New Cornell Hospitality Report Finds that Guests Focus on Prix Fixe Service Charges

Nov 09, 2010

Contact:  Glenn Withiam, 607.255.3025, grw4@cornell.edu

FOR IMMEDIATE RELEASE:
New Cornell Hospitality Report Finds that Guests Focus on Prix Fixe Service Charges
 
High restaurant service charges can interfere with guests' perceptions of getting a good deal

Ithaca, NY, November 9, 2010 – When a restaurant offers a prix fixe menu that includes a high percentage service charge, managers might want to consider rolling that charge into a single menu price, according to a new study from the Cornell Center for Hospitality Research. Guests make a complex mental calculation regarding prix fixe service charges, as explained in the report, "The Impact of Prix Fixe Menu Price Formats on Guests' Deal Perception," by Shuo Wang and Michael Lynn. Wang is a Ph.D. candidate at the Cornell School of Hotel Administration, where Lynn is the Burton M. Sack '61 Professor in Food and Beverage Management. The report is available at no charge at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2010.html.

"Many U.S. restaurants use the prix fixe approach, particularly for special tasting menus and holiday meals," said Wang. "What we wanted to know is whether those restaurants should present their service charges as a separate amount or roll the charge into a single price. It's possible that offering a single price would seem too expensive, but it's also possible that imposing a separate service charge that is 'too high' would cause a negative reaction."
 
Based on their survey of 500 U.S.-based respondents, Wang and Lynn determined that, on average, U.S. restaurant guests are assuming a 15-percent service charge. When the service charge was stated separately and it was over 15 percent, the respondents considered that a bad value. On the other hand, the respondents thought that a 12-percent added charge was a good deal. So the decision of whether to state the service charge outright might depend on the size of the service charge—with high charges rolled into the price but low charges stated separately.

"Perhaps the key thing to remember here is that guests' value calculations are based on the most easily evaluated components of the dining experience," Lynn concluded. "The existence of a standard 15-percent service charge makes service charges easier to evaluate than menu prices. As a result, restaurant guests seem to focus on the service charge as much as or even more than they do on the price of the meal itself."

Thanks to the support of the CHR partners listed below, all publications posted on the center's website are available free of charge, at www.chr.cornell.edu.

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 81 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.
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