International Journal of Hospitality Management 39 (2014) 11–20

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International Journal of Hospitality Management

journal homepage: www.elsevier.com/locate/ijhosman

Determinants of a restaurant average meal price: An application

of the hedonic pricing model
Eun Soon Yim a,1 , Suna Lee b,∗ , Woo Gon Kim c,2
a
College of Hospitality and Tourism Management, Sejong University, 98 Kunja-Dong, Kwangjin-Gu, Seoul 143-747, Republic of Korea
b
Dedman School of Hospitality, The College of Business, Florida State University, 288 Champions Way, UCB 2100, Tallahassee, FL 32306-2541, United States
c
Dedman School of Hospitality, The College of Business, Florida State University, 288 Champions Way, UCB 4116, Tallahassee, FL 32306-2541, United States

a r t i c l e i n f o a b s t r a c t

Keywords: This study applies the hedonic pricing model to examine important attributes influencing average cus-
Hedonic pricing model tomer meal prices in restaurants in Seoul, Korea. Data from 185 restaurants were collected via Internet,
Restaurant meal price phone interviews, site inspections, and ZAGAT Survey, and analyzed using OLS regression. The log-linear
Electronic word-of-mouth (e-WOM)
model was found to be most suitable for the data, and the proposed hedonic model accounted for as much
ZAGAT Survey
as 73.7% of the variation in meal prices. The results indicate that food quality and décor were important
determinants of restaurants’ average meal prices while service was not. Furthermore, the study found
that a restaurant’s location within the building (1st floor), the types of cuisine served (Japanese and Ital-
ian), parking facilities, private dining settings, franchising, and the number of blogger reviews (e-WOM)
have significant effects on restaurants’ average meal prices. The model will provide useful information
for restaurateurs in deciding effective menu pricing strategies.
© 2014 Elsevier Ltd. All rights reserved.

1. Introduction When evaluating restaurants’ operations, managers commonly

Effective pricing is a powerful tool to gain customer atten-
tion and increase sales when it is done correctly (Shoemaker
et al., 2005). From the customers’ perspective, the price of a
product and/or service is a proxy for quality; therefore, manage-
ment must determine pricing strategies very carefully (Raab et al.,
2009; Zeithaml et al., 2006). Setting the right prices for hospital-
ity products is a critical management decision since it leads to an
organization’s profitability and long-term success. According to the
NPD Group (2013), there were approximately 616,008 restaurants
in the US as of Fall 2012. This number is a 7% increase from Fall 2011.
For the last three decades, the US restaurant industry has grown
by an average rate of 2–4% every year (www.restaurant.org; Parsa
et al., 2010). Unfortunately, research has also found that of those
restaurants, approximately 30% fail to survive during the first year
of operation. The reasons for failure include a bad economy, ineffec-
tive or insufficient marketing, and bad managerial or operational
decisions including pricing decisions (Parsa et al., 2005, 2010).
∗ Corresponding author. Tel.: +1 850 645 9311; fax: +1 850 644 5565.
E-mail addresses: esyim@sejong.ac.kr (E.S. Yim), suna2@yahoo.com,
slee13@fsu.edu (S. Lee), wkim@cob.fsu.edu (W.G. Kim).
1
Tel.: +82 2 3408 3173; fax: +82 2 3408 3173.
2
Tel.: +1 850 644 8242; fax: +1 850 644 5565.
use average guest checks as one of the most important measures
of efficiency of operations (Susskind and Chan, 2000). Since menu
pricing directly affects guest check averages, it is crucial for man-
agement to examine effective pricing strategies. Understanding
customer perceptions and salient features affecting guests’ aver-
age spending is also an important task for restaurant operators. Due
to the fact that restaurant products consist of a variety of charac-
teristics, including food, services, décor, accessibility, etc. (Fogarty,
2012; Susskind and Chan, 2000), it is difficult for restaurant man-
agement to develop optimal menu pricing. To resolve this issue,
managers can adopt the hedonic pricing model to have a better
understanding of pricing elements.
The hedonic pricing model has been applied to industries such
as automobiles, real estate, and hotels. Since it explains a combina-
tion of characteristics of different products/services, the hedonic
pricing model can be used to explain the pricing structure of
restaurant products. Hedonic pricing makes it easy to distinguish
which characteristics are valued more or less and to what extent. A
number of hospitality studies have employed the hedonic pricing
model, and their goals have focused on understanding important
attributes affecting hotel room rates (Andersson, 2010; Espinet
et al., 2003; Rigall-I-Torrent and Fluvià, 2011; Zhang et al., 2011),
ski lift ticket prices (Falk, 2008), or other tourism-related prod-
uct pricing (Clewer et al., 1992; Sinclair et al., 1990). However,
the use of hedonic pricing in restaurant products has been very
limited.

