Saturday, April 12, 2014

Open Table Dynamic Pricing

Last night my wife and I found ourselves faced with a surprise - the first evening of nice weather in Chicago for at least the last six months.

It wasn't snowing, sleeting, freezing - there was no sign of any god forsaken polar vortex. It had to be in the high 50's, maybe even low 60's, and we wanted to enjoy the opportunity.

So we were trying to think of a place to go have dinner - and my only real concern was whether we could sit outside. Whatever the food was stood as a secondary concern (within reason - my wife wasn't going to let me go to Jimmy John's again).

But this created a supply-demand dilemma in the River North neighborhood of Chicago.

I walked around to a couple spots nearby - and they all had the same response - at least an hour and a half wait to sit outside.


What I started thinking about, is that there needs to be a market solution. Because I desperately wanted to sit outside - indeed, I would've paid a higher price for that opportunity. But restaurants don't make any distinction whether it's a warm 60 degree evening or a -20 degree polar vortex induced hellscape. Restaurants don't change pricing based on the time of day, weather or season (acknowledging small specific discounts like happy hours) - and they absolutely don't have a variable entry fee for a reservation for a specific time.

But why not?

The most frustrating thing about scanning through OpenTable on a Friday evening is the LONG list of restaurants that are completely unavailable - outdoor seating or not. But there are probably lots of people who would be willing to pay extra to get a space immediately (the people who don't plan their evenings well in advance - or maybe because both of them tend to work a bunch and it's never consistent and they never know when they'll actually both wind up at home at a reasonable hour).

So why can't that be an option?

You could argue it would be difficult for a restaurant to manage its own dynamic pricing. But why can't OpenTable manage it for them?

If it was a busy weekend night - and you hadn't made plans to go out - and you saw lots of places to eat were booked but for an extra $20 (or $30, or $300) you could get a table immediately - wouldn't that be a viable option?

And wouldn't it allow the restaurant to effectively charge a better market clearing price for it's fixed capacity?

If there was as system basing a variable fee on factors like available capacity, planned reservations, people currently waiting, and seasonality - wouldn't that be a huge potential source of revenue for a popular restaurant?

Like airlines which sell individual tickets, and hotels which sell individual rooms - the variable pricing would let restaurants more effectively charge what customers are willing to pay.

When the weather's nice - the fee goes up - and if you want to sit outside, you really need to put your money where your mouth is.

Such a pricing scheme could obviously work the other way as well - offering discounts during select times or when the restaurant isn't near full utilization.

It would eliminate (or at least reduce) long waits at restaurants - in part because the price would now be high enough to push people to other options (while others might be low enough to entice them away). And the technology exists - it's just getting people to accept a slightly different view of the restaurant (or if they've ever taken an econ class - they'll get it)

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