Let’s be clear: While dynamic pricing is a feasible option for many industries, it can present significant challenges for restaurants.
Last year, a leading top-five burger quick-service restaurant announced they would begin testing dynamic pricing and failed spectacularly. Customers quickly equated it with surge pricing, and the brand was forced to backpedal, clarifying that their goal wasn’t higher prices. This high-profile attempt at testing dynamic pricing in restaurants failed for good reasons. Keep reading to learn why traditional dynamic pricing does not work for QSR’s, and why a customized promotion strategy offers a more effective path forward.
What is Dynamic Pricing?
Dynamic pricing is a pricing method that changes prices in real-time to react to temporary changes of demand. When demand increases, dynamic pricing is used to skim excess willingness-to-pay. When demand decreases, it then drives demand from those with lower willingness-to-pay. It assumes consumers know the price levels when they make purchasing decisions and that consumers can react accordingly. Therefore, it is key when implementing dynamic pricing that consumers know when prices are changing to inform purchasing decisions.
When considering the traditional definition and requirements for dynamic pricing, it becomes clear why this is not the best fit for restaurants. Consumers first make their purchasing decision when they step into a restaurant or drive up to a QSR drive-thru, and then there is a following decision on what to buy. If prices were to dynamically change, this influences what consumers will buy – for example, purchasing a burger instead of a combo meal—but does not effectively influence the original decision on whether to visit a restaurant. This results in unhappy customers, especially considering that high-demand times with the highest prices have the longest wait times and therefore typically the worst customer experience.
The concept of dynamic pricing works well in industries like airlines and ridesharing based on being able to influence demand, but the basic parameters for when a company would use dynamic pricing fundamentally are not there for the restaurant industry.
The Industry’s Hesitation: Consumer Perception
A recent Simon-Kucher study with 100-plus restaurant brands shows that despite the growing conversation around dynamic pricing, most restaurants are not considering its implementation in the near future.
This reluctance largely stems from restaurants’ biggest concern: consumer perception. Our study with 500-plus consumers who regularly dine at QSRs shows that 62 percent of restaurants worry about how consumers will react—and with good reason. That same research found that 71 percent of frequent QSR diners do not view dynamic pricing positively. Unlike other industries where fluctuating prices are expected, restaurant customers often associate changing menu prices with unfairness or unpredictability that goes against the industry norm.
Given these challenges, the opportunity for restaurants lies not in real-time in-store dynamic pricing but in more tailored price differentiation strategies. Consumers have varying perception of different pricing methods, where the majority view happy hours, customized promotions, and weeknight specials as positive, while the opposite is true for terms like peak pricing, dynamic pricing, and surge/demand pricing.
It is critical that restaurants prioritize widely accepted price differentiation methods rather than fluctuating in-store menu prices, as this helps preserve consumer trust while still enabling brands to leverage strategic pricing to drive traffic and revenue. The following two sections dive deeper into how restaurant brands can make this a reality.
Customized Promotions: The Preferred Alternative
Restaurants and consumers alike are less interested in real-time in-store dynamic pricing and view customized promotions as the top price differentiation method, with 81 percent of consumers viewing it as acceptable. Instead of raising or lowering menu prices in real time, restaurants can leverage customer data to offer targeted discounts and promotions that align with individual purchasing behaviors. This approach allows restaurants to further optimize pricing without triggering negative reactions from consumers.
When asked about business objectives for dynamic or differentiated pricing, restaurants state ‘driving higher traffic in off-peak times’ as the top goal almost 4x more often than ‘increasing price during peak times.’ A well-designed promotion strategy is an effective driver to help QSRs achieve this primary goal of increasing traffic. According to our research, 64 percent of consumers would visit more if they offered customized promotions, while consumers state they would visit less often if restaurants introduce real-time in-store price fluctuations. Leading brands have already embraced customized promotions to drive traffic, as they leverage mobile apps and loyalty programs to offer customers personalized discounts and offers.
