Pricing Post Crisis: What Should Operators Consider?
Joel Davis
Chief Strategy Officer of Revenue Management Solutions

RMS’ Chief Strategy Officer Joel Davis leads our analytics and data strategy discipline and serves as a strategic consultant for many of our customers. He’s been asked a lot of tough questions lately about how to move into recovery – and what to do about price. Below he offers his best advice, with some caveats. This is a moving target, he notes, and we don’t have global, or even best practices to rely on. Each brand will be in a unique position, and have opportunities and risks based on its liquidity, ownership structure, and competitor health.

Q: How will recovery play out as it relates to traffic and price?

We anticipate that there will be a wave of traffic (or honeymoon period) where ‘value’ isn’t necessary to drive checks. Consumers will want to “get back out into the world”. That said, we’re not all coming back full throttle.  We anticipate slow traffic post re-opening due to customers’ psychological fears. This is going to differ by individual, as some may take longer to get re-acquainted with leaving their homes. It is likely that our larger social environments will have an influence on this. As more people start integrating into the “outside world” around us, we might feel more comfortable to do so as well.

Q: Have customers picked up new shopping habits having been at home for so long? And do you see a new normal for Delivery and To-Go vs. Dine-in?

Yes – Almost everyone will have picked up some new habits. I think it makes sense for brands to think through and weigh in on how different channels will be impacted. Following on the questions above, short-term behavior may not necessarily be indicative of long-term behavior. Operators have been flexible throughout the crisis and will need to continue to be; testing and evaluating a wide range of traffic-driving initiatives and frequency drivers, which will be key to successful recovery.

A few hypotheticals, by brand type, to visualize the new normal:

  • Brand A: Strong cash reserves will allow this brand to exit the crisis with a lot of liquidity and, thus, a great deal of opportunity. Competition has been reduced and prime real estate may be available.
    • Brand A may be more concerned with rapidly growing market share and pushing remaining substitute brands (who may be in a weaker position) further to the fringe.  It will focus on driving traffic and keeping it from the competition.
  • Brand B: A smaller brand that has survived but has poor sales and may be highly leveraged. It may need to take price as relief measures (rent relief, etc.) are reduced and debt obligations come due. Brand B is an unenviable position, because price increases may cause locations to lose traffic to Brand A’s among its competitor set. 
  • Brand C is also in a bad spot but has access to enough liquidity to forego price and manage obligations for the next 6-12 months. It may be able to position itself between Brand A and B.  Brand C may look at reducing price to compete, but we do not recommend this tactic, as Brand A will likely win any discount war. Instead, Brand C should use its liquidity as compared to Brand B, to plan and test different traffic drivers and marketing initiatives.

In other words, pricing to drive traffic only matters if you can stay in business over the medium to long term.

  • A final note: We can no longer rely on the tried-and-true consumer value equation, and we won’t know the shape of a new equation for some time. Our best recommendation for brands in recovery is NOT TO ASSUME their customers will act in some way, but to be able to react VERY QUICKLY to the shifting landscape. In short: test, test, test and test again. Analyzing data early, in some cases with only a few days of information, could be the winning factor to stay ahead of the competition.

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