How restaurants use behavioral economics to increase bills

Last Sunday, I visited a restaurant in a suburb in Mumbai. I had gone with a couple of friends for dinner. We ordered dinner and despite the person taking the order’s best sales pitch, we resisted any starters/drinks. Firstly, these accessories are costly and secondly, the food is usually wasted.

We didn’t order any Salad but the restaurant served it first. This is usually the practice in most places and you get things like cucumber, onions etc along with the food as complimentary. This brought a smile (I thought it is customer delight) to my friend who loves salads. And then the food arrived and we carried on.

I went home and was about to throw the bill in the bin but something caught my eye. I realised the salad (it was nicely called Green Salad) was included in the bill! On top of that the amount was almost equivalent to the other dishes we ordered.  I mean how can raw vegetables be at the same price as cooked veggies. Clearly the margins are very high in this offering. Nobody seems to have checked the bill properly and we just paid the amount. This wasn’t a customer delight at all.

We should have  checked the bill but it reminded me of an incident longback. It was a similar situation but we checked the bill and asked the restaurant to remove the salad from the bill, The authorities said we include it in the meals as customers usually want it and we should have asked them before eating the salad! I have actually seen this practice at many a places (atleast in North India) and saw it in Mumbai as well. Means it is catching up. Since then, we always ask whether salad is billed or not. Somehow not seeing it in Mumbai, missed it.

It struck me then that the hotels/restaurants are very cleverly using learnings of behavioral economics (not necessarily knowing it though) . In Behavioral economics we have the “default strategy” (see some explanation here as well) where by using appropriate defaults, we can increase the usage.

The best example is-  earlier to enrol in  a savings plan people had to “opt-in” for the plan (as in tick the option) . Most didn’t and savings remained low. The default was “opt-in”. This was changed to “opt-out” where if a person didn’t want the savings plan he had to choose it. The default was a person was enrolled in the savings plan. Again most didn’t and as a result savings increased. This strategy has been used in many organisations and pension savings have increased.

Similarly, earlier the restauarnts asked you whether you wanted the salad or not, the “opt-in” plan. Seeing it not work most of the time, they have been following “opt-out” strategy and if you don’t want the salad you have to tell them. Otherwise, you will be given and billed for the same.

Behavioral economics can be apllied at quite a few places. And the best part is you see people applying it without studying it in any college etc. It is being practiced in many areas. Somehow economic policies continue to ignore it. 

Advertisements

5 Responses to “How restaurants use behavioral economics to increase bills”

  1. Assorted links and excerpts « Says:

    […] Amol Agrawal thinks a restaurant in Powai is using behavioral economics to jack up his bill. […]

  2. Mo Says:

    This is definitely a case of overthink. This is just bad business.

  3. ramblingperfectionist Says:

    Congrats, uve been linked on the Nudge blog 🙂 … and I don’t think its necessarily bad business, unless they’re rude about it. In fact, if they put a little sign somewhere on the table/around saying the salad isn’t complimentary ( phrased a little obtusely, i guess) they’d be fully covered.

  4. Ayan Says:

    Boss…assumption is the mother of all screw-ups!

    I don’t know any Economics; and I am perennially bad at behavior too…so what is this halwa, I don’t know…

    Lessons to (illiterate) me:
    1. Always check the bill! Reading too many research reports in a day might force you to want to read less at the end of the day. With our high batteries, chances are higher. After all, how much can any human read? 😉 you are fast turning into the next humanoid with all that knowledge but ….but next time: you might want to read a report less in lieu of the exorbitant bill!

    2. They assumed. So they screwed up. Argue back and said that it is their responsibility to point it out that “most” customers “expect” it. Wonder if it can be proved statistically or did they do a market survey. Can they back that statement? As a customer, I don’t do a market survey of what other customers order! The proof of burden is on them! Sirjee, make sure you get what you want, no more no less. Learn to be a hard customer to get average service. Complimentary must be complimented but not forced. Can this be a case of 420?

    3. The restaurant/hotel (or any service) biz is strong on reputation (some educated gurus / pandits call it ‘branding’)! Threaten to mar their reputation and their misdoings and see the results.

    Rule of three prevents me to post more points…the rest of the arguments (and I am sure Dr. Agarwal will have plenty to offer) can be taken offline.

    Cheers (let it flow)

  5. Economics of idlis « Mostly Economics Says:

    […] had earlier pointed how restaurants nudge you to buy salads ahead of meals (which was not really […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: