Recently I discussed a somewhat famous restaurateur in Vancouver BC named Vij and the problem he has at his appropriately name restaurant “Vij’s.” In dental practice management matching price to demand is critical.
It doesn’t take a Nobel winning economist to see that Vij is wildly successful. In fact, he’s so successful it is actually hurting himself. Huh?!? How is that possible? Well, while enjoying my time waiting at the restaurant (on nearly every occasion of dining there), I see others coming to the restaurant, see the long line or inquire about the wait (jaw dropping when they hear 2 hours on busy nights!) and because of such they leave. How many of those are new customers will never return? Answer: TOO MANY.
What are some of his options to resolve this situation and most importantly to make more money out of his business? Well, he could open even earlier (increasing his overhead by hiring more staff and of course adding to his personal exhaustion level). He could build a bigger restaurant and increase the monthly nut he has to service (whoops there went that overhead skyrocketing again). He could increase complexity and open a second restaurant and hope he can systematize the quality of the food. He could also do nothing and just keep seeing the same high volume of customers, waiting for hours to eat his great food, some customers not coming because it is too crowded, and wearing out his furniture and carpet quickly while still making the same amount of money. [He has recently opened a take-out only shop next door with a frozen section…..even THAT has not slacked demand at the main sit-down spot!]
Interestingly enough no other Indian entrepreneurs in Vancouver have copied his concept—an obvious thing to do. Of course, we dentists tend to also not copy what is really working around us. Dentists tend to copy “procedures and equipment” but not successful systems for sales and marketing in the dental practice management arena.
So what else could Vij do to remedy the situation?
Well, some information coming from the opposite side of the US from Harvard would help him out.
Hopefully, you are aware of this fairly old study (and formula) done at Harvard based on pricing and how much a price increase will help or hurt your net profit based on your overhead. It really illustrates insensitivity to price (i.e. price flexibility).
Recently, a high end call girl discovered the same, and her story was discussed in ‘Super Freakonomics.’ Once again, more price insensitivity than the uniformed would ever guess. It truly is universal!
Harvard’s work years ago showed, if you cut your price by a certain amount, then here’s how much you’ll have to make it up in volume which illustrated the sheer idiocy of doing discounted dental fee plans. So, based on the volume and wait at Vij’s, his food is way under priced. It doesn’t even matter what the prices are now…just the fact that crowds of people are willing to wait 1-3 hours for a meal means he’s undercharging.
An immediate price increase would help him in many ways. He would obviously make more money. Yes, a few customers would leave because of price. Not such a bad thing since this would allow even more new customers to choose to come try the food at the new higher price since the wait time would be less and they wouldn’t leave at the door.
He could easily increase his prices by 20% to test the waters with his sales per hour over a six month period and analyze the resulting wait times. If nothing changes, raise em’ 20% again! Literally, keep raising em’ till the wait time gets down to a reasonable amount for his main dining hours. He could even have a “discounted” rate for certain hours if he needs to boost his volume during non-peak hours. There are parts of the world where some of our members have needed to “Vij” their fees to match available work hours in the dental practice management of their business.
Next time, we’ll review how much business he could lose and stay exactly as profitable.
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