Tyler Cowen writes:
Ben Daniels writes to me:
Seen at Johnny Rocket’s near LACMA:
Pancakes. Delicious buttermilk pancakes, served with bacon or sausage & warm syrup.
Two pancakes 4.99
Three pancakes 4.99
Error aside, how might we account for this? One option is that the company wants to give the "three pancake consumers" the sense they are receiving a bargain. I suspect, by the way, that the marginal supply cost of an extra pancake is quite small. The extra pancake may also increase your demand for high-margin beverages. What else might be the explanation?
Having been a cook in a breakfast restaurant I’d argue that the marginal cost of pancakes is indeed essentially zero. At least, off-peak. On-peak perhaps not.
Pancake batter is made all at once and the squirted onto the griddle with a machine. The difference between two squirts and three is negligible as is the attention difference associated with monitoring the extra pancake. They will all be flipped at the same time and served at the same time.
So the major cost difference is the batter and even then its only stochastic since you always make more batter than you need. I suppose giving away a free third pancake raises marginally the probability of having to whip up a new batch of mix before the shift is over, but only by the tinniest of amounts.
My guess is that the same list price is to be cute. It costs essentially nothing and it has already produced free publicity.
6 comments
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Monday ~ September 27th, 2010 at 2:09 pm
jazzbumpa
I always believed the whole super-size me trend was underpinned by low marginal cost for all the food-stuffs. For another buck you can eat like pig, instead of just a horse.
Cheers!
JzB
Monday ~ September 27th, 2010 at 9:12 pm
Leigh Caldwell
There’s a well-known behavioural effect called the decoy effect, which this takes advantage of.
Quite possibly the owner of the restaurant has read Predictably Irrational, whose first chapter is all about this phenomenon. The famous example is the Economist’s online versus print versus print-and-online subscriptions.
Details easily findable, for example here.
Incidentally, any sensible restaurant is much more concerned about maximising revenue than minimising cost – since higher revenue lets them spread their high fixed costs across more sales. So the marginal cost of a pancake is unlikely to be very relevant here; the effect of this menu design on revenue will be the determinant of its success.
Monday ~ September 27th, 2010 at 11:25 pm
purple
The labor time and ingredients add up if you are talking volume. Profit is moments in time and in a business with razor thin margins, like restaurants, it does count.
Tuesday ~ September 28th, 2010 at 8:28 am
Eric
Observation # 2:
Pizzeria Uno’s
All you can eat soup 8.79
All you can eat soup with a salad 8.79
Apparently the marginal cost of adding “greens” is also zero. It’s too bad Americans don’t even want to get paid to eat their vegetables.
Wednesday ~ September 29th, 2010 at 12:11 pm
Markus
The missing story here: $5 is too much to pay for two OR three pancakes. My local diners will do that for like $3.
Wednesday ~ September 29th, 2010 at 1:51 pm
Leigh Caldwell
Indeed Markus – this is part of how the decoy effect works. By giving people an easy decision to make (3 pancakes is better than 2) it distracts them from the harder decisions (is $5 for 3 pancakes good value? How good are the pancakes? Do I even feel like pancakes today?)