Priceless: The Myth of Fair Value (and How to Take Advantage of It) (23 page)

“Daniel Boulud has a restaurant that serves a truffle and Kobe steak hamburger for $100,” restaurant consultant Brandon O’Dell said. “Maybe once a week somebody will go in there and blow $100 on a hamburger. But the point of the hamburger isn’t to make a lot of money selling hamburgers. It’s to make everything else on the menu look cheap by comparison. Someone sees a $100 hamburger on the menu, and they can look at a $50 steak and see it’s a bargain.”

Boulud is credited with starting the pre-recession trend of ridiculously expensive items on Manhattan menus. In 2001 Boulud’s db bistro moderne began selling a burger (stuffed with braised short ribs and foie gras) for a then unthinkable $28. It got a lot of press and a lot of imitators. Boulud raised the ante with a version containing 20 grams of black truffles (in season) for $150. One of his imitators, the Wall Street Burger Shoppe, offers a $175 Kobe burger with 25 grams of truffles and gold flakes.

Hotel restaurants have taken to this idea, perhaps on the theory that anyone who can afford a hotel in Manhattan has money to burn. There is a $1,000 caviar and lobster omelet on the menu at Norma’s in the Parker Meridien, and a $1,000 truffle and goji berry
bagel
at the Westin Hotel. Having these prices on the menu costs the restaurant very little. If and when an order comes in, it’s the chef’s lucky day. But mainly, thousand-dollar bagels exist to bewitch customers into spending more than they would have. The effect is unconscious but no less real for it.

•   •   •

“Places like Chili’s and Applebee’s make a science out of it,” said the restaurateur-turned-menu-consultant Jim Laube. “Go to those places and take notice of what they do to draw attention to those items they want to sell. And believe me, they know exactly what they want to sell.”

Sizzler, Hooters, TGI Friday’s, Olive Garden: whatever their culinary limitations, this is the cutting edge of menu science. The goal of psychological menu design is to draw attention to the profitable (as in “overpriced”) items. Industry convention divides menu items into
stars
,
puzzles
,
plowhorses
, and
dogs
. A star is a popular, high-profit item—in other words, an item for which customers are willing to pay a good deal more than it costs to make. A puzzle is high-profit but unpopular; a plowhorse is the opposite, popular yet unprofitable. A dog is unpopular and unprofitable. Consultants try to turn puzzles into stars, nudge customers away from plowhorses, and convince everyone that the prices on the menu are more reasonable than they look.

One common trick is “bracketing.” Expensive items like steak are offered in two sizes. The customer isn’t told how much smaller the small portion is, but no matter. He assumes the smaller size is attractively priced because, um, it costs less. In reality, the “small size” is the steak they wanted to sell all along, and the “lower price” is what they intended to charge for it. “If you do this with three menu items,” the consultant Tepper Kalmar said, “it really adds up.”

“Bundling” is the practice of selling several items for a supposed bargain price. It describes fast-food “combo meals” and tony prix fixe selections. As everyone understands, the bundle dangles an incentive to order something extra. The burger plus fries plus soda combination costs just pennies more than burger plus soda à la carte. You might as well get the fries. “By discounting the third item a small amount, the overall gross profit goes up,” Kalmar said.

There is another reason for the effectiveness of bundling. It fosters confusion. A restaurant’s prix fixe pricing prevents diners from getting upset about paying $13 for two scallops (an example Richard Thaler found in a San Francisco Zagat guide). It’s hard to be sure what costs what and whether it’s too much.

The bundling effect wears off as repeat customers become familiar with the prices of their favorite combos. For this reason, chain menus are an ever-changing caloric kaleidoscope. New entrées are offered, and old
ones change or vanish. Combos can be super-sized. Do you want curly fries? You can’t buy exactly the same thing you did last time; neither can you compare prices, exactly.

When all else fails, Kalmar tells restaurateurs to exploit “opportunity” price increases. This adopts the fairness research finding that sellers should blame someone else for any price increases. When necessary, Kalmar suggests that restaurants post signs explaining that gas prices or energy costs or crop failure (whatever) have forced them to pass on their extra costs in a “temporary” price increase.

Manipulative menu design is often a matter of typography. Above is a sample of the menu of Pastis, and on page 162 is one from the Union Square Café, both popular New York eateries. By the thinking of menu consultants, Pastis has done almost everything wrong, and Union Square Café has done just about everything right. The most common menu mistake of all, according to Brandon O’Dell, is listing prices in a column, as Pastis has done. “The menu turns into a price list. They go down and choose from the cheapest items, instead of choosing what they want and
then
deciding whether it’s worth it.”

The Pastis menu also uses leader dots. The purpose of leader dots is
to draw the diner’s gaze from the items to the prices—and they do just that. But that’s not what restaurants should want. A diner who orders based on price is not a profitable diner. To minimize price sensitivity, Seattle consultant Gregg Rapp tells clients to scrap the leader dots and omit dollar signs, decimal points, and cents. Union Square Café has done all of this. The centered justification of its menu keeps the prices from forming a neat column. It’s not that customers
can’t
check prices, but most will follow whatever subtle cues are provided. The cues here say “Pay attention to the food, not the prices.”

