Expenditure Barriers in Individual Meal Restaurant Ordering

Stephen E. Erfle¹, Jeffrey S. Forrester¹, Alan Xiang Yao²
(1. Dickinson College, USA; 2. Credit Suisse, New York City)

Abstract: Price points are an important consideration in the analysis of optimal pricing. We contribute to this literature by proposing that consumers have total expenditure barriers when purchasing a bundle of items from a seller. We suggest a rationale for, and test the proposition that, individuals set reservation expenditure levels for meal purchases using salient points in multiples of $5. We test this hypothesis using a sample of online orders from 257 restaurants clustered into five restaurant types. Single meal orders were identified by removing transactions having more than one entrée leaving 52,583 transactions for individual level analysis. Orders were analyzed by Payment Type (cash versus credit) × Meal Category (weekday lunch, weekday dinner, weekend lunch, weekend dinner) for each restaurant cluster. Two distributions are examined, final ticket amount and proportion of individuals with a particular base cost that added an additional item of $3 or less to the order. The data demonstrate that final ticket amounts peak just below a multiple of $5 and order adding behavior is greater just above than just below a multiple of $5. Both distributions exhibit strong evidence of expenditure barrier purchasing for dinner purchases and mixed evidence of such purchasing for lunch purchases.

Key words: online ordering; focal points; price points; psychological pricing

JEL codes: M5