped just short of the most expensive selection. This is a clear example of discretionary spending manipulated by product positioning.

So one conclusion might be that by including a very high premium priced product in your catalog, odds are favorable that customers might increase their price threshold by a like factor, even if no one actually bought the highest price product offered, and assuming (probably) that the hi-low-median gap wasn’t too exagerated.

Perhaps this is what Neiman-Marcus has known all along; Fabrege eggs and gold-plated Hummers aside, it’s good for the bottom line regardless of resistance to the most expensive piece up for grabs.