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The decoy pricing trick is easy to spot when pasta is on the menu. Pasta is one of the highest-margin items on the menu, so restaurants will place it next to o

by byoung2 16y ago

The decoy pricing trick is easy to spot when pasta is on the menu. Pasta is one of the highest-margin items on the menu, so restaurants will place it next to overpriced chicken dishes. Next to a $12 chicken dish, $9 for pasta seems reasonable, even though the noodles and sauce only cost a few cents.

nkurz 16y ago
I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' The $12 chicken is what they actually expect to sell, based on how reasonable it seems. It is not a decoy, rather the dish that the restaurant wants you to buy. The pasta is a concession to the value consumer, and while it's high margin, given high fixed costs the restaurant would likely go out of business if it sold nothing by inexpensive pasta dishes. Ingredient costs are around 25% of the menu price, higher for expensive places and lower for chains. Differences in prices between dishes are generally not equal to differences in the cost of ingredients. From your example, your implication is that all dishes in that restaurant are overpriced. While this may certainly be true relative to the cost of making the food yourself (presuming free time and available equipment) this belief should be tempered by the number of profit-less restaurants that go out of business each year. There's nothing wrong with your belief, but I don't think it's that relevant to discussions of 'decoy pricing'.
- georgieporgie 16y ago
  It works both ways. From the article: > In Decoy Marketing, we learned that adding an inferior but similarly priced product > to one’s lineup can boost sales of the better product, and in More Decoys: Compromise > Marketing we found that an expensive product added at the top of one’s line may not > sell well but can boost sales of the cheaper products.
- byoung2 16y ago
  I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' This is an extreme example, but what I'm talking about is more common. Think about chain restaurants like CPK, Macaroni Grill, PF Changs, etc. These restaurants just need to keep you seated long enough to sell you drinks. In order to do that without losing money on dishes, they need to funnel you into higher margin entrees. All other things being equal (i.e. the fixed costs of keeping the restaurant open), they want you eating pasta, not chicken. It's simple math...pasta costs pennies per serving in raw materials, can be stored for long periods of time, and is easy to prepare (you boil and simmer it, and it is easy to keep warm while you prepare other dishes). It is by far the highest margin food item on the menu. Salad would be close, but it has a short shelf life. Chicken and other meat dishes are more complicated because they have a short shelf life (you don't freeze these because it kills the flavor and texture), and they need to be cooked just right and served quickly or you risk serving it cold or drying it out under heat lamps (resulting in expensive do-overs). The $15 (or $20) chicken entree is the real decoy...the restaurant would love to serve everyone pasta because it is a much higher margin (all other fixed costs being the same). EDIT: I just googled "restaurant profit margins" and the second result gives the same example: http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/10ThingsYourRestaurantWontTellYou.aspx http://articles.moneycentral.msn.com/SavingandDebt/ConsumerA... Given the slim profit margin, many restaurants rely on savvy pricing to create the illusion of value. Putting a chicken dish on the menu for $21 will make a $15 pasta dish, where the restaurant is making a big profit, seem like a bargain, says Gregg Rapp, the owner of consulting firm MenuTechnologies.net. That's funny...good thing I'm not the only one who noticed that at restaurants!
  - rajatsuri 16y ago
    Not true. Actually nkurz was right - margins are generally fixed to be 20-30% in pretty much every single chain restaurant. All else being equal, restaurants want you to buy that expensive steak because their profit is the highest. ($20 steak - $5 cost > $12 pasta - $3 cost)

by byoung2 16y ago

nkurz 16y ago

I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' The $12 chicken is what they actually expect to sell, based on how reasonable it seems. It is not a decoy, rather the dish that the restaurant wants you to buy. The pasta is a concession to the value consumer, and while it's high margin, given high fixed costs the restaurant would likely go out of business if it sold nothing by inexpensive pasta dishes. Ingredient costs are around 25% of the menu price, higher for expensive places and lower for chains. Differences in prices between dishes are generally not equal to differences in the cost of ingredients. From your example, your implication is that all dishes in that restaurant are overpriced. While this may certainly be true relative to the cost of making the food yourself (presuming free time and available equipment) this belief should be tempered by the number of profit-less restaurants that go out of business each year. There's nothing wrong with your belief, but I don't think it's that relevant to discussions of 'decoy pricing'.

georgieporgie 16y ago
It works both ways. From the article: > In Decoy Marketing, we learned that adding an inferior but similarly priced product > to one’s lineup can boost sales of the better product, and in More Decoys: Compromise > Marketing we found that an expensive product added at the top of one’s line may not > sell well but can boost sales of the cheaper products.
byoung2 16y ago
I don't think you are understanding this article correctly. The 'decoy item' would be a very high priced item that the restaurant does not expect to actually sell: '$96 Coq au Vin for Two. Reserve 24 hours in advance.' This is an extreme example, but what I'm talking about is more common. Think about chain restaurants like CPK, Macaroni Grill, PF Changs, etc. These restaurants just need to keep you seated long enough to sell you drinks. In order to do that without losing money on dishes, they need to funnel you into higher margin entrees. All other things being equal (i.e. the fixed costs of keeping the restaurant open), they want you eating pasta, not chicken. It's simple math...pasta costs pennies per serving in raw materials, can be stored for long periods of time, and is easy to prepare (you boil and simmer it, and it is easy to keep warm while you prepare other dishes). It is by far the highest margin food item on the menu. Salad would be close, but it has a short shelf life. Chicken and other meat dishes are more complicated because they have a short shelf life (you don't freeze these because it kills the flavor and texture), and they need to be cooked just right and served quickly or you risk serving it cold or drying it out under heat lamps (resulting in expensive do-overs). The $15 (or $20) chicken entree is the real decoy...the restaurant would love to serve everyone pasta because it is a much higher margin (all other fixed costs being the same). EDIT: I just googled "restaurant profit margins" and the second result gives the same example: http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/10ThingsYourRestaurantWontTellYou.aspx http://articles.moneycentral.msn.com/SavingandDebt/ConsumerA... Given the slim profit margin, many restaurants rely on savvy pricing to create the illusion of value. Putting a chicken dish on the menu for $21 will make a $15 pasta dish, where the restaurant is making a big profit, seem like a bargain, says Gregg Rapp, the owner of consulting firm MenuTechnologies.net. That's funny...good thing I'm not the only one who noticed that at restaurants!
- rajatsuri 16y ago
  Not true. Actually nkurz was right - margins are generally fixed to be 20-30% in pretty much every single chain restaurant. All else being equal, restaurants want you to buy that expensive steak because their profit is the highest. ($20 steak - $5 cost > $12 pasta - $3 cost)