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School of Hotel and Tourism Management, The Hong Kong Polytechnic University, 17 Science Museum Road Tsim Sha Tsui East, Kowloon, Hong Kong
School of Hospitality Management, The Pennsylvania State University, 201 Mateer Building University Park, PA 16802, United States
School of Hospitality Management, The Pennsylvania State University, 201 Mateer Building University Park, PA 16802, United States
d
Beijing Union University, Beijing, China
b
c
a r t i c l e
a b s t r a c t
i n f o
Keywords:
Restaurant revenue management
Fairness perception
Perceived scarcity
Capacity limitation
Commodity theory
Revenue management (RM) has become an indispensable strategic tool in capacity-constrained service
industries whose total revenue often depends on the abilities of rms to use capacity efciently. The
restaurant business is similar enough to traditional RM industries such as hotels and airlines, but restaurants also have unique characteristics that pose special challenges to restaurant operators. Among the
unique characteristics of restaurants are the relative exibility of service capacity and the exible duration of a meal, which are important subjects to be considered in the implementation of RM practices. In
addition, when a restaurant operator practices a demand-based variable pricing policy to adjust demand,
the magnitude of the price differences may inuence fairness perceptions of the policy. Based on the commodity theory and the equity theory, this study hypothesizes that two main effects, namely, perceived
scarcity of capacity in a restaurant and price differences, inuence the perceived value of a restaurants
offerings and the fairness perceptions of a restaurants RM practices. As hypothesized, the negative effects
of price difference on fairness perceptions are supported by the results. However, ndings suggest that
perceived scarcity of capacity inuences neither the perceived value of a restaurants expected offering
nor the fairness perceptions for a restaurants RM practices.
2013 Elsevier Ltd. All rights reserved.
1. Introduction
Revenue management (RM) has become an indispensable
strategic tool in capacity-constrained service industries whose total
revenues often depends on the abilities of rms to use capacity
efciently. As the service provider reaches capacity, limitations
restrict ability to serve additional customers. A restaurant, for
example, may have insufcient seating capacity during the peak
midday period typically for serving lunches. Indeed, most service
providers face some type of capacity constraint (Desiraju and
Shugan, 1999) and the combination of perishability and capacity
constraints encourage service rms to focus on efciently capitalizing on existing capacity.
The capacity of a service rm is dened as the highest quantity of output possible in a given time period with a predened
level of stafng, facilities, and equipment (Lovelock, 1992, p. 26).
Measurement of capacity involves both physical and non-physical
aspects. For example, physical capacity may be the number of seats
(for airlines) and the number of rooms (for hotels). Non-physical
The restaurant sector is sufciently similar to hotels and airlines operations that RM practices are applicable for strategic
planning. However, restaurants also have unique characteristics
that pose special challenges, requiring operators to be creative in
developing appropriate RM strategies. Among the unique characteristics of restaurants are the relative exibilities of capacities
and the exible durations of meals, and these represent important subjects for consideration when implementing RM practices.
Unlike airlines and hotels, restaurants have somewhat more exible capacities, for example, a restaurant may have available outdoor
patios for extra seating during pleasant weather and peak patronage periods. Moreover, the total available seating capacity per day
in a restaurant is not xed since customers seating durations are
unpredictable. Restaurant operators may need to understand how
customers perceive the capacity limitations of restaurants. This
knowledge is important because customers are mostly familiar
with RM practices in traditional RM industries (e.g., airlines or
hotels) with xed capacities; perceptions of the relatively exible
capacity of restaurants may inuence customers perceptions of RM
practices.
