Serving up profitability goes far beyond pricing.
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A Mexican QSR chain with 900 corporate restaurants and over 4,000 franchise locations wanted to see if they could use pricing as a lever to increase profitability. After it launched one of its most successful promotional campaigns over the past 10 years, it faced the challenge of topping the previous significant sales lift.
At the time, the chain based its menu pricing structure on the geographic locations of its stores. They assumed that customers in the same region demonstrate similar purchase behavior.
The chain partnered with RMS to review the pricing structure in place and understand actual customer purchasing behavior. We did this by analyzing the brand’s POS transactional data using our patented statistical models.
Our store-level approach identified that customers did not react to the same pricing strategy in a homogenous way, despite restaurants being located in similar geographical areas. This gave the brand an opportunity to further refine its pricing strategies.
We recommended to maintain three pricing groups, but to combine those with similar attributes, based on similar demographics, trade areas, and competitive landscapes. Then, we added RMS’s location-specific sensitivity readings to design a more targeted pricing strategy.
RMS recommended a price increase of 1.3 percent for the restaurants deemed to have more opportunity and 0.8 percent for those with less opportunities.
The revised pricing strategy, significantly impacted the international restaurant chain’s performance.
In the first year after implementation, the restaurant chain enjoyed an annual sales increase of $13 million (one percent of sales), 100 percent flow-thru to the bottom line and no negative impact.
The client continues to follow RMS’s demand-based pricing approach, achieving similar results every pricing round.