(Guest post by Peter Maniscalo.)
My wife and I recently visited one of our favorite local restaurants (a “Bar & Grill” as it’s called). We’ve been loyal customers for several years. It’s a nice place, always busy with good food, service, atmosphere and, reasonable prices. At least it was until six months ago when we had some new priced “food for thought”.
What happened? The Bar & Grill decided to make some changes such as, extending their bar and a complete change out of staff members. As a result there has been a noticeable decline in the level of quality service in addition toselective, yet significant, price increases in the menu! Examples include a two dollar increase for a salad, a one to two dollar increase for a cocktail, and a one to two dollar increase for a dessert. This all happened within a month or so of completing the bar “renovation”.
We all know commodity costs have increased in the last couple of years or so but did the Bar & Grill inadvertently “overlook”, ignore, or just plain screw up their value proposition here? The staff, according to what we understand from an inside source, is much less costly compared to the prior staff. All right, so now their variable costs have decreased. But, the additional costs incurred were for re-modeling the bar, a one-time fixed cost investment.
My “Food for Thought?” The food/drink price increases are significant, there is a decline in the level of quality customer service but quality of food and atmosphere are still solid. However, from what we’ve heard and observed, the level of business has dropped noticeably.
The key points missed here by the owner are that a value proposition contains more than just the price element; pricing is not solely just a function of costs; and to be successful one must take into consideration the target market/customer base (i.e. segmentation).
Alternative solutions? Sure. Here are a few quick and obvious ones that the owner(s) could have taken.
1) Bar & grill could have held its prices, for at least a little longer anyway. Please don’t let me as a customer think your price increases are simply a way to help you cover your sunk cost investment(i.e. extending the length of the bar). Since there was an “overhaul” of the staff which reduced its variable costs, by holding its prices the Bar & Grill could probably still maintain its margins even in light of commodity cost increases. Or, an option would have been to implement smaller and selective price increases, if the owners felt compelled to do so.
2) Bar & Grill could have implemented a less obvious price increase by “downsizing” the portion of its food and drinks, instead of the quite more noticeable price increases.
3) Instead of a mass overhaul of its staff, the owners could have taken a selective approach in terms of reducing its variable costs. For example, the owners could review their payroll staff and re-balance their hours and schedules based on employee labor expense differences.
Will we frequent this establishment as often? Most likely not. I’m not sure where the value is now, since we(and other patrons I’m sure) observed quite noticeable price increases, an obvious decline in quality customer service and a feeling that the restaurant lost sight of the customer. Maybe the Bar & Grill will recognize that its value proposition is not(or should not be) just all about recovering its costs.
About the Author:
Peter Maniscalco is a Contract Senior Pricing Consultant for an international pricing management consulting firm. He is based in the greater Philadelphia, PA area. His specialty is B2B pricing for goods and services in both direct and indirect channels. He can be reached at email@example.com, as well as on LinkedIn (http://www.linkedin.com/in/petermaniscalco) and Twitter (@peterpeterm09).