In addition, when a restaurant operator practices a demandbased variable pricing policy, the magnitude of the price differences
may inuence fairness perceptions of the policy. The responses of
customers to restaurants RM practices are critical to successful
application of RM in restaurants because revenue maximization is
only attainable when customers accept the RM practices without
dissatisfaction. Previous literature suggested that perceptions of
value (e.g., Dodds, Monroe, and Grewal, 1991; Grewal, Monroe, and
Krishnan, 1998; Monroe, 1990; Rao and Monroe, 1989) and fairness
in service exchanges (e.g., Maxwell, 2002) are important factors
for sustaining customer satisfaction, positive behavioral intentions,
and consequently, long-term protability. To sustain customer satisfaction and to maintain positive relationships with customers,
and for successful implementation of RM, customers perceptions of
RM, such as perceptions of value and fairness, are necessary considerations, coinciding with the characteristics of industries (Chiang
et al., 2007: Heo and Lee, 2009).
RM has had application to the restaurant industry, but prior
research offered a limited number of specic strategies for implementation (Kimes et al., 1998; Susskind et al., 2004). Restaurants
offering promotions, such as happy hour and early bird specials, only focus on discounts during low-demand periods. The core
element of RM is to charge premium prices during high-demand
periods based on capacity limitation. However, the potential for
customers dissatisfaction have discouraged restaurant operators
from applying various types of RM approaches, including demandbased pricing (Kimes and Wirtz, 2003a). Therefore, the current
study focuses on customers perceptions of a scarcity of capacity
in restaurants and customers varying reactions to price differentials in terms of the perceived value of a restaurants offerings and
the perceptions of RM practices fairness.
2. Literature review
2.1. Restaurant revenue management
Capacity utilization is a major concern for restaurants when
attempting to maximize revenue because restaurants have, by
nature, relatively limited space, relatively high xed costs, and no
inventory opportunities. However, restaurants unconcerned with
limited space, such as takeout restaurants that market the meal
without associated space and time, may have limited interest for
applying RM to maximize revenues. Kimes (1999) argued that the
principles of RM can apply to restaurants given that the unit of
sale in restaurants is the time required for service rather than just
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318
affects consumers perceptions and evaluations of the attractiveness, desirability, expensiveness, quality, and taste of a product. For
example, Verhallen (1982) found that people showed greater preference for a recipe book perceived to be scarce. Lynn (1989) also
found that artwork perceived as scarce was more desirable than
paintings perceived to be readily obtainable. Recently, Aggarwal
et al. (2011) tested the relative effect of two types of scarcity messages (limited-quantity and limited-time) on customers purchase
intentions and found that the limited-quantity messages are more
effective than limited-time messages in inuencing the purchase
intentions of consumers.
Several researchers examined the inuences of perceived
scarcity on customers perceptions of pricing. Lynn and Bogert
(1996) examined the effect of scarcity on an anticipated price
appreciation and found that scarcity increased the anticipated price
appreciation of collectible products. They argued that although
scarcity does not affect the actual potential of a product for price
appreciation, news reports of scarce collectibles that have appreciated in value might lead people to develop naive economic
theories and associate scarcity with price appreciation. Suri et al.
(2007) examined how perceived scarcity inuences consumers
processing of pricing. During scarcity, consumers perceived quality and monetary sacrice showed different patterns in responses
that depended on the relative price level and motivation of consumers to process information (Suri et al., 2007). The study found
that a high price along with high-motivation, perceived quality
and value as well as purchase intentions increased during scarcity,
supporting the hypothesis that motivation to process information
moderates the effects of scarcity on information processing. The
researchers argued that an increase in perceived value of an offer
depends on whether or not application of pricing serves a greater
role to evaluate perceived sacrice or perceived quality.
However, a few researchers argued that the appeal of scarcity
does not necessarily result in favorable perceptions for the scarce
product because potential purchasers scrutinize an offer more thoroughly (Brannon and Brock, 2001; Brock and Brannon, 1992; Inman
et al., 1997). A liberalization of the commodity theory proposed by
Brock and Brannon (1992) included three modications: (1) extension of the domain from any conveyable and possible object to traits
and skills, (2) extension to negative objects, and (3) identication
of cognitive elaboration as a mediator between scarcity and evaluative polarization. Brock and Brannon (1992) argued that when
negatively valenced objects, for which an individual might have a
clear aversion, are scarce, the original notion of usefulness is discarded. Moreover, a negatively valenced experience gains greater
aversive perceptions to the extent of its rarity.
