How to Improve Restaurant Margins With Better Delivery Pricing

Delivery is on everyone’s mind right now. Restaurants traditionally oriented towards dine-in, have made significant moves to implement delivery options. As restaurants expand this contactless channel, they face a complex environment with higher costs to serve.

New research by industry thought-leader and revenue management experts, Sherri Kimes and Chaoqun Chen, highlights several opportunities for restaurants to improve their margin through better delivery pricing.

A key takeaway from their research is that consumers are more willing to pay higher delivery prices when they are framed as “regular” prices versus adding a delivery surcharge to the final order. Kimes and Chen go on to explain that this behavior offers a potential path to higher margins: operators could increase the overall price and then offer a discount on the pick-up price. This framing is based on decades of work in psychology and behavioral economics, which show that discounts are viewed as a gain and surcharges are viewed as a loss. The Prospect theory, developed by Kahneman and Tversky, describes consumers’ asymmetric (unequal) consideration of a loss versus a gain.

For over 25 years, RMS has stayed true to our academic roots by partnering with research experts and educational institutions to develop solutions that are based on the newest and best data-driven insights. Our goal is to help our clients make sound decisions about promotional tactics and pricing. RMS is honored and excited to work alongside Sherri Kimes and incorporate her latest findings into our work as we help restaurants overcome delivery pricing challenges.

Looking for ways to increase your delivery prices without causing a negative impact on traffic or customer satisfaction? Contact us today for practical recovery strategies based on a combination of econometrics, machine learning and consumer psychology.