An Evaluation of Guests Preferred Incentives to Shift Time-Variable Demand in Restaurants

Asked for their reactions to specific demand-shifting

tactics based on revenue management, patrons of a

restaurant in Ithaca, New York, indicated that they

generally would be willing to shift their dining time to

off-peak hours in exchange for discounts on menu

items. Better than three-quarters of the 367 respondents

agreed that they would accept an incentive for

dining at an off-peak time. Specific results and conclusions

are detailed below.

Keywords: revenue management; pricing strategies

As airlines and hotels continue to build and refine

successful revenue- management strategies,

restaurants have recently realized the value that

revenue-management planning can bring to the bottom

line. Because the operational elements of restaurants

differ from those of airlines and hotels, restaurants

cannot simply apply the same revenuemanagement

strategies as those used by airlines and

hotels. To provide an enhanced understanding of how

to use revenue management in restaurants, we first

provide a brief overview of revenue management

and its strategic levers. Next, we

examine and identify the specific characteristics

of restaurant revenue management.

We then showhowprice- and valuebased

strategies can be used to enhance

revenue by shifting demand from peak or

oversold periods to shoulder or low times.

Focusing on the use of packaging, pricing,

and discounts, we then test consumers’

perceptions of incentives to dine during

off-peak business periods and observe

how these perceptions are related to

guests’ dining behavior. We conclude

with a discussion of proposed revenuemanagement

strategies restaurants can

use, based on our findings.

Overview of Revenue

Management

Revenue management is characterized by

a set of techniques designed to help a business

sell the right products to the right

guest at the right time and for the right

price.1 This can be achieved by understanding

a business’s inner workings and

constraints and by managing the business’s

capacity to obtain the best profit or

revenue.2Arevenue-management strategy

helps a firm’s managers decide how to

allocate and price its capacity to capture as

much demand as possible given the operation’s

constraints. To apply revenue-management

techniques effectively, the business’s

operating structure should feature:

(1) relatively fixed capacity (e.g., seats,

hours of operation); (2) predictable and

time-variable demand (i.e., high-demand

or hot and low-demand or cold periods

throughout the operating day); (3) perishable

inventory (i.e., revenue lost due to an

unsold seat cannot be recouped during a

given meal period or operational time

period);