Transactions, value, and price.
These are three words that get thrown around quite a bit in our industry, and I think it’s worth taking a minute to agree on some definitions. Let’s begin by understanding what we mean when we talk about transactions.
trans-ac-tion: /tranˈzakSH(ə)n/ - noun
An instance of buying or selling something;
an exchange between two entities; a business deal.
For our purposes I want to focus on that second part of the definition. “A transaction is an exchange between two entities.” As it turns out, this is a somewhat important revelation. As business owners, we’re not just selling a product or service; we’re making a trade. And the number listed on the menu isn’t all that’s being exchanged.
Confused? Don’t worry, most people are.
When we list halibut on our menu, we are selling so much more than just a well-cooked piece of fish. We are selling the chef’s expertise and creativity, their years of training and experience. And, of course, we are also selling the experience of enjoying that halibut in our dining room, where a staff of well-trained professionals are cooking that dish, serving that dish, then clearing that dish away at the end. At the most basic level, yes, we are selling a filet of halibut, but we’re also trading away so much more.
If you ever think to yourself, “maybe our prices are too high,” I want you to go back and make sure you’ve done the full calculation. A lot goes into just one simple entree. And remember, most people can’t cook as well as you can, nor can they recreate the environment of your restaurant. Dining with you — enjoying that piece of halibut in the comfort of your restaurant — is better than they could ever hope for in their own kitchen.
But then, consider the other side of the transaction: the diner is giving up more than just the $22 you’ve listed on the menu. In addition to their hard-earned cash, our patrons pay us with the three most precious resources they have: time, attention, and trust.
So, let’s agree then on a definition for price:
price: /prīs/ - noun
The quantity of one thing that is exchanged or demanded in barter or sale for another;
the cost at which something is obtained.
There are three things I want you to take away from this article, and this is the first, and perhaps most important, point: there are costs on both sides that go beyond the dish and the price listed.
The consumer can always go out and make more money, but when they transact with us, they are also giving away things that they can never get back. When we talk about the “cost” of a given item, I think we need to start by acknowledging all that is exchanged.
The second takeaway is this: transactions in our industry last a very long time. And make no mistake, the dining experience is just one, long, drawn-out transaction. A meal is nothing but a series of micro-sales:
“Can I offer you something to start your meal?”
“And what would you like for your entree?”
“Something to drink?”
“Can I bring you another glass of wine?”
“Did anyone save room for dessert?”
“Might I recommend a scotch to finish the night?”
Not only do we get to sell to our guests for the duration of their time with us, but it’s also expected. Our guests look forward to that interaction. They want to know if the chef is offering anything special, if we can recommend a good wine to pair with their steak, what dessert we would recommend. Other industries would kill for the kind of relationships we get to build with our customers. And night after night, we not only take it for granted, but we squander those opportunities.
Which leads us to a discussion about value, and our third and final takeaway.
Seth Godin is a bestselling author and marketing guru, and I once heard him say, “Business works when both sides win… when there are no regrets.” As an operator, we’re going to charge more for a dish than it cost us to make; that’s how we turn a profit. But let’s also remember that the consumer is going to pay less for that dish than they think it’s actually worth. Put another way: the well-cooked piece of halibut is worth more to them than the $22 in their pocket. Or to go one further, a guest will pay us with their time, attention, and trust (and money) if they believe the experience is valuable enough.
Which brings us to this last definition.
value: /ˈvalyo͞o/ - noun
The worth of something compared to the price asked for it.
Value is the difference between the price a consumer pays and what the consumer believes it’s worth. Over the years I’ve developed a useful equation that describes this quite beautifully:
Worth - Price = Value
Here’s the final takeaway. Our job as business owners is to make sure that equation stays balanced. That’s how you get people to take a risk on something new, to choose you over a competitor, and to return for a mealtime and time again. When they see the value in the experience, they will rave about it to friends and keep you top of mind for future meals. You win over your competitors by highlighting the things that set you apart and explaining why the consumer should care.
Do that creatively and consistently, and you will have built not just a successful marketing strategy, but a successful business as well.
Chip Klose is based in NYC, where he runs the marketing agency Chip Klose Creative, working with chefs and restaurant owners to help them grow their brand presence and increase revenues. Klose is also the host of a weekly marketing podcast, Restaurant Strategy, where he talks about many of the strategies and tactics he uses day-to-day in marketing restaurants. To learn more, visit ChipKlose.com. He is also speaking at this year’s Bar & Restaurant Expo.
Bar & Restaurant Expo (formerly Nightclub & Bar Show) is a live, in-person event held March 21-23, 2022 at the Las Vegas Convention Center. Early bird registration is open now. Click here get your tickets now!
For sponsorship opportunities, contact Fadi Alsayegh at [email protected], Veronica Gonnello at [email protected] or Tim Schultz at [email protected].
Follow Bar & Restaurant on Facebook and Instagram for all the latest industry news and trends.