Based on the commodity theory, the ndings of the majority of
the research suggest that when individuals perceive a scarce product as unique or valuable, scarcity will elicit positive feelings for the
product. From the positive perspective of scarcity, the commodity
theory should predict an increase in attractiveness of a restaurants scarce capacity and perceived value of the dining experience.
Therefore, this study proposes the hypothesis:
H1: The perceived scarcity of capacity in a restaurant will positively inuence the perceived value of that restaurants expected
offering.
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320
and Winer, 1995). According to the adaptation-level theory, assessments of stimuli differences depend on the magnitude of the
standard against which the assessments are made, and behavioral
responses of individuals to stimuli represent modes of adaptation to environmental and organismal forces (Helson, 1964). In
a pricing context, the adaptation-level theory suggests that price
perceptions rely on the actual price and on the reference price or
adaptation level of the customer. Furthermore, the adaptation level
is a function of the magnitude of a series of stimuli, the range of
stimuli, and the dispersion of stimuli from the mean.
Second, the assimilation-contrast theory (Sherif and Hovland,
1958) states the existence of regions that are internal to peoples perceptual judgments, namely, latitude of acceptance, latitude
of rejection, and latitude of non-commitment. A new stimulus
that falls within the latitude of acceptance may be acceptable,
and consequently assimilate, while the stimulus that falls within
the latitude of rejection is unacceptable or objectionable. In the
context of price evaluations, latitude of acceptance consists of
an acceptable price range encompassing a reference point; latitude of rejection translates into an unacceptable price range,
and latitude of non-commitment constitutes a range of neither
acceptable nor unacceptable prices. Thus, the assimilation-contrast
theory suggests that the price differences falling within consumers acceptable price ranges are either accepted or assimilated
(Blair and Landon, 1981; Liefeld and Heslop, 1985). In other
cases, when price differences fall outside the acceptable price
range, they are contrasted or rejected (Monroe and Petroshius,
1981).
When a restaurant charges different prices for the same menu
on different days of the week, consumers may perceive the quality of food and service to be the same, but the prices are different.
As a result, as the price difference increases, the perceived value
will decrease. The price difference will also have a negative inuence on fairness perceptions toward RM practices in restaurants.
The assimilation-contrast theory suggests that price differences
outside the acceptable range are contrasted or rejected (Monroe
and Petroshius, 1981). Therefore, if the price during high-demand
periods falls outside the acceptable range, that conditions may negatively affect the perception of fairness toward the restaurants RM
practices. Therefore, this study proposes the hypotheses:
H3: The price difference between low-demand and highdemand periods will negatively inuence the perceived value of the
restaurants expected offerings. In other words, the higher the price
difference is, the lower is the perceived value of the restaurants
expected offerings.
H4: The price difference between low-demand and highdemand periods will negatively inuence perceptions of fairness of
the restaurants RM practices. In other words, the higher the price
difference is, the lower the perception of fairness perceptions of the
restaurants RM practices.
In addition, Brock and Brannon (1992) argued that consumers
tend to assume scarce things are more expensive than available
ones, and that expensive things are often assumed to be of better quality and reect higher status than inexpensive commodities.
Although Brock and Brannon did not empirically test the relationships, the study proposed perceived expensiveness as a moderator
of scarcity effect. Therefore, the positive relationship between
perceived scarcity and perceived value of the restaurants expected
offerings may be stronger when price differences between lowdemand and high-demand periods are large than when price
differences are small. In addition, the positive relationship between
perceived scarcity and perceptions of fairness of the restaurants
RM practices may be stronger when the price differences are large.
Therefore, the current study proposes hypotheses:
H5: The price difference between low-demand and highdemand periods will moderate the relationship between perceived
Table 1
Experimental design.