0278-4319/$ – see front matter © 2014 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.ijhm.2014.01.010
12 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20
Despite the significance of pricing decisions in restaurants’
success, pricing has received inadequate attention in the area of
restaurant studies (Raab et al., 2009; Shoemaker et al., 2005), and
the application of hedonic pricing in determining menu prices has
been discussed in only a few studies. In applying the hedonic pri-
cing model, the objective of this study is to explore important
restaurant attributes, including tangible, intangible, and location-
specific variables that affect a restaurant’s average meal price.
Previous research has identified influencing variables, such as
service, food quality, décor, location, and parking; however, the
determinants of hedonic pricing models in the previous literature
were not comprehensive enough to cover restaurant industry-
specific characteristics. In order to fill the gap in the previous
restaurant pricing studies, this study develops a holistic hedonic
pricing model, including key restaurant characteristics (e.g., cui-
sine type, parking), restaurant location measured by the specific
floor of a multiple-story building, and electronic word-of-mouth
(e.g., the number of blogger reviews) regarding the restaurants. By
analyzing the attributes and factors that matter to customers, this
study will provide useful information to restaurant management
about menu pricing strategies.
The significant theoretical contribution of this hedonic model
arises from adding electronic-WOM (e-WOM) and specific loca-
tional characteristics as determinants of pricing strategies.
Regardless of the fact that e-WOM (i.e., online reviews) has become
more influential than traditional WOM in patronage intention of
restaurant guests, little research has included online reviews as an
important determinant of pricing. Rather than traditional measures
of location, such as downtown, suburban, this study identifies more
restaurant-specific determinants of meal pricing, such as which
floor a restaurant is located on inside a multiple-story building.
This specific measure of locational characteristics is relevant when
restaurants are located in metropolitan areas such as New York
City, Tokyo, Hong Kong, and Seoul. In addition, seemingly important
determinants, such as parking facilities and availability of private
rooms, are included in the hedonic pricing model.
2. Literature review
2.1. The hedonic pricing model
The hedonic pricing model treats goods and services as a group
of different characteristics (Rosen, 1974; Triplett, 1969). For exam-
ple, when a customer makes a hotel reservation, attributes that
he/she looks for include not only the price of the hotel, but the loca-
tion of the hotel, the size of the hotel, and the amenities available to
guests. The price a customer pays for a room includes a number of
characteristics and benefits. Court (1939) first studied the pricing
structure of products consisting of an array of characteristics and
called it “hedonic pricing”. These composites of characteristics of
goods and services are not traded individually, but as bundles only
(Lee, 2008).
Rosen (1974) introduced the hedonic pricing model, and it
has been adopted by researchers in various industries. The model
assumes that consumers value various attributes in different ways
and that the prices consumers pay for products are a function
of their immanent utility-bearing characteristics (Rosen, 1974;
Thrane, 2005, 2007). Therefore, hedonic pricing is established in
the form of a function. The general specification for a hedonic price
equation is given as:
P = f (Xi)
where P is a price and Xi are various attributes of a product/service.
The model includes linear, log-linear, double log-linear, and
semi-log forms, and all these forms of hedonic price models are
regarded as ordinary least square regression models.
2.2. Applications of hedonic pricing in the hospitality industry
A number of studies have employed the hedonic pricing model
in various industries, including automobiles (Court, 1939; Griliches,
1961), real estate (Sheppard, 1999), and art (Chanel et al., 1996). In
hospitality research, the hedonic pricing model has been applied
in hotels (Bull, 1994; Israeli, 2002; Monty and Skidmore, 2003;
Schamel, 2012; White and Mulligan, 2002; Wu, 1999; Zhang et al.,
2011), tourism (Sinclair et al., 1990), ski resorts (Falk, 2008), restau-
rants (Falvey et al., 1992; Gergaud et al., 2007; Gunawardana and
Havrila, 1996), and the wine industry (Cardebat and Figuet, 2009;
Kwong et al., 2011). Table 1 summarizes industry application,
authors, sample collection, hedonic model functional form, and
dependent and independent variables in recent hospitality studies
that apply the hedonic pricing model.
Due to the heterogeneity of hotel products and services, the
hedonic pricing model has frequently been adopted in hotel
research. Every hotel has a different location and offers different
services and amenities; therefore, there are many factors to be con-
sidered when determining the right pricing. Bull (1994) examined
the impacts of different hotel characteristics on room rates in Bal-
lina, Australia, and the study found that room price decreases as
the star rating of the hotel decreases or the hotel’s distance from
the town center increases. Espinet et al.’s (2003) study tested the
effects of hotel attributes on room prices in the Costa Brava area
of Spain, and the study demonstrated that hotel size, star rating,
town, distance from the beach, and parking spaces are the main
factors of hotel pricing in that region. More recently, Abrate et al.
(2011) investigated hotel room prices in Turin, Italy, and suggested
that hotel characteristics such as the number of amenities, number
of services, hotel size, star-rating, brand affiliation, and location
have significant effects on room rates. Thus, prior studies suggest
that hotel characteristics such as location-specific attributes (e.g.,
distance from the beach, presence of local attractions, resort loca-
tion), physical attributes (e.g., number of rooms, number of services,
swimming pool, free parking), and reputation (e.g., star-rating) be
considered as factors of hotel room pricing.
In contrast to the area of hotel research, only a few studies in
restaurant research have employed the hedonic pricing approach
in determining menu pricing (Falvey et al., 1992; Fogarty, 2012;
Gunawardana and Havrila, 1996). Insufficient attention has been
given to restaurant menu price determinants, but hedonic pricing
can aid managers in practicing optimal pricing strategies. There-
fore, this study explores restaurant attributes that may influence
menu pricing in particular geographic locations, specifically down-
town locations.
2.3. Restaurant menu pricing
Price must be determined cautiously since it serves as a proxy
for the quality of a product or service for customers (Zeithaml et al.,
2006). Among the success factors for restaurants, menu design and
pricing have been studied and discussed by many industry experts
and scholars as essential to a restaurant’s performance. Previous
studies have examined ways to design effective menus and to max-
imize the profitability of menu items (Annaraud, 2007; Yang and
Chang, 2011). Menu analysis has become an important tool for
restaurant managers because effective menu pricing can lead to
customer satisfaction as well as financial success (Annaraud, 2007;
(1) Atkinson and Jones, 1994).
One of the important measures used to evaluate a restaurant’s
performance is the average guest check, which is directly related
to menu pricing. Susskind and Chan (2000) studied restaurant
Table 1
Previous hospitality studies on the hedonic pricing model.

