Setting the right price for menu items isn’t just about covering costs—it’s about understanding how pricing impacts customer behaviour. Enter price elasticity, a concept that helps restaurants balance profitability with demand.
What is Price Elasticity?
Price elasticity measures how sensitive customers are to price changes.
- High elasticity: A small price change significantly impacts demand. Examples include beverages and sides.
- Low elasticity: Demand remains stable despite price changes. Examples include premium or signature dishes.
How to Use Elasticity to Your Advantage
- For highly elastic items: Test small price adjustments to find the sweet spot for maximising profits without reducing sales.
- For low-elasticity items: Focus on perceived value. Enhance presentation or descriptions to justify a higher price.
Adjusting for Meal Periods
Customers are more price-sensitive during breakfast and lunch than at dinner. Use this insight to optimise pricing for different times of the day.
Make Smarter Pricing Decisions
Balancing price and demand helps ensure profitability without alienating customers.
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