Revenue management in restaurants: the role of customers’ suspicion of price increases

Abstract

ABSTRACT The restaurant industry has yet to fully embrace revenue management (RM) in the form of peak-load pricing. Restaurateurs fear customers’ reactions to price increases could negatively impact their satisfaction and return intentions. In this study an experimental design was used to examine if the explanation provided to customers of a hypothetical restaurant that implemented peak-load menu pricing during periods of high (peak) demand would predict customers’ reactions. Reactions assessed included respondents’ suspicion of the restaurant, perceptions of pricing fairness and price-value, satisfaction, and return intentions. Additionally, the moderating effects of customers’ familiarity with RM and the direct effects of decisional control and income were assessed. Data from 409 respondents showed that higher suspicion was negatively associated with perceptions of pricing fairness and price-value, satisfaction, and return intentions during peak-demand periods (weekends). These lower return intentions, however, were also found for off-peak demand periods (weekdays) when no price increase had been implemented. The results suggest that suspicion, once activated, can lead to customer loss during both peak and off-peak demand periods, and that restaurant operators wanting to use peak-load pricing must carefully consider various factors in its implementation.