Is the Senior Slam Smart?

DESCRIPTIONPhoto: naota

Denny’s breakfast menu in Provo, Utah, offers something that combines demand-based and cost-based price discrimination, but it’s neither.

The “French toast slam” is two pieces of toast and two eggs, two strips of bacon and two sausages for $6.99. The “senior French toast slam” is one piece of toast and one egg, and two strips of bacon or two sausages for $5.49, and you must be at least 55 years old to buy this.

You pay 20 percent less and get half as much; but why restrict it to older people? Denny’s cost saving on the senior slam is probably less than 20 percent. Perhaps the demand elasticity of the 55-plus is higher than that of the younger set, so that explains the price difference as demand-based. Some seniors would prefer the smaller meal and happily pay as much or even more for it, rather than purchase the regular Slam where they would feel compelled to eat everything.

Does Denny’s understand behavioral economics? Why do they charge seniors less? Why this unusual pricing scheme?


Holme

I always wondered why it is considered OK to discriminate by age but wrong to discriminate by ethnicity, religion political observation etc.
What is it about age that justifies discrimination?

Jamm

My guess is that this is a customer-oriented decision. Using my Mother as an example, she was always troubled by the waste associated with big portions that she couldn't eat. Therefore a lower cost option with less food but no waste was something she would value. I think placing value on not wasting food would be a view shared by many seniors.

binna

they sell mediocre coffee for like $2 a smallish mug , and it costs the same to everyone, so once they get the seniors in, maybe they make money on coffee not on meals ?

M.M.

@mohammad:

"it seems people reading this article are confused as to what the author's question is. Daniel is surprised that there is such a difference in price to begin with. He's claiming that a senior citizen would probably prefer the smaller meal, even if it ended up costing the same as the regular meal.

Does Denny's understand its customer's preferences?"

Good question. I wonder which is a bigger concern for seniors:
1) saving the most money
2) wasting the least amount of food

Daniel says: "Some seniors would prefer the smaller meal and happily pay as much or even more for it, rather than purchase the regular Slam where they would feel compelled to eat everything."

He seems to argue that (2) is a higher priority. (At least for the vaguely defined "Some" seniors. Is "Some" in this case a minority or a majority?) My personal guess would be that (1) is the higher priority for most seniors.

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Devika

I feel the same way about kids' menu items!

I have a fairly small appetite, so I would prefer to order a smaller portion rather than eating only half my meal and taking the rest home. Obviously the kids' menu has smaller sizes, and sometimes food items that aren't offered on the regular menu, but there are usually age limits for ordering the items. It's not like the kids' menu offers such a spectacular value (the portion/cost ratio is roughly that of the senior menu), so I can't understand why the menu is only for children. If I want to pay $5 for 2 chicken fingers and fries, as opposed to $9 for 6 chicken strips and a larger portion for fries, I don't understand how the restaurant is negatively affected.

The argument for senior discounts getting seniors through the doors doesn't apply, because obviously children under 10 don't have the same freedom to choose which restaurant they go to. Would parents really be so turned off by a kids' menu that adults are allowed to order from?

Maybe someone out there can help me understand the logic behind the exclusive (and elusive) kids' menu.

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David A. Spitzley

What is it about age that justifies discrimination?
— Holme

I think it's more a form of culturally-dictated social insurance. On the other hand, as people have pointed out seniors may have a combination of preferred portion size, dining time, party size and coffee consumption which is distinct enough from the rest of the marketplace to make the discount a money maker overall, in which case it isn't discrimination so much as an inducement to profitable customers.

Steven Alexander

Not "why this unusual pricing scheme" but "why this pricing scheme is unusual":

Unlike in many states, age is not an illegal basis of place of public accommodation discrimination. Utah Code sec. 13-7-3 .

Should be in Shul

Devika (#25), the logic behind the kids' menu is the same as Eddie's (#17) logic behind the senior's menu---it's whom they bring with them. By the way, most fast-food places I've been to let adults order kids' meals.

daniel

So you claim that the price for the senior meal should be roughly equal to the regular meal because they are probably willing to pay for less? This may be true, but imagine the effect of having both items on the menu.

This suggestion seems to be essentially the ultimatum game, where Denny's would be an almost-rational proposer offering very little to the elderly citizens. Even if they are willing to pay (accept the offer and benefit from what they can get), they may reject simply out of spite, as would happen in an experiment (where by reject here we mean buying the full-size meal, eating only half of it, and enjoying the fact that the rest cost Denny's money).

Valpey

Tiering customers is an effective method of acheiving revenue efficiencies. We see this most apparently in airline ticket sales. Customers are tiered by proximity of purchase date to travel date, seating preferences, day of week, refundability etc. Seniors as a demographic have several dynamics which operate differently from other groups.

Seniors are creatures of consistency and habit. They are more likely to be regulars or to have predictable periodic visits.

Seniors are price conscious. They typically have small fixed incomes and are more likely to have a budget. They may be making a decision to go out once a week for breakfast at IHOP or Denny's. They will make a choice and then make a pattern of that choice.

