Menu engineering :a revenue management approach -

Abstract

Revenue Management (RM) are techniques and methodologies applied on certain levers such as pricing or capacity management that allow companies to generate higher revenues. RM started in the airline industry in the late 70s (known as Yield Management) and remains the primary approach to manage capacity. More recently other industries especially in the service sector (e.g. restaurants) have been successful in implementing such techniques. Restaurant revenue management (RRM) is about “selling the right seat to the right customer at the right price and for the right duration” as defined by Kimes (1999). Given the relatively fixed capacity, RRM can be applied through pricing, capacity or duration management. Restaurant profitability has been also studied in the literature through menu engineering. One typical measure of profitability-efficiency used in this literature is Goal Value (GV) that statically ranks items in a given menu. In this project, we discuss the literature around restaurant revenue management and suggest an innovative model that bridges the gap between the two approaches of RRM and menu engineering, by adopting the goal value performance of menu items and connecting it dynamically to items pricing, dining duration, restaurant capacity and turnover. Restaurant costs are relatively constant, so an increase in revenue will ultimately reflect in an increase in net profit. The developed model for menu engineering analysis optimizes items offering and is able to calculate the corresponding optimal prices based on the existing restaurant conditions (like demand and restaurant resources). We conduct a case study analysis to implement our results and obtain managerial insights.