Industry Researchers Samples Functional Dependent variables Independent variables

specification

Lodging Fleischer and 197 operations of rural Linear form Annual average price of rural Number of rooms, luxury level of units, size, log cabin,
Tchetchik (2005) accommodations in Israel accommodation serving breakfast, service, tourism activities, attractions in
the area, landscape
Hamilton (2007) 189 observations in 92 coastal Log-linear form Average minimum price of Landscape features, sandy beach, the length of dikes, cliffs
districts in Germany accommodation and open coast, population, regions
Zhang et al. (2011) 228 hotels in Beijing, China Linear, log-linear, Average room prices of hotels Number of rooms, star rating, years since built or last
and semi-log forms refurbished, distance from scenic spots, distance from
transport hub
Rigall-I-Torrent 3208 observations from 279 Log-linear form Prices of a double room Location, category of the hotel, number of rooms, beach
and Fluvià (2011) coastal hotels in Spain front location, room services, garden/balcony, parking,
swimming pool, sports facilities, period of the year,

E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20

Abrate et al. (2011) 145 hotels in Turin, Italy
Fleischer (2012) 2819 rooms (589 hotels) for the
high; 2406 rooms (487 hotels) for
the low season in the Northern
Mediterranean region on
Booking.com
Schamel (2012) 911 observations from hotels
located within 10 km vicinity of
Bolzano, Italy, on trivago.com
Log-linear form Prices of a double room during
peak season prices; off-peak
season (including breakfast)
Log-linear form Average room price
Log-linear form Room prices per night over a two
night stay (single weekday; double
weekend)
population, cultural facilities, sports facilities, area
characteristics including marina, number of restaurants,
hotel rooms, police officers, proportion of coves
Total number of hotel amenities, number of services,
number of rooms, air conditioning, mini-bar, hotel
star-rating, brand affiliation, presence in guidebook,
quality certification, location (business/leisure district),
distance from railway station
Type of room, number of persons per room, meal plan
(breakfast/half board), type of view (sea view/side sea
view/city view/garden view), refundable
Hotel stars, online rating, distance to the city center,
advance booking, double room, hotel services including
express checkout, business center, internet access, room
service, hotel bar, minibar, iron, cable TV, hotel safe, single
weekday/double weekend

Ski Falk (2008) 84 ski resorts in Austria Log-linear and One-day lift ticket price; a six-day Total length of ski runs, total vertical lift capacity, share of
double log-linear ski pass price for an adult high-speed chairlifts and gondolas, average altitude of
forms peak lift stations, days of operation, share of ski runs on
artificial snow, average age of lift facilities, joint pass with
neighboring resorts
Pawlowski and 260 ski areas in five countries of Linear form Average lift ticket prices of adults Maximum altitude of the resort, total kilometers of Alpine
Pawlowski (2010) European Alps and children during peak and slopes, ratio of intermediate kilometers of slopes, ratio of
off-peak seasons total kilometers of slopes to total transportation capacity,
ratio of the number of chairs and cabin lifts to the total
number of lifts, half pipe(s), snow and fun parks

Wine Cardebat and 140 wines from Provence, Alsace, Log-linear form Prices of wines Sensory variables (bouquet, taste, final impression),
Figuet (2009) and Beaujolais, France vintage, appellation (Provence, Beaujolais, or Alsace)
Kwong et al. (2011) 337 Ontario dry red wines from the Semi-parametric Prices of wines on release Number of cases of the wine released, ranking of the wine,
1998–2007 released for sale model form specialty label including reserves and single/multiple
vineyard, sustainability, grape varietal, vintage

Restaurant Falvey et al. (1992) 54 New Orleans restaurants Linear form Average price of steak, shrimp, and Convenience variables, service variables, ambiance
trout dishes variables, food quality, location
Gunawardana and 83 Melbourne restaurants, Double log-linear 3-course meal prices Services, ambiance, food, cuisine, location (street)
Havrila (1996) Australia form
Gergaud et al. Paris, France Log-linear form Michelin star; meal prices Location, décor, food; Location, Michelin star, cuisine,
(2007) décor, service, food, expert opinion
Fogarty (2012) Australia Log-linear form Meal prices Bring your own wine option, restaurant reputation, cuisine
type reputation, location, private room, outdoor dining