Main Courses

Pan-Roasted Cod with Aromatic Vegetables, Blood Orange-Lobster Broth and Black Olive Oil 30

Grilled Wild Striped Bass, Gigante Beans, Roasted Onions and Romesco Sauce 31

Seared Sea Scallops, Brussels Sprout-Bacon
Farrotto
and Black Trumpet Mushrooms 31

Pan-Roasted Giannone Chicken, Anson Mills Polenta, Root Vegetables & Swiss Chard Pesto 27

Crispy Duck Confit, Fingerling Potatoes, Cipollini, Bitter Greens & Huckleberry
Marmellata
29

Grilled Lamb Chops
Scotta Dita,
Potato-Gruyere Gratin and Wilted
Insalata Tricolore
35

Grilled Smoked Cedar River Shell Steak, Vin Cotto-Glazed Grilled Radicchio and Whipped Potatoes 35

Winter Vegetables – Fennel
Parmigiano,
Grilled Radicchio, Lentil Farrotto, Fried Polenta and
Pesto Root Vegetables 26

On page 163 is a page of a recent menu for Balthazar restaurant, New York. Though it has too many prices in columns, the Balthazar menu uses some sophisticated tricks of menu psychology.

The typical diner opens the menu and looks first at the upper right-hand page. Balthazar isn’t taking any chances about that: it’s got a picture at upper right, another way to draw the eye. From there the gaze usually moves down to the center of the right page. Menu consultants use these prime menu spaces for high-profit items and price anchors. In this case, the anchor is the Le Balthazar seafood plate, for $110. Psychophysics says that the contrast effect is strongest in the immediate vicinity of a stimulus. It’s anyone’s guess whether this applies to prices on menus, but consultants seem to believe it does. They recommend putting high-profit items immediately adjacent to the high-priced anchor. The real agenda of the $110 price is probably to induce customers to spring for the $65 Le Grand plate just to the left of it or the more modest seafood orders below it.

A box around a menu item draws attention and, usually, orders. Is $15 such an indulgence for a shrimp cocktail? Not next to a $110 extravaganza! A really fancy box is better yet. The
fromages
at bottom are probably high-profit puzzles.

Other ways of promoting profitable items are text descriptions and photographs. Photographs of food are among the most powerful motivators and also one of the most inflexible menu taboos. Extensively used in the Chili’s and Applebee’s type of chains, photographs are considered death to any place with foodie pretensions. Even the Red Lobster chain felt it had to drop photos from the menu when it recently upgraded its image. Balthazar’s tasteful drawing of a seafood plate is about as far as a restaurant of this caliber can go, and it’s used to draw attention to the two most expensive orders.

Rapp doesn’t see his mission as eliminating the unprofitable entrée.

“We don’t want to take it off the menu because we might lose that customer,” he explained. Instead, an item can be “minimized” by reversing the above advice—removing boxes or copy and exiling it to menu Siberia. Balthazar has done this with its easy-to-miss burgers and the mysteriously unannotated
brandade de morue
.

Each year the NFL sells 500 pairs of Super Bowl tickets at “face value.” Currently, that’s around $400 a ticket ($800 a pair), and for the uninitiated, that’s
cheap
. Resale websites list Super Bowl tickets for $2,000 to over $6,000.

The chances of getting a face-value ticket are remote, and you have to jump through hoops. Requests must be “typed” (they have heard of computers, right?) and sent by certified or registered mail to the NFL’s New York office between February 1 and June 1 of each year. In October they hold a random drawing. In recent years, about 36,000 fans have applied for tickets, meaning that the chance of winning is around 1 in 70. Some scratcher lottery tickets offer better odds. Why the charade? In the words of NFL vice president for public relations Greg Aiello, the purpose of the lottery is to set a “fair, reasonable price.”

This isn’t as disingenuous as it sounds. The NFL system fits in perfectly with the fairness research showing that lotteries and lines are judged fairer than sky-high free-market prices. At those market prices, only the wealthy would be able to afford Super Bowl tickets. A Simon-Kucher & Partners report found that sports ticketing “virtually screams for non-linear pricing structures” in which different people pay different prices for the same ticket.

The Princeton economist Alan Krueger scored tickets for Super Bowl XXXV and managed to do a quick survey of the fans. He found something astonishing: that about 40 percent of those surveyed had gotten in for
free
. Only 20 percent had paid more than the tickets’ face value.

How is this possible? The NFL says that about 75 percent of Super Bowl tickets are distributed to the league’s teams, mostly to the two teams playing. The teams are allowed to dispose of the tickets as they see fit. Most hold their own ticket lotteries, typically restricting them to season ticket holders. The other 25 percent of tickets are distributed by the NFL itself. Most are given to VIPs, the media, and charities. The NFL can afford to be generous. About 60 percent of the league’s revenue comes from TV licensing.

Krueger’s most remarkable finding was that practically no one was willing to buy
or
sell a Super Bowl ticket at its market price. Karen McClearn, a Baltimore Ravens season ticket holder, told Krueger that she and her husband had come because they won tickets in a lottery, paying a way-below-market price. Krueger asked whether she’d have been willing to sell her tickets for $4,000 each.
No way,
McClearn insisted. When the Ravens took a 17–0 lead over the New York Giants, McClearn amended that: she wouldn’t sell for
$5,000
each.