Price-Sensitivity Measurement: a Tool for Restaurant Menu Pricing

Abstract

Setting the correct price for hospitality products is a crucial management task that has a major influence on a firm's profitability. In general, there has been a lack of academic interest in the area of pricing in services. The restaurant industry typically establishes prices by marking up a variable cost percentage and by intuition, or by trial-and-error methods. This study illustrates how restaurant managers can use price-sensitivity measurement to assess their guests' price sensitivity. By means of a relatively simple survey, restaurant managers can gain insights about their menu pricing directly from their customers. This study uses data collected from a Hong Kong buffet restaurant, but the technique could be applied in virtually any restaurant setting. The results reveal price ranges that represent real value for dinner buffet patrons.