13
14 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20
features that affect customer check averages, and they explained
the relationships between restaurant characteristics and a restau-
rant’s average check using a series of regression analyses. Nine
restaurant features were examined, and the study found dress
code and parking have a positive relationship with the average
check while takeout service has a negative relationship with the
average check. They recommended future researchers extend their
work by adding other important features, such as cuisine types
and location factors. Later, Fogarty (2012) explored the impact of
restaurant reputation and cuisine type on meal prices. His study
used the hedonic pricing model, and the results suggest that both
restaurant reputation and cuisine type are important predictors of
meal prices. Other contributing features include restaurant wine
lists and private dining rooms (Fogarty, 2012).
2.4. Restaurant reviews (e-WOM)
Another critical factor for a restaurant’s success is reputation.
Since service products are experience goods and they cannot be
evaluated before consumption, customers feel insecure when pur-
chasing hospitality products. Therefore, it is natural for customers
to seek other people’s opinions before buying hospitality goods
(Luca, 2011). In hospitality, the impact of word-of-mouth (WOM)
has been studied extensively, and it has been recognized as one of
the most important sources of information when a customer makes
a purchase decision (Fogarty, 2012; Jeong and Jang, 2011; Lewis and
Chambers, 2000; Litvin et al., 2008; Luca, 2011).
With the growth of the ubiquitous Internet, new forms of
WOM have emerged. Restaurant information is available on the
Internet, and anyone with an Internet connection can easily find
reviews of restaurants, menu items and prices, and locations. In
addition, expert reviews, such as Michelin Star ratings and food
critics’ columns, as well as online reviews, such as Yelp.com,
food blogs, ZAGAT.com, and Google reviews, are easily accessi-
ble to restaurant customers. Various forms of online communities
(e.g., TripAdvisor.com, Expedia.com) and social media (e.g., Twit-
ter, blogs, Facebook) have become sources of e-WOM. According
to the 2011 National Restaurant Industry Forecast by the National
Restaurant Association (www.restaurant.org), 59% of adults have
used the Internet for various dining-related activities, and 58% have
viewed restaurant menus online. Approximately one-third of US
adults have used online reviews to select restaurants they have
never visited before. Yelp.com is one of the most popular cus-
tomer restaurant review websites (Consumer Report, 2013); other
popular review sites include OpenTable, Citysearch, ZAGAT, and
Chowhound. Due to the broad geographic coverage, speed, conve-
nience, and accessibility of the Internet, e-WOM has become more
powerful than traditional WOM in the customer decision-making
process (Jeong and Jang, 2011).
Zhang et al. (2010) have studied different types of online
reviews. Their findings suggest that customer-generated ratings
about the quality of food and services and the number of online
consumer reviews have significantly positive relationships with
the online popularity (i.e., the number of visits to the websites) of
restaurants. In another study, Luca (2011) analyzed the impact of
customer restaurant reviews on Yelp.com and found that there is a
positive relationship between star ratings and restaurant revenues,
and restaurants with higher numbers of reviews tend to facilitate
the active participation of online reviewers more than restaurants
with lower numbers of reviews. Therefore, online customer reviews
can serve as a proxy for restaurant reputation.
In summary, considering the importance of pricing decisions
and the complicated nature of the pricing structure of restaurant
products, inadequate attention has been given to determining pri-
cing dynamics in restaurant research. Hence, this study applies
the hedonic pricing model to provide a better understanding of
important restaurant attributes, which can, in turn, provide expla-
nations of the pricing mechanisms and determinants of average
meal prices.
3. Variables, data, and method
3.1. Study area and variables
Restaurants in Seoul were selected for the sample. Seoul is
the capital city of Korea, with over 10 million people living
