Our Client’s Challenge
A Mexican QSR chain with 900 corporate restaurants and over 4,000 franchise locations faced an uphill battle. The previous year the brand had launched a highly successful promotional campaign. Now it had to top that significant sales lift. It hoped pricing could deliver a profitability gain.
The chain partnered with RMS to review the pricing strategies in place and understand actual customer purchasing behavior. At the time, the chain tailored menu design to the geographic locations of its stores, based on the assumption that customers in the same region demonstrate similar purchase behavior.
We analyzed the brand’s transactional data using our patented statistical models. Our store-level customer segmentation revealed that customers do not react homogenously across similar geographical areas.
We recommended the chain maintain its historical pricing groups, but group locations by customer type instead of geography. Price groups were created that matched attributes such as demographics, trade areas and competitive landscapes. Then, we added RMS’s location-specific sensitivity readings to design a dynamic pricing strategy.
RMS recommended a price increase of 1.3% for the restaurants deemed to have more opportunity and 0.8% for those with less opportunity.
In the first year after implementation, the restaurant chain enjoyed an annual sales increase of $13 million (1% of sales), 100% flow-thru to the bottom line and no negative impact on traffic.
The client continues to follow RMS’ pricing strategies and has achieved similar results every pricing round.