Constructs
Levels
PS (perceived scarcity)
No
Low
High
PD (price difference)
10%
20%
30%
40%
and Kimes, 2007). Wirtz and Kimes (2007) suggested that as customers become more familiar with RM practices, the unfairness
perceptions decline, over time, because familiarity tends to adjust
customers reference-points for transactions and prices, resulting
in lower or even no impact on perceptions of pricing fairness. Thus,
the familiarity of customers with RM practices (that is, a demandbased pricing policy: weekdays-versus-weekends) in restaurants
was included as another covariate in the factorial ANCOVA. Last,
Beldona and Namasivayam (2006) examined gender differences
in relation to perceived price fairness and subsequent repurchase
intentions. Beldona and Namasivayam found that females perceptions of fairness were signicantly lower throughout all pricing
scenarios which framed both discount and surplus situations.
Accordingly, the model in this study incorporates gender as the
third covariate.
The survey, initiated with a brief introduction to the nature of
the study, proceeded with participants reading scenarios. The questionnaire includes two questions for perceived scarcity of capacity
and one question for perceived price difference. Second, the participants answered questions regarding their perceived value of
the restaurants expected offerings and their fairness perceptions
for the variable representing demand-based pricing policy (procedural fairness) and the price difference (distributive fairness). For
the nal portion, questions measured respondents tolerance for
crowding and familiarity with RM practices in restaurants. Demographic questions such as gender, age, ethnicity, and education
concluded the survey.
3.2. Pretest
The questionnaire underwent a pilot test, which involved 66
undergraduates in a hospitality program at a university on the east
coast of the United States. After excluding unqualied and/or inconsistent responses, 55 responses (83.3%) remained for analysis of the
pilot test. Among the respondents, 18.2% were males, and 81.8%
were females. Assessment of the scales included checks for internal consistency and unidimensionality (Traub, 1994). The average
variance extracted (AVE) for each construct was above the recommended value of .50 (Fornell and Larcker, 1981). For all constructs,
reliability was above the suggested cut-off point of .70 (Nunnally,
1978). The t-test revealed that respondents perceived price differences between weekdays and weekends for 10% vs. 40% to be
different (t-value: 5.09, p-value: .00). However, post hoc analysis shows that manipulations for perceived scarcity of capacity
did not elicit responses consistent with the hypothesis. A revised
description, The tables are always unavailable on Friday and Saturday claried the notion of perceived scarcity of capacity in the
High scarcity situation. The description of a restaurant in the
Low scarcity situation had similar revision from The tables are
sometimes unavailable on Friday and Saturday to The tables are
normally but not always available on Friday and Saturday. Another
pre-test, using the edited questions, evaluated the revised manipulations for perceived scarcity of capacity, resulting in appearance
of signicant differences in perceived scarcity of capacity among
the three scenarios.
3.3. Data collection
The nal data, collected during May 2010, represent subjects
from a general population, who requested tourism information for
Arizona, Florida, and Texas. Twelve thousand emails were divided
into twelve groups and allocated to each of the twelve scenarios.
Each respondent was asked to participate in one scenario (scarcity:
No, Low, or High; price difference: 10%, 20%, 30%, or 40%). Two
reminder emails, after 7 days and 15 days from the initial invitation,
attempted to enhance the rate of response. From the 12,000 emails,
321
Table 2
Samples demographics.
Male
Female
2029
3039
4049
5059
60 and over
US$ 20,000 or under
US$ 20,00135,000
US$ 35,00150,000
US$ 50,00175,000
US$ 75,001100,000
US$ 100,001 or more
High school or Less
Associate
Bachelors degree
Masters
Doctorate degree
Caucasian
African American
Hispanic
Asian
Other
Gender
Age
Income
Education
Ethnicity
Frequency
Percentage
119
362
27
75
119
148
112
31
42
77
102
107
104
116
105
158
84
18
419
19
8
17
20
24.7
75.3
5.6
15.6
24.7
30.8
23.3
6.7
9.1
16.6
22.0
23.1
22.5
24.1
21.8
32.8
17.5
3.7
86.7
3.9
1.7
3.5
4.1
Table 3
Manipulation checks for perceived scarcity.
