Wednesday, July 20, 2011

Charging for No Shows

Nojo a Japanese restaurant in San Francisco has a policy that if someone in your party doesn't show up $25 is added to your bill. (from Inside Scoop SF)

In response to questions about the charge the owner shows how the policy was the result of perverse incentives when the restaurant would only take reservations for 6
“We started off where we didn’t charge, and people were making reservations for six and only four showed up,” he said. He added that in several cases the diners originally asked for a reservation for four and when they were told only reservations for larger parties were accepted they quickly upped their numbers. In more than one case, only four people showed up. By trying to scam the system, it often meant that seats went unfilled."

Some diners who had to pay the charge responded
"The food was great and I’d gladly go back had I not seen this side of the restaurant. As a party of 5 we were all left with a (pardon the pun) bad taste in our mouth. We amount to 5 Yelp reviews that could have negative consequences for them in some way and I’d think they’d value the business a bit more since they’re the new kid on the block."

So what damage could those 5 reviews do. A recent paper suggests that 1 yelp star is worth about 9% of revenues. I found a nice summary of the paper at a fine theorem.

With 88 reviews and a current average of 3.5, my rough estimate is that 5 1-stars reviews could at most bring down the average rating 1/2 a star (since the average is rounded to the nearest half). So potentially 5 negative reviews could cut around 5% of revenues.

Checking Yelp, shows only 1 reviewer that complained .

So it looks like Nojo may still see economic benefits to keeping the policy.
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1 comment:

Jennie said...

But what if 2 people in your party bail because they decided to have a baby a bit early?!