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H.G. Parsa

New research from the University of Denver’s Daniels College of Business looks at what motivates a consumer’s willingness to pay. In their paper, “Revenue management, hedonic pricing models and the effects of operational attributes,” published recently in the International Journal of Revenue Management, the researchers investigated whether food quality, service or ambiance had a bigger influence on a customer’s willingness to pay. Overall, consumers were more influenced by restaurant ambiance and service than they were by the quality of the food.

This was the case more significantly for high-priced restaurants. The study finds that, “ambiance has the most dramatic positive impact on price for high-priced restaurants but not so for low-priced restaurants. Service also has a dramatic effect on price for high-priced restaurants.”

Don Bacon

For the study, the researchers collected data from the 2013 Zagat Restaurant Surveys, a secondary source and highly respected international survey organization. The original data source contained more than 5,000 restaurants in the New York City area. After duplications and incomplete data were removed, 2,705 restaurants comprised the total sample for analysis. Using the review standards set by the Zagat organization, restaurants were evaluated on three attributes: food quality, service and ambiance.

Researchers include Don Bacon, professor of marketing; Ali Besharat, assistant professor of marketing; and H. G. Parsa, professor of hospitality management, from the Daniels College of Business at the University of Denver. The other author is Scott Smith, assistant professor from the University of South Carolina.

The study finds that the type of cuisine significantly affects how much consumers pay at restaurants. “For example, most consumers typically are willing to pay more at a French restaurant than at a Chinese or Mexican restaurant,” the study states. “This difference is based on the assumption that French cuisine is inherently more complex and labor intensive compared to Chinese or Mexican cuisines and thus demands higher prices.”

Ali Besharat

Interestingly, the study shows that in the case of high end, fine dining restaurants, the relationship between consumers’ willingness to pay and food quality, service and ambiance is not linear but concave.

“That means consumers’ willingness to pay dramatically increases but only after crossing the threshold point,” says H.G. Parsa, professor of hospitality management and co-author of the study. “In contrast, in the case of low end, quick service restaurants, the relationship between consumers’ willingness to pay and restaurant attributes is convex in nature. That means it increases quickly initially but soon reaches a plateau after the threshold point. Thus, return on investment (ROI) will be minimal after the threshold point in the case of low end restaurants. And, in the case of high end, fine dining restaurants, ROI is minimal until the threshold point is reached. This study clearly demonstrates that all restaurants are not created equal, and high and low end restaurants should be managed differently with reference to food quality, service and ambiance.”