Level
PS1
PS2
High
Low
No
No
Low
High
N
173
167
165
165
167
173
2.20
2.33
5.83
5.60
2.66
4.57
322
Table 4
Manipulation check for perceived price difference.
PD
Level
10%
20%
30%
40%
116
124
121
133
4.10
5.75
5.96
5.04
Note: PS1 and PS2 are two questions to check manipulation of perceived scarcity.
Measurement items
Perceived value
PV1
PV2
PV3
PFR1
PFR2
PFR3
PFR4
PFP1
PFP2
PFP3
PFP4
Mean
SD
4.23
3.49
3.58
2.97
3.07
3.32
3.18
3.12
3.17
3.53
3.26
1.43
1.33
1.41
1.68
1.73
1.82
1.67
1.62
1.69
1.77
1.67
Internal consistency
Cronbachs alpha
Factor analysis
Factor loading
Variance explained
.74
.91
.89
.58
.92
.92
.93
.94
.78
.89
.94
.93
.73
.88
68.0%
78.7%
76.3%
Table 6
Factorial ANCOVA results for perceived value.
Source
df
Mean square
Sig.
Noncent. parameter
Observed powerb
Corrected model
intercept
CW
FAM *
Gender
Scarcity
Price
Scarcity Price
Error
Total
Corrected total
69.88a
43.68
2.61
49.04
2.95
2.89
3.86
2.17
328.71
4849.67
398.59
11
1
1
1
1
2
2
4
301
313
312
6.35
43.68
2.61
49.04
2.95
1.45
1.93
.54
1.09
5.82
40.00
2.39
44.90
2.70
1.33
1.77
.59
.00
.00
.12
.00
.10
.27
.17
.74
.18
.12
.01
.13
.01
.01
.01
.01
63.99
40.00
2.39
44.90
2.70
2.65
3.53
1.99
1.00
1.00
.34
1.00
.37
.29
.37
.17
df
Mean square
Sig.
Noncent. parameter
Observed powerb
Corrected model
intercept
CW
FAM*
Gender*
Scarcity
Price*
Scarcity Price
Error
Total
Corrected total
192.91a
67.92
2.92
14.40
18.26
2.93
11.78
5.44
390.63
3903.42
583.53
11
1
1
1
1
2
2
4
301
313
312
17.54
67.92
2.92
140.40
18.26
1.46
5.89
1.36
1.30
13.51
52.33
2.25
108.18
14.07
1.13
4.54
1.05
.00
.00
.14
.00
.00
.33
.01
.38
.33
.15
.01
.26
.05
.01
.03
.01
148.65
52.33
2.25
108.18
14.07
2.26
9.07
4.19
1.00
1.00
.32
1.00
.96
.25
.77
.33
Price difference
F-value
P
*
10%
20%
30%
40%*
1.31
.27
.20
.82
.55
.58
3.11
.05
5. Discussion
Table 9
Post hoc analysis of the effects of perceived scarcity on perceived value for the 40%
price difference scenario.
Subset for alpha = 0.05
Low
No
High
35
35
35
3.31
3.74
3.74
3.94
Table 10
ANOVA analysis of the effects of perceived scarcity on fairness perceptions.
Price difference
F-value
P
*
10%
20%
30%*
40%
.21
.89
.67
.52
3.53
.03
.02
.98
Table 11
Post hoc analysis of the effects of perceived scarcity on fairness perceptions for the
30% price difference scenario.
Subset for alpha = 0.05
Low
No
High
323
35
35
35
2.62
2.72
2.72
3.33
324
decline when attributing scarcity to high demand. Thus, in the current study, customers perceptions of a dining experience at a casual
dining restaurant (whether conspicuous consumption or not) may
affect the results. If the respondents regarded having dinner at the
casual dining restaurant as conspicuous consumption, scarcity due
to high demand may not affect attitude.