Seniors eat less food. As pointed out, Seniors require a smaller plate, and will perceive an opportunity to receive a smaller meal at a smaller price as a bonus.

Humans in general like to have exclusive offers. Deals that only they qualify for. It makes the deal seem more valuable.

The cost of the food to Denny's is so small as to be entirely inconsequential and has practically no relationship to the price.

Seniors dine at different times of day. Other efficiencies can be gained as Denny's being kept open 24/7 is made more efficient if patronage is distributed across the spectrum of eating times. By catering to seniors, Denny's can level out the number of tables per hour they are serving to something more uniform.

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Adam

Daniel's point and the resulting comments about price ratios verses cost ratios miss the point. Denny's is trying to maximize profit. Assume one egg and a slice of French Toast cost an incremental $0.50 (I would bet the materials cost less and as other commentators have pointed out, and the costs of incremental labor and overhead are negligible).

Selling the $7 meal, Denny's makes an extra dollar of profit compared to the $5.50 meal ($1.50 incremental sales - $0.50 incremental cost = $1.00 extra revenue). The cost/price ratio is irrelevant. Denny's wants to maximize profits.

By offering a $5.50 breakfast too, Denny's profits can either increase or decrease:

1. If customers planning to buy the $7 breakfast downsize to the $5.50 breakfast (they don't want to gorge themselves), Denny's loses a dollar of profit.
2. However, new customers might be attracted to come to Denny's (or current customers might come more often) with the $5.50 breakfast offered. Denny's would rather sell these people the $7 breakfast, but selling them the $5.50 is better than selling them nothing at all.

For senior citizens (and kids via the kid's menu), Denny's thinks that more people will respond to #2 above than #1. This may be because Senior Citizens eat less on average and/or are more responsive to price. I'd guess both are probably true.

For the 12-55 population, Denny's thinks more people would respond the #1 above than #2 if the $5.50 option were offered.

It's been years since I took an econ class, but this seems like third degree price discrimination. Am I missing something?

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Emily

Nobody goes to a restaurant for the thriftyness of the meal. That would be ridiculous.

ej

Why would anyone want to eat food that is this cheap?

What are the hidden costs? Who is paying them?

BSK

I always present a similar argument to friends. Suppose you could get a slice of pizza for $1. Obviously, getting 100 slices for $10 is a much better deal. But if you only want 1 slice, or really want any amount less than 10 slices, all that extra pizza is likely just going to waste. Spending money to save money never works.

Max

the issue for Denny's is not the profit they make off seniors at breakfast but the profit they make off other meals from seniors who see them as the place to get a deal. has any study been done on the "early specials", those meals that seniors can eat before the regular crowd shows up for dinner?

Bob

Decoy!

Stephen

Well typically "age" is acceptible to discriminate against because of income gaps. Seniors live off "fixed" incomes (or traditionally have), families with large number of children ("kids meals", "children's prices" for movies or amusement parks), etc.

Moving away from senior prices to children's prices, a family of 4 might not go to McDonalds if it were 6 dollars a person, but if the kids meal is 3 dollars, they get a discount. The same is the concept for seniors. "Typically" (or at least "historically", probably not adjusted very well) a senior on retirement is earning a percentage of what they used to. I know my father's retirement package is 60% of the average of his "best 3 years on the job" (so a single year doesn't affect it too drastically).

This means for him to make the same consumption decisions, all prices would have to be 60% less. Now ALL prices aren't 60% less (there isn't a "senior discount" for purchasing a car or TV), so places offering a discount can do slighlty less (as tradeoffs compensate).

But back to the origional post from the start, again not everyone buys the "largest size" in perishables. A whole gallon of milk is typically less than 2 half-gallons cost. Cold (leftover) food typically brings less utility than warm food. If Denny's had "3 pancakes for 3.99, or 3 cold pancakes that have been in the fridge for 2 days for 1.99", I'm pretty sure they'd have people buy the more expensive ones (and probably the cheaper ones as well).

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Brian

Seniors demand discounts, if for no other reason than that all restaurant chains and most of the tourism industry offers them. Looked at that way, this might be Denny's way of offering the discount without making it across-the-board.

Rose

Several commentators seem to think the french toast & egg are the only things that differ between the breakfasts, e.g. #11 ("you get the same amount of pork products in both slams"). But you only get half in the senior slam - bacon OR sausage.

#25, I would imagine this was because, as others have said, the food isn't a major cost. They would rather have you order more and leave half of it because they have the same overheads apart from food. Kids aren't going to go in and eat on their own, so I guess the kids' meal is mainly to draw in families.

Having said that, here in the UK, restaurants will often do you a smaller portion/from kids menu if you ask for it nicely and give a reason.

Gary

I don't see the benefit of offering this to only elder people.... there are so many people who are under the age of 55 who could benefit from saving 20% extra..... the argument of saving by splitting only holds when you are 2 eating there.... what about single people!