in the metropolitan vicinity. According to the Korean Statistical
Information Service (KOSIS), the restaurant industry has created
approximately 56 trillion (or $50 billion) in sales, and the
number of employees has reached over 1.25 million as of 2010
(www.kosis.kr). A countless number of restaurants are located in
the city vicinity and a variety of dining options including fine-dining
are available; dining out has become a way of life for many Koreans.
Small cities in the US often have limited choices of dining facilities
and ZAGAT data does not cover those areas. For the above reasons,
the Seoul metropolitan area was determined to fit in the scope of
the study’s purpose.
Considering the study area, some of the location factors are crit-
ical for restaurants’ success. In Seoul, land is scarce and expensive;
therefore, most restaurants are located inside multiple-story build-
ings. Parking facilities, private rooms, and the floor a restaurant is
placed on can attract different types of customers, so meal prices
need to be adjusted accordingly. The different types of cuisines
restaurants serve may also affect menu prices, as suggested by
previous studies (Fogarty, 2012).
Drawing on the literature review, phone interviews, and anal-
ysis of area characteristics, the researchers selected independent
variables to apply in the hedonic pricing model. The dependent
variable is restaurants’ average meal prices, and the independent
variables selected for the study are as follows: quality of food,
décor, service, parking, floor, franchise, cuisine, private room, and
the number of online blogger reviews.
3.2. Data
The first part of the data was collected from secondary data,
ZAGAT Survey Seoul 2011. ZAGAT has collected surveys for restau-
rant customers in more than 100 countries worldwide. It has
published the results of surveys annually around the world (ZAGAT,
2012), and ZAGAT’s survey of Seoul, South Korea, was first pub-
lished in 2007. ZAGAT collects data in four primary areas: food,
service, interior decoration/atmosphere, and price (average meal
price). The food, service, and decoration/atmosphere (décor) cate-
gories are based on a 0–30 point scale (0–10: Poor to Fair; 11–15:
Fair to Good; 16–20: Good to Very Good; 21–25: Very Good to
Excellent; 26–30: Excellent to Perfection), while the meal price
information includes a drink and dinner. If tipping is a custom in
a country, such as in the United States, the usual amount of tip
is included in the meal price. ZAGAT is not the only restaurant
guidebook. The Michelin star guide has been around longer (first
published in 1900) than ZAGAT has. However, there is a major dif-
ference between the two: the Michelin guide’s restaurant ratings
are determined by a panel of experts while ZAGAT Surveys reflect
the general opinions of restaurant customers.
ZAGAT Survey Seoul 2011 released information about 230
restaurants located in Seoul, South Korea. The survey includes
information about each restaurant’s service, décor, food quality rat-
ings, type of cuisine, and meal price (meal price represents the
price of dinner with a drink). In addition, special features, such
as private rooms, late dining, hotel dining, and trendy restaurants,
were introduced in the survey. From ZAGAT Survey, the ratings for
 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20
Table 2
Description of variables selected for the study.
Variables Code
Food 0-30
Décor 0-30
Service 0-30
Blogger reviews Number of blogger reviews
Parking Dummy coded
Cuisines
Japanese Dummy coded
Italian Dummy coded
Korean Dummy coded
Chinese Dummy coded
French Dummy coded
Private room dining Dummy coded
Franchising Dummy coded
First Floor Dummy coded
Average meal price (Dependent variable) Korean currency (
service, décor, and food, availability of a private room, and types
of cuisines information were taken for independent variables and
meal price for the dependent variable.
In order to derive important features affecting the meal price,
the researchers conducted phone interviews with restaurant man-
agers and site visitations to the restaurants as the second phase
of data collection. Additional information was obtained about each
restaurant, such as parking facilities, location of the restaurant in
the building (first floor and other floors), and franchising informa-
tion. Finally, the third part of the data collection was performed
to determine the numbers of blogger reviews for the restaurants.