Regarding the price difference factor, the current results support the negative effect of the price difference on customers
fairness perceptions regarding a restaurants RM practices. These
results suggest that as the perceived price difference between highdemand and low-demand periods increases, and customers tend to
perceive a restaurants RM practices to be unfair. However, inconsistent with the hypothesis, the results of the present study do not
support the negative effect of the price difference on customers
perceived value for a restaurants offerings.
The ndings of this study may provide restaurant managers
with some practical implications. Based on the commodity theory, a
restaurants manager may prefer a marketing message that emphasizes the restaurants full capacity during high-demand periods.
However, based on this studys ndings, such information may
not positively affect customers perceptions regarding the value
of the restaurants offerings or the fairness of the restaurants RM
practices. In such a case, the manager may instead focus on other
features or information in advertising. Based on the nding of this
study, a manager may need to avoid sharing information of available discounts that differentiate high- and low-demand periods
with customers who plan to dine or are dining during high-demand
periods because such information may discourage patronage; customers may likely form a negative perception of the restaurants RM
practices. An important issue for future research in this regard is to
discover the optimal level for price differences at which customers
will not consider the price as unfair, thus allowing restaurants to
maximize revenues.
This study performed several additional analyses and found
that for the 40% price difference scenario, the perceived scarcity
of capacity (between high and low) positively affects the perceived
value of a restaurants offerings. In other words, customers who
perceive a restaurants capacity as very scarce consider that restaurants offerings more valuable compared with the customers who
perceive a restaurants capacity as less scarce when the restaurant provides a 40% discount during weekdays. This nding may
suggest that the scarcity factor plays a signicant role only when
substantial and not marginal price differences are present between
low- and high-demand periods. A restaurant manager whose
restaurant enjoys full capacity during high-demand periods may
want to consider heavily discounting menu offerings only during low-demand periods to enhance customers perceived value of
the restaurants offerings. This suggestion arises from the notion
that when the restaurant provides a marginal discount during
low-demand periods, the restaurants high occupancy during highdemand periods (i.e., high scarcity of capacity) does not positively
affect customers perceptions of value.
From exhaustive research, this study is the rst to apply commodity and equity theories to the RM context, more specically
for the context of restaurants. Although the results do not support
the hypotheses regarding perceived scarcity of capacity, this study
raises an important issue of consumers perceptions of scarcity of
service resources in the context of restaurants RM. In addition, previous RM research has provided little investigation of the effect of
the price differences between low- and high-demand periods on
perceived value and fairness perceptions, and the current study
lls this gap in the literature. Previous RM literature also found
that familiarity with RM practice is a considerable factor for fairness perceptions of RM, and this study conrms the importance
of a respondents familiarity with RM practices in the restaurant
context.
restaurants for you, and you found one restaurant which is located
in convenient location for you.
A.1. No scarcity 10% price difference
When you mentioned the restaurant, your friend said the tables
are always available on Friday and Saturday. You searched the
restaurants website to get additional information such as menu
offering and parking facilities. You found the restaurant provides
various menus that your family members like to have and the average check for dinner is about $30$40 per person. But you found
prices varied by day of the week, although the menus are the same.
The prices of menus during weekdays (SundayThursday) are 10%
lower than weekends (FridaySaturday)
A.2. Low scarcity 20% price difference
When you mentioned the restaurant, your friend said the tables
are normally available, but not always on Friday and Saturday.
You searched the restaurants website to get additional information such as menu offering and parking facilities. You found
the restaurant provides various menus that your family members
like to have and the average check for dinner is about $30$40
per person. But you found prices varied by day of the week,
although the menus are the same. The prices of menus during weekdays (SundayThursday) are 20% lower than weekends
(FridaySaturday)
A.3. High scarcity 30% price difference
When you mentioned the restaurant, your friend said the tables
are always unavailable on Friday and Saturday. You searched the
restaurants website to get additional information such as menu
offering and parking facilities. You found the restaurant provides
various menus that your family members like to have and the average check for dinner is about $30$40 per person. But you found
prices varied by day of the week, although the menus are the same.
The prices of menus during weekdays (SundayThursday) are 30%
lower than weekends (FridaySaturday)
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