By focusing on customized promotions, restaurants can create pricing strategies that feel personal and appealing, rather than offering blanket discounts or promoting products that don’t appeal to certain segments. For example, offering exclusive discounts to loyalty members, targeted promotions based on purchasing history, or time-sensitive deals pushed to loyalty members during slower periods can encourage repeat visits and increase traffic without eroding trust.
Where Dynamic Pricing Could Work: Online Channels
While customized promotions offer restaurants a strong opportunity to differentiate their pricing, that doesn’t mean there won’t ever be room for dynamic pricing in the restaurant industry—it just needs to be applied strategically in the right channels where the parameters for dynamic pricing are met.
Rather than adjusting prices in real-time at physical locations, there is clear alignment among brands that online ordering channels are the right testing grounds for dynamic pricing, such as third-party delivery platforms and in-app purchases. Among restaurants surveyed who are interested in dynamic pricing, the majority view third-party delivery services and online digital app ordering as the two channels with the largest financial opportunity for implementing dynamic pricing, while less than a quarter say the same about in-store or drive-thru menus.
While online channels are a small portion of revenue for most QSRs, they do offer several benefits for dynamic pricing, including being connected to software to ease implementation, online/delivery consumers are more accustomed to price variability, and price fluctuations can actually influence demand. With in-store or drive-thru price adjustments, customers are already on the store premises and less likely to change their purchase decision, while online price adjustments can be used to influence consumer behavior, such as their decision whether to visit a store.
Examples of how this could be implemented include digital-only store formats that are created for pickup where each customer orders online before they arrive and view a unique menu. Another viable concept for dynamic pricing is pizza delivery or general third-party delivery where fees and/or menu prices are set dynamically to influence consumer demand to better match delivery driver availability.
While dynamic pricing can be effective in certain digital spaces, it doesn’t significantly impact overall revenue for most restaurants, considering that in-store sales typically make up the large majority of total revenue (approximately 80 percent).
Conclusion: Key Takeaways for Smarter Price Strategy
As the restaurant industry evolves, pricing strategies must adapt to be innovative to drive growth for restaurants while also satisfying consumer expectations. Keep the following in mind to achieve smarter pricing:
- Optimize pricing basics first: If you think you have a pricing problem, dynamic pricing is not going to be the largest revenue driver. Instead, get the basics right with price-value positioning, price menu architecture, store price differentiation, and how to utilize promotions.
- Prioritize consumer experience: Real-time in-store dynamic pricing is generally not fit for QSRs, as restaurants’ biggest concern around dynamic pricing—consumer perception—is warranted, considering 71 percent of consumers do not view dynamic pricing positively.
- Leverage online channels for testing: Restaurants who do want to experiment with dynamic pricing should do so in online ordering spaces like third-party delivery and in-app ordering, as out-of-store ordering channels enable dynamic pricing to influence demand by altering someone’s decision to visit.
- Develop customized promotions: Consumers are far more receptive to price differentiation when framed as customized promotions rather than dynamic pricing; implementing customized promotions/discounts will help restaurants achieve top goal of driving higher traffic and is more broadly accepted by consumers.
- Ask an expert: Reach out to a pricing professional to optimize your pricing strategy.
Philip Daus is a Partner at Simon-Kucher, and he specializes in growth and monetization strategies, helping restaurants optimize pricing, promotions, and go-to-market strategies. With 20 years of consulting experience, he has led over 100 projects, driving billions in enterprise value. A recognized thought leader, Philip has published extensively on pricing and sales strategy and frequently speaks at industry conferences. Philip holds an MBA from IE Business School and an MSc from WHU Vallendar, Germany.
Erin Kilbride is a Manager at Simon Kucher, a leading strategy and commercial growth consultancy. She specializes in driving revenue growth for restaurants, with a focus on pricing strategies including price architecture, store price differentiation, and price-value positioning. Erin holds a B.A. from Rice University.
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