The concept of variable pricing models has been around for a while in the minds of Quick Service Restaurant operators but has made recent headlines.
Variable pricing models, also known as dynamic pricing or demand-based pricing, are strategies businesses use to adjust the price of products or services based on various factors such as demand, time of day, season, customer segment, or competitor pricing. These models aim to optimize revenue by charging different prices to different customers at different times, maximizing profitability while remaining competitive in the market. An effective variable pricing model can help manage costs, enhance customer satisfaction, drive traffic and sales, and adapt rapidly to changing trends.
A few standard practices include using customer data to personalize pricing based on purchase history, preferences, and demographics. This allows them to offer targeted promotions and discounts to individual customers. Another typical example is limited promotions, which feature temporarily discounted pricing or special menu items for a limited duration, creating a sense of urgency and encouraging impulse purchases.
Some more unique strategies include monthly subscriptions, such as the Taco Lovers Pass at Taco Bell, allowing customers to redeem a set amount of products a month in exchange for a monthly fee. A strategy that has made waves in current events was a rumored “surge” pricing model by Wendy’s, where pricing would be adjusted based on the expected demand for certain times of day.
The biggest tool in implementing these strategies is technology. It can be easy to overlook that changing prices would be a much more complex process if not for the advent of digital menu boards. Another critical component is the mobile apps many QSR restaurants are taking advantage of. With consumer data that provides insights into preferences and buying patterns, restaurants can more effectively offer promotions with a higher chance of increasing guest counts and total spend per visit. As AI and other technological innovations continue to provide more insight into consumer behavior, businesses that are the most plugged into these technologies will establish competitive advantages and adapt to market changes more efficiently.
However, as we saw with the viral Wendy’s situation, there are many considerations to take into account when implementing variable pricing strategies, especially how the consumer reacts to changes in pricing. While offering lower prices at certain times will be nearly universally met with positivity, if changes are not communicated effectively, businesses could lose an essential aspect of their competitive advantages of price stability and being a trusted cost leader among consumers.
The best actionable tips for this evolving environment are to continue to provide transparency to consumers through clear and effective communication, be receptive to consumer feedback, and maintain consistency of strategy and standards over a demonstrated period of time. With these practices in place, variable pricing is a highly effective tool to grow and evolve any operation.
If you have any questions, you can reach our specialized team of Abacus Professionals at 417.823.7171 or info@abacus.cpa.
