The Psychology & Economics Behind Buffet Systems

Buffet systems demonstrate the peculiarity that comes with human behaviour- it defies rationality amongst consumers, and over time, has managed to attract the attention of both psychologists and economists. Choice overload, as depicted by Behavioural Economics, doesn’t quite hold true when it comes to buffets. Essentially, in a buffet, people have the freedom to eat whatever they want, with no capped limit in terms of the quantity consumed- all in exchange for a fixed price. People tend to get excited at the sound of an ‘all-you-can-eat- buffet’ primarily since variety is their preferred choice when it comes to selecting their favourite dish vs a broad selection of food dishes. Moreover, when was the last time you heard someone excited about a relatively cheaper buffet offering? If you’re having to think hard, you’re not alone. Humans, by nature, are designed to rate expensive things higher, as compared to any cheaper counterpart. Our sense of value is directly attached to the money that we choose to pay for a product/service.

Consider this example, you’re being given a choice between restaurants A and B. A has a buffet going on for INR 700, whereas B is inviting you through their doors for INR 925. Most of us would opt for the latter (assuming that we have the WTP and resources to go for the same- because let’s face it, Economics is all about assumptions anyway!). Cornell Food Lab, in fact, reports that inexpensive food, besides making people consume less, leads to dissatisfaction among them. Fascinatingly absurd, correct? It is indicative of a sort of self-fulfilling desire, the need rather than the want, to satisfy oneself by defying rational behaviour.

It is important for us to comprehend that, value almost never equates with cost. Customers who end up travelling to an ‘all-you-can-eat’ joint is making the trip ONLY because he/she believes that the amount of food (in quantity terms) that may be consumed shall surpass the amount (in monetary terms) that is being paid for it.  Now, let’s consider Restaurant C’s business. Assuming they charge INR 1000 for the buffet, it is important for it to make sure that the average amount consumed at the restaurant doesn’t exceed the price. Moving along the same train of thought, if this average amount rises to INR 1100, we may expect the overall buffet cost per serving to rise to that same amount. What would this lead to? The customer whose WTP ends at INR 1000 will not find it worthwhile to eat here any further and will look for an alternative within his price-point.

However, a lot more goes behind the inner workings of a buffet system than just our sense of consumption according to our sense of value rather than appetite. The law of diminishing marginal utility is at the center of the whole business model. Human beings, inherently, tend to draw a comparison between marginal benefits and marginal costs. At buffet systems, people are under the impression that they are achieving a bargain meal, and hence it is vital to maximise the utils (amount of utility) derived from the same meal. However, imagine yourself walking into one of your favourite buffet joints with the notion of maximising your money’s worth – the first plate of Kebabs that you go for is going to give you higher utils, as compared to that second plate. Right? The value of extras are variable and not constant; the pleasure of consuming that second plate naturally decreases as compared to your initial bites. And of course, in case you’re unable to finish your portion, you’re not allowed to request for a parcel and bring it back home. Quite an obvious policy in this case, right? So, in conclusion, in a way, it is simply quite difficult to always get your money’s worth when you’re treating yourself to a buffet.

Now let’s dive further deeper into the business model. It’s a numbers game for the restaurant. Beyond leveraging these above concepts, how do such restaurants earn profits? Pay attention to the strategic layout in a buffet system- they often put cheaper, filling-carbs and non-meat dishes towards the beginning of the line. The menu items which have considerably good profit margins on them, are the ones that get their place in this zone. The idea is simple- by the time you reach the other items in menu, your plate is full. Remember, the more rice and vegetable you eat, the more money the restaurant makes!

Another well-known tactic used by such joints is providing smaller than average dinner plates. Of course, right? Moreover, sometimes, drinks are used to offset costs (they aren’t usually part of the buffet price that you pay for). Some restaurants even might opt for lower quality ingredients in the dishes- without you easily noticing it, thus lowering the cost to serve. Apart from these, overhead costs in such a business are lower than the ones at traditional restaurants- you’re essentially paying for the privilege, you serve food to yourself- hence the wait staff requirements drastically go down in these models.

To sum it all up, the restaurant business in today’s times relies heavily on consumer loyalty owing to the stiff competition in this industry. Hence, as a restaurant-owner, it becomes very important for him/her to make sure that the consumers come back through the restaurant’s door (repeat business is vital in this industry), and to make sure that they do, it is essential to make them feel their money’s worth. Choosing the right fixed price for the buffet, also, has a huge role to play in human psychology since it has been proven through past studies, as mentioned before, that cheaper buffets often lead to lesser satisfaction among consumers.

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Srideep has worked with Dr. Duke Ghosh at Global Change Research, on various projects including the Smart Cities Mission India. He has also worked with Dr. Luisa Cortesi (Yale University) during her research in India. Currently, he’s an International Master in Business student at SDA Bocconi. He is an Economics enthusiast.