The Problem with Dynamic Pricing Isn't the Dynamic Pricing
From movie theaters to ski resorts, the business strategy is sweeping up industries, but is it actually a panacea for restaurants?
Last week, AMC made headlines — and ruffled quite a few cinephiles’ feathers — by announcing Sightline, a new pricing system that will charge theatergoers more money for the best seats in the house. A week prior to that, in the more niche world of Alpine skiing, Arizona Snowbowl set a single-day lift ticket price record of $309 after a bevy of big snowstorms sent local skiers scrambling in search of powder.
Dynamic pricing is behind both of these stories, and thanks to the practice having been adopted long ago in industries like airlines, hotels, and live entertainment, we’re all familiar with how it works. We’re also familiar with the standard consumer response, such as this one, Elijah Wood’s reaction to the AMC announcement:
In fact, Wood’s tweet is a perfect template for all future outrage over dynamic pricing: The [INSERT PLACE] is and always has been a sacred democratic space for all and this new initiative by [INSERT BUSINESS NAME] would essentially penalize people for lower income and reward for higher income.
It is strange that one could reasonably be in distress over the practice coming to movie theaters, where outside snacks and drinks are prohibited so that venues can charge monopoly-caliber prices for junk food. And, yet, the outrage abounds. Because dynamic pricing isn’t fundamentally different than gentrification, a formidable force, both politically charged and socioeconomically complicated, we just don’t like it. This bit is precisely why the hospitality industry — where close, personal customer relationships are at the heart of the business model — has the most trouble adopting the practice, despite its clear and reasonable economic advantages.
But, even in restaurants, we do seem to be getting closer. First of all, there are emerging swaths of the global restaurant industry where dynamic pricing — that is, prices that adjust based on demand factors — is commonplace. Uber and DoorDash both now offer the option of paying up for priority delivery. Two upstarts, Juicer and Sauce, both offer software for flexing delivery menu prices based on a range of variables, like day of the week and realtime demand. There’s more. Tablz offers 3D images of restaurants’ dining rooms, thus allowing operators to charge diners a premium to reserve certain tables — say, $24 for the ideal table to flex on a date night. Dorsia is the most aggressive and explicit of the bunch. It offers access to tough ticket tables to its “members,” who commit to certain minimum spends, say $500/person at Carbone.
Despite all of this, the restaurant industry struggles to convince consumers the practice is reasonable. Tablz founder Frazer Nagy recently gave Kristen Hawley of Expedite the same pitch that us disruptors have been using — to no avail, mind you — for years. “Think about the airline industry,” he said. “You can upgrade to first class, comfort plus for extra legroom, and they dynamically price their flights. Restaurants just give away our best real estate for free.”
The current system is transactional and, at times, hostile. It may not ultimately matter for pizza delivery, but it does matter anywhere the average check is more substantial. We learned this firsthand in the early days of building Resy. From the guest’s perspective, it’s a system that still feels like every reservation and every visit is a new negotiation.
Except, that isn’t really true. There ain’t no such thing as a free lunch. When was last time you just walked into a crowded restaurant at primetime and happened to land a great table? Maybe you got lucky that one time six years ago at Blue Hill when you just showed up and happened to catch a no-show — a moment of happenstance that led to a magical night you’ve been talking about ever since. But, that’s just not how the sausage is made, friends. Not counting the aforementioned occasional lottery winner, there are only two kinds of guests who get prime time reservations at popular restaurants: known, and therefore more valuable, customers; and people who have, in fact, paid for access, either because a credit card company got them the table or it was booked through a concierge style service. The point is, actually dynamic pricing is alive and well in the restaurant industry. Like all good hospitality, though, the guest only sees what they’re supposed to see. It’s much safer for restaurants if most people continue to think of them as the last bastion of democracy.
There is a problem with the current system, however. Charging $24 for a guaranteed booth or locking in a $500 minimum spend is the restaurant industry bringing a knife to a gun fight. Short-term gains mask the problem that this approach does not get restaurants any closer to understanding who their guests are and how to think about maximizing the lifetime value of them. The current system is transactional and, at times, hostile. It may not ultimately matter for pizza delivery, but it does matter anywhere the average check is more substantial. We learned this firsthand in the early days of building Resy. From the guest’s perspective, it’s a system that still feels like every reservation and every visit is a new negotiation. It feels like the opposite of becoming a regular, which is the only type of guest that can actually put a restaurant on a path towards longterm economic sustainability.
It is time to learn to stop worrying and love the … you get it. Because it’s not the dynamic pricing bomb that is the problem. At issue is how current implementations erode the UX that good hospitality creates. If instead we focus on solving for scalable connectivity, meaning something that feels satisfying and productive to both restaurants and guests, the rest will be a cakewalk.
Founder & CEO
Blackbird Labs, Inc.
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I agree this is the crux of the point: "Short-term gains mask the problem that this approach does not get restaurants any closer to understanding who their guests are and how to think about maximizing the lifetime value of them." In a business where loyalty creates economic sustainability, current attempts to wring the profit out of high-income customers will inevitably impact the experience of all customers.