Deciding Whether to Offer “Early-Bird” or “Night-Owl” Specials in Restaurants

Abstract

In a long history of capacity and demand management research in services, it has often been suggested that pricing discounts and specials can increase demand in off-peak periods. We examine this issue in the contexts of restaurants, where the practices of offering discounts to restaurant patrons for dining early or dining late—commonly known as “early-bird” and “night-owl” specials, respectively—exist throughout the world. These specials bridge marketing and operations—marketing from the goal of increasing customer demand in the off-peak periods and operations from the perspective of having to serve those customers. The effectiveness of these specials has yet to be examined. While simulation would be an ideal tool for predicting the specials’ net revenue benefits, it might be impractical for many restaurateurs, so we develop three simple “back-of-the-envelope” type calculations. Restaurateurs could use these calculations when deciding whether to offer a special. In the eight large simulation-based experiments we conducted, we find that it is important to estimate revenue cannibalization from full-fare customers. The calculations prove to be far more accurate for night-owl specials than for early-bird specials. This has important implications for decisions about offering the specials and raises a flag regarding a potential marketing-operations conflict.