Restaurants have used differential pricing for decades—dynamic implementation is new.

Funny thing about the English language, there’s a word for just about everything. And when there isn’t we make one up to capture the essence of what we’re trying to communicate. Every profession has jargon and sometimes they turn into buzzwords. 

These words originate as a well-intentioned way to communicate technical stuff to a non-technical audience, but sometimes they catch a hype-cycle and can quickly lose meaning or morph into whatever the hype reshapes them into. Emerging technologies need to expand their lexicon when a field is advancing rapidly.

When the new vernacular changes to make things more relatable to those who will benefit from it then it’s a positive change. But when the use of buzzwords obscures existing meaning without adding clarity, or when the primary benefit of the jargon-sprawl is for companies to hitch their products to the hype-train, it only adds confusion and accelerates potential disillusionment of what might otherwise be a high-potential technology. 

The Dynamic Price Hype-Train

When dynamic pricing solutions first rolled out in delivery channels it was enough to make any data-nerd giddy. The possibilities seemed boundless. Solving the technical hurdles of making real-time changes to prices in multi-channel restaurant commerce and display systems should open the door to dynamic tech that could enhance the whole customer experience. The opportunity is much bigger than Dynamic Price alone.

However, if the technology companies themselves believe the ultimate achievement of their core innovation is setting different prices at different times or managing discounts rather than the technological achievement of the speed and efficiency with which it can be executed—well, there was already a name for that, and it’s “Differential Pricing”—and it has been going on for a long time in the industry, albeit with varying degrees of scientific discipline, strategic design and automation.   

Dynamic Pricing

When something is “Dynamic” it means that it is characterized by constant change: I didn’t decide that—the English language did. It makes a lot of sense that Dynamic Pricing in Restaurants found its home in third-party online systems where the experience is commoditized and less personal than the on-premises experience.

Differential Pricing 

Whether pricing the same product differently across locations (i.e. pricing tiers), or in the same location at different times (happy hour)- tactics for leaning into higher demand times & locations has been happening since at least the 1890’s when the “Blue Plate Special” was introduced by Harvey’s Restaurants. Since then, Happy Hour, off peak “Bounce Back” coupons, Express Menus and Prix Fixe menus have all emerged as commonly used differential pricing tactics. Restaurants have long found low-tech ways to implement ‘differential pricing,’ however the technological advancement is the ability to automate, personalize, target and simultaneously change them rapidly. If those things are not actually changing with some meaningful frequency, then it isn’t “Dynamic”. That’s not a statement of judgement—it’s a statement of fact. Offers that are differentiated by customer group, geography or other cohort are frequently used as another way of creating differential promotional price opportunities.

This has been part of loyalty programs, e-clubs and digital campaigns for at least two decades. Some are executed with “static” prices or offers and others could be genuinely considered dynamic. Some restaurant companies apply sophisticated scientific methods to differential pricing decisions and other products, promotion, and marketing decisions with the same sophistication as the best retailers, travel companies and CPG’s. That level of analysis that can ‘super-size’ the profit opportunity and has historically only been available to the largest chains. But even without sophisticated means of execution or integration with a dynamic display system, differential pricing strategy can be a significant opportunity for restaurants to drive traffic while managing their brand value perception.  

What About Dynamic Coupons?

As for automatic coupons—for the better part of the past decade that’s been called marketing automation, and while most marketing automation systems could benefit from a more sophisticated price optimization approach, most ‘Dynamic Pricing’ solutions on the market are weighting the recommended Price on high-demand periods rather than considering Price as one attribute of the total campaign (creative + impressions + target audience + TRP support + Price Point etc.).  It’s important to consider that when you isolate couponing from the rest of the marketing mix as the only lever, you’re activating a Price discount alone to drive a purchase without visibility into the comprehensive coinciding media mix. For brands that want to emphasize that they are more than a number, it is a step backward from the marketing automation systems that attempt to incorporate the ability to drive traffic based on brand differentiation rather than joining the race to the bottom on price discounting.

Ultimately, discounting and the level or frequency of it is a brand decision. Fortunately, it can now be done in a more targeted and discrete way than before. If discounting is part of your brand—then doing it efficiently and dynamically makes sense—but marketing automation systems designed to find non-price attributes that drive traffic are also more likely to acquire customers who come for what differentiates the brand. Brands would be encouraged to discern what consumers respond to and many do not respond to discounts at all—in these instances you are just giving away revenue.

More than Semantics

My point in writing this is not to ‘police’ the language—but to reduce confusion and manage expectations. There are incredible solutions making real impacts on restauranteurs and customers. However, it’s important that restaurants choose a solution that is appropriate for their brand and customer experience. Great tech fails when the use case doesn’t fit. One restaurant may be ideal for a solution that changes prices (or product features) with great frequency, another for strategically differentiated prices that don’t change with much frequency—and another that just needs the right everyday price strategy. When it’s all muddled into the buzzword of the moment it’s harder for operators to make the right decision for their brand. Semantics matter.

Mike Lukianoff is the CEO of Extropy 360.

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