June 2010
Has the "Sweet Spot" Moved?At What Price Point are Consumers Most Satisfied?
Restaurant operators and their supplier partners have been anxiously awaiting their opportunity to "take price" while consumers continue to deal with this long recession. However, making these adjustments is easier said than done when consumers are still feeling the economic pinch. How sensitive are consumers to price points and the associated value equation? When considering menu adjustments, operators need to reduce their risk by understanding the consumer mindset with regard to price and value.
Aligning your business with today's consumer mindset
To best align your business decisions with today's consumer mindset, there are a number of factors to consider with regard to customer satisfaction and pricing strategies. These include:
- In what check range do consumers give restaurants their highest value rating?
- Are your menus and communications focused on where consumers say you deliver the most value? If not, where should changes to your menu be made?
To understand if consumers remain as sensitive to price as they were in the past, NPD revisited how certain check ranges for restaurant meals are rated by consumers on various aspects of value. Has the "sweet spot" moved? Are consumers more or less sensitive to price than they were a year ago? Or has their price sensitivity remained the same?
Evaluating the opportunity to positively influence traffic by managing menu prices
Reviewing the concentration of restaurant traffic by average ranges of eater check sizes reveals where the bulk of the traffic falls by price point. It also highlights the price point that seems to make consumers the most satisfied – where the pricing "sweet spot" exists. This review is based on The NPD Group's CREST Value Composite Score, which comprises top box ratings for three key measures of value:
- Excellent rating on "affordable to eat there often"
- Excellent rating on "good value for the money"
- "Definitely will go there" – revisit intention
By examining the relationship between the Value Composite Scores and check size, we can identify the price points that drive consumers to the restaurant and keep them coming back. These are the price points that are most in play given current consumer concerns about price and the willingness to spend money in restaurants. Following are two examples of what resonates most strongly with consumers in terms of price and customer satisfaction ratings: the sweet spot at QSR morning meals and value perception changes tied to Steak 'n Shake's $4 meal offerings.
QSR morning meal: Has the price point where consumers are most satisfied moved?
The QSR morning meal has received considerable attention lately with a barrage of new product activity and new players entering the market. Prior to the recession, the QSR morning meal was a growth market, but it, too, has fallen prey to the economic downturn and high unemployment, creating a battle for market share. To gain market share at this meal occasion, it is critical to understand at what price points consumers are most satisfied and how that might have changed.
First and foremost, the price points at which consumers are most satisfied when visiting QSRs for the morning meal have not changed. As shown in the chart below, Value Composite Scores at QSR morning meals remain highest at the lower expenditure levels, below $3.00. Efforts to build out the morning daypart must balance the volume opportunity offered during morning hours with various price ranges, recognizing those with the highest value ratings. While value perception dips a bit when spending is over $3.00, a sizable amount of traffic is served with $3.00 - $5.00 morning meals. To be successful, restaurant operators will need to understand where they have strong value propositions at this meal occasion.
Source: The NPD Group/CREST
Steak 'n Shake changes consumers' value perceptions
Steak 'n Shake introduced four meals for under $4.00 in 2009 in an effort to change consumers' value perception and drive traffic. It appears they were very successful in achieving that objective. Consumers were made aware of the discounted offers in a variety of ways, and increased awareness has generated additional visits. While there was heavy emphasis on the "meals under $4.00" promotion, once in the restaurant, many consumers either added a beverage or ordered other promoted or non-deal items at higher price points, or both. The promotional effort was successful in building traffic, and it did not result in a drop in average spending per person. Further, the chain's value rating strengthened during the promotion, as noted in the chart below.
Source: The NPD Group/CREST
Information of this type – especially the Value Composite Scores – may be used to capitalize on areas of particular strength within your menu offerings to stimulate additional visits.
- What parts of your menu drive that strong value proposition?
- At what check levels do you have your strongest value proposition?
- What menu components create strong value and higher checks?
- What parts of the menu need attention?
As the industry attempts to recover lost visits, it will continue to be a "battle for market share." To help ride out this period of economic uncertainty, restaurant operators will need to look for ways to differentiate themselves from the competition. Even in tough times, companies can build demand by doing a better job than the competition of meeting consumers' interests and needs, particularly regarding price and the associated value received.
To learn more about the Value Composite Score, please contact The NPD Group's Restaurant Industry Analyst, Bonnie Riggs, at 847-692-1767 (bonnie.riggs@npd.com) or speak with your NPD client service representative.