Information was collected via RedTable (www.redtable.kr), and
that data were matched with the ZAGAT Seoul data. Among other
Korean restaurant review websites, this study utilized RedTable.kr
because it is considered one of the most popular and reliable online
review websites. In order to measure the effect of online reviews
on meal price, the number of blogger reviews for each restaurant
listed on RedTable.kr was counted. The number of restaurant blog-
gers refers to those who have visited restaurants and written about
their dining experiences on their blogs. In general, restaurants that
offer good values are likely to have a higher number of restaurant
bloggers (reviews) than those that offer less good value; therefore,
a higher number of reviews signals that the average meal price of
the restaurant is more competitive than other more pricey restau-
rants. Descriptions of each independent variable and the dependent
variable for this study are presented in Table 2.
3.3. Model specification and analysis
Ordinary least square (OLS) regression analysis was used to ana-
lyze the data. In the simplest form, the restaurant meal pricing (P)
function can be shown as follows:
P = f (food, décor, service, reviews, cuisines, private room,
parking, franchise, 1 flr)
Since variables with different scales as well as dummy variables
were selected, it is necessary to find the optimal hedonic pricing
15
Data collection Explanation
method/source
ZAGAT 0 being the lowest (poor); 30 being the highest
(perfection) score possible
ZAGAT 0 being the lowest (poor); 30 being the highest
(perfection) score possible
ZAGAT 0 being the lowest (poor); 30 being the highest
(perfection) score possible
Internet research Number of blogger reviews mentioning restaurants on
http://redtable.kr redtable.kr
Internet/phone/site 1 for restaurants with parking; 0 for restaurants
visitation without parking
ZAGAT
1 for Japanese restaurants; 0 for non-Japanese
restaurants
1 for Italian restaurants; 0 for non-Italian restaurants
1 for Korean restaurants; 0 for non-Korean restaurants
1 for Chinese restaurants; 0 for non-Chinese
restaurants
1 for French restaurants; 0 for non-French restaurants
ZAGAT 1 for restaurants with private room dining settings; 0
for restaurants without private room dining settings
ZAGAT 1 for chain restaurants; 0 for independent restaurants
Internet and phone 1 for 1st floor restaurants; 0 for non-1st floor
restaurants
= Won) ZAGAT An average price of main course and a beverage when
dining at a restaurant
model among the available forms, such as log-linear, double log-
linear, and linear log. The basic linear model equation is shown in
(1) and (2), and the other functional forms of the hedonic model
follow.
The double log-linear form for a hedonic price equation is given
as:
ln(P) = f (ln(food, décor, service, reviews, cuisines, private room,
parking, franchise, 1 flr)) (3)
The linear-log form for a hedonic price equation is given as:
P = f (ln(food, décor, service, reviews, cuisines, private room,
parking, franchise, 1 flr)) (4)
The log-linear form for a hedonic price equation is given as:
ln(P) = f (food, décor, service, reviews, cuisines, private room,
parking, franchise, 1 flr) (5)
Four forms of global hedonic price models have been presented
(Eqs. (2)–(5)), but there is no particular ruling on the best functional
form (Fleischer, 2012; Hamilton, 2007). For that reason, Zhang et al.
(2011) attempted to apply three different forms of hedonic pricing
equations (the general linear, log-linear, and semi-log forms) to
analyze hotel room pricing. Their findings suggested that the log-
linear hedonic price model demonstrated a superior fit with their
data. In order to determine the best functional form for the data
in this study, the test of Box–Cox was performed (Cameron and
Trivedi, 2009; Zhang et al., 2011). The test results revealed that the
null hypothesis of theta ( = 0) was accepted only with the log-liner
model at the 5% level (p = .52); therefore, it was concluded that the
(2) log-linear model was best suited for the data (see Table 3).
In addition, there was a possibility of heteroskedasticity since
the data were cross-sectional data. To eliminate this issue, a
Breusch–Pagan–Godfrey (BPG) test for heteroskedasticity was per-
formed on the log-linear model, and the result supported that
16 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20

