Is Dynamic Pricing Right for Your Restaurant?

Is Dynamic Pricing Right for Your Restaurant?
Although dynamic pricing is not used as commonly in the restaurant industry as it is in others, now may be the perfect time to explore it as a pricing strategy.
by Deborah Findling Jul 18, 2023 — 4 min read
Is Dynamic Pricing Right for Your Restaurant?

Dynamic pricing isn’t new. Even if the term is unfamiliar, you may have experienced dynamic pricing when booking a flight or a hotel. An airline seat or a hotel room might cost you more on a weekend, over a holiday, or for a premium experience. As a restauranteur you may already use this strategy without having planned for it. Happy hour specials, prix fixe menus, market price menu items, and children’s discounts are all common examples of dynamic pricing. These types of dynamic pricing are not always updated in real time, but they can be.

Restaurants use dynamic pricing, in part, to grapple with the elasticity of demand. For example, restaurateurs might use it to optimize revenue by increasing prices when demand is up (during peak periods) or by decreasing prices to draw customers in when demand is down (during off-peak times). Recently, Noodles & Company rolled out digital menu boards across its locations to cope with inflation, labor shortages, and supply chain issues. 

In fact, the Square Future of Restaurants report found that 29% of restauranteurs have considered raising prices to weather a potential recession this year. Eighty-eight percent of consumers agreed that given the impact of inflation and the rising costs of goods, they would understand if their favorite local business raised prices up to 17%. With the flexibility of adjusting pricing to accommodate market conditions and customer needs, now may be the perfect time to explore dynamic pricing as a strategy for your restaurant.

What is dynamic pricing?

Dynamic pricing is a way for businesses to adjust prices for their goods or services based on market demands. This pricing strategy is also referred to as surge pricing, demand pricing, value-based pricing, or time-based pricing. Using dynamic pricing. It does not mean you are simply raising prices; you might move them up or down. As a business owner you may consider dynamic pricing if there is higher customer interest or if supply is limited. 

Here are four common dynamic pricing strategies and what they look like in action:

Examples of restaurants that leverage dynamic pricing

Many restaurants have the flexibility to adjust their pricing as needed. Typically they also have perishable inventory, which means there’s an additional incentive to have flexible pricing when necessary. But reflecting those changes may mean redesigning or reprinting signage and menus in a time- and cost-inefficient way. In an interview with Square, Fatbacks BBQ Chief Marketing Officer Devin Osborne shares that grocery stores can often navigate price volatility more seamlessly, whereas for a restaurant it can be difficult to execute and poorly received by customers. He adds that customers are used to seeing the prices of meat or produce vary regularly in a grocery store, something they experience less commonly at a restaurant like his. 

Restaurants have a fixed capacity, so keeping tables filled with guests is the ultimate goal. With this in mind, it’s critical to remember that while a dynamic pricing strategy might be typically used for surge pricing, you can use it as an opportunity to fill seats or sell excessive inventory. During peak times you might feature high-profit margin items and optimize your sales rather than charge higher prices across the board.

Here are a few other examples of how restaurants implement dynamic pricing:

Consider your restaurant’s approach.

In addition to using dynamic pricing based on demand, restaurants can use it to create a sense of excitement and urgency among diners who want a great deal. 

If you are a Square seller, there are several ways you might use dynamic pricing to adjust your prices quickly. Your Square Dashboard is a great first stop to get familiar with your business’ data so you can experiment with dynamic pricing. From here you can pull real-time reports on which products or services sell the best, on when your funds are transferred, and on customers insights such as how often your customers return.

Once you identify patterns through these reports, consider these Square tools to help you leverage dynamic pricing in different channels:

Restaurants are looking at new ways to thrive in a constantly changing environment. Dynamic pricing gives them the flexibility to ensure that prices fit the demand. If you’re looking to explore dynamic pricing, the most important thing is to be transparent and let customers know when and why you are doing it. Communicate price changes clearly and directly to your customers, as price volatility has dominated the consumer experience in recent years. By implementing this strategy effectively, you can have more control over your bottom line while offering current and prospective customers pricing options that are seen as a value, not an overcharge.


Deborah Findling
Deborah Findling is an Executive Managing Editor at Square. She also writes about investment, finance, accounting and other existing and emerging payment methods and technologies.


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