A Curious Case of Buffet Pricing

The simple explanation behind buffet pricing is capture value upfront (with a fixed price) and then sell food at marginal cost. For buffet restaurant, the marginal cost to serve one additional customer is $0. A moment’s reflection will convince you that once the raw materials are purchased and cooked into different  menu items the cost is sunk and hence the marginal cost is $0.

Choosing a fixed price model like the buffet is a pricing strategy.  The restaurant is committed to it and cannot change easily change. But does this commitment  limit the total revenue and hence the total profit? No. There are pricing tactics the restaurant can employ to take advantage of short term opportunities.

Diwali is the Indian festival of lights (and more depending on who you ask). It is celebrated today. One of the Indian restaurants that usually offers buffet lunch and dinners at a flat price of $12.95, is promoting a special Diwali dinner for $15.95.   I think this is a great pricing tactic, that fits with the strategy and is designed to increase profit.

It is arguable that the $3 is pure profit even though the restaurant is promoting an expanded menu with increased variety. The marginal cost is not going to increase from $0 and  their total cost is not going to change significantly. Despite the increase in variety the average consumption per customer is not going to increase (limited stomach volume) and the restaurant can reduce amount of food produced for each menu item.  In addition the special occasion and the attraction of increased variety in menu will also bring in more customers than usual generating additional revenue.

The net is an increase in short term profit from a pricing tactic that fits very well with the strategy. Committing to a strategy does not preclude you from capitalizing on short term opportunities and failure to do so is  “the slowest route to victory”.

How do you manage your pricing strategy and tactics?