Table 3
Test of the Box-Cox model.

Test Restricted log likelihood LR statistic p-Value

H0: 2 Probability > 2

Theta () = −1 −2047.15 119.17 0.00

Theta () = 0 −1987.78 0.42 0.52
Theta () = 1 −2070.62 166.10 0.00

Table 4
Descriptive statistics: variables.

Variable Observation Mean Standard deviation Minimum Maximum

a a a
Meal price 185 48,991.08 29,247.03 8,967 235,119a
Ln meal priceb 185 10.66 0.52 9.10 12.37
Food 185 19.87 2.54 12 26
Décor 185 16.69 3.93 5 25
Service 185 17.59 3.27 9 26
Cuisine types
Japanese 185 0.23 0.42 0 1
Italian 185 0.17 0.38 0 1
Korean 185 0.15 0.36 0 1
Chinese 185 0.15 0.35 0 1
French 185 0.08 0.27 0 1
Parking 185 0.90 0.30 0 1
Franchising 185 0.17 0.37 0 1
Private room 185 0.45 0.50 0 1
First floor 185 0.58 0.49 0 1
Blogger review 185 55.58 84.38 0 861
a
Korean currency Won ( ; 1US$ = 1100).
b
Dependent variable (natural logarithm of meal price).

the assumption of constant variance of the dependent variable researchers’ proposed model (Model 2) with more tangible and
(log price) was met (chi-square = 1.17, p = .28). This coincides with intangible restaurant characteristics. As seen in the table, the pro-
Wooldridge’s (2009) assessment that by using natural logs model posed model explains meal price variation 20% better—73% while
analysis, heteroskedastic distributions of dependent variables can the basic model explains only 53%. With cuisine types, a locational
be minimized or eliminated and the range of variables can be nar- factor (first floor), special features (private room, franchising, and
rowed with better explanation power. parking), and blogger reviews included, the regression results indi-
As a result of the series of tests, the log-linear specification for cate that all of the independent variables are statistically significant
a hedonic pricing model was thought to be most suitable for the at p = .05 except for service (p = .107) and Korean (p = .945) and Chi-
data. The final model specification and equation is given as: nese (p = .063) cuisines.
Table 7 summarizes the results of the proposed hedonic pri-
ln P = ˇ0 + ˇ1 X1 + ˇ2 X2 + ˇ3 X3 + ˇ4i X4i + ˇ5 X5 + ˇ6 X6 + ˇ7 X7
cing regression in detail. The impacts of the independent variables,
+ ˇ8 X8 + ˇ9 X9 + ε (6) including food, décor, Japanese cuisine, Italian cuisine, and French
cuisine, private room, parking, franchising, first floor, and the num-
where P is price, X1 is food, X2 is décor, X3 is service, and X9 is the ber of blogger reviews, are statistically significant at a p-level of
number of blogger reviews. The rest of the X’s are dummy variables, .05; however, service, Korean cuisine, and Chinese cuisine are not.
where X4i are types of cuisines, X5 is parking, X6 is franchising, X7 Among the variables, food, décor, Japanese and French cuisines, pri-
is private room, and X8 is the location of the restaurant (first floor). vate room, and parking facility show positive effects on the meal
ˇ0 is the constant, ε is residual, and ln is natural log. price, while the number of blogger reviews, first floor, Italian cui-
sine, and franchised restaurants show negative relationships with
4. Results the dependent variable. This indicates that when the food and décor
are good, the average meal price increases. The average meal price
ZAGAT Survey Seoul 2011 included 230 restaurants in Seoul. of a restaurant that has no parking, is located on the first floor, and
Among the 230 restaurants, 45 restaurants were eliminated is part of a franchise is in general lower than that of a restaurant that
because they did not include either food quality, décor, service, has parking, is located somewhere other than the first floor, and is
or average meal price information. Data from 185 restaurants independent. The number of blogger reviews, in particular, has a
were retained and matched with restaurants listed on RedTable.kr.
Tables 4 and 5 report the results of descriptive statistics. Descriptive
statistics revealed that the average meal price for the 185 restau- Table 5
Descriptive statistics: types of cuisines.
rants was 48, 991, and there were 23 different types of cuisine
included in ZAGAT Survey Seoul 2011. The most popular cuisine Cuisine type Frequency Percentage
was Japanese (22.7%), followed by Italian (17.3%), Korean (15.1%), Japanese 42 22.7
Chinese (14.6%), and French (7.6%). Italian 32 17.3
The dependent variable is the natural logarithm of the aver- Korean 28 15.1
Chinese 27 14.6
age meal price, and log-liner regression analyses were performed.
French 14 7.6
The results are presented in Tables 6 and 7. Table 6 shows a com- Others (Indian, Thai, Mexican, etc.) 42 22.7
parison between two models: the basic model (Model 1) with
Total 185 100.0
the three most popular independent variables (food, service, and
décor) used in most studies in determining meal prices, and the Source: Zagat Seoul Restaurants (2011, pp. 100–105).
 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20 17

Table 6
Comparison of regression results: basic model vs. proposed model.

Basic model (Model 1) Proposed hedonic pricing model (Model 2)

Variables Coefficient t-Stat. Variables Coefficient t-Stat.

(Constant) 8.225 37.397a (Constant) 8.688 45.062a

Food .034 2.60a Food .052 4.655a
Décor .034 3.32a Décor .027 3.010a
Service .065 4.21a Service .021 1.621
Cuisines
Japanese .131 2.114a
Italian −.142 −2.203a
Korean −.005 −0.069
Chinese −.127 −1.870
French .191 2.192a
Parking .252 3.621a
Franchising −.117 −2.150a
Private room −.205 4.093a
First floor −.108 −2.471a
Blogger review −.002 −7.280a

F-stat. 72.090 40.673

Adj. R2 .537 .737
Adj. R2 .200

Note: dependent variable = ln meal price.

a
Significant at p < .05.

strong negative effect on meal price. The effect of cuisine on meal
price varies by cuisine types. Overall, the fit of the hedonic pricing
model is quite good, and the explanatory power of the model is
strong, explaining 73.7% of the variation of restaurants’ meal prices
as measured by the adjusted R2 . Because no variation inflation fac-
tor (VIF) is greater than 4.62 for any of the independent variables,
multicollinearity is not a concern in the analysis.
5. Discussion
The results indicate that food quality (t = 4.655; p < .01) and
décor (t = 3.010; p < .01), as expected, show positive impacts on
meal prices, which is consistent with previous studies (Gergaud
et al., 2007; Gunawardana and Havrila, 1996; Susskind and Chan,
2000), but service (t = 1.621; p = .107) is not a significant determi-
nant. A plausible explanation for this finding lies in the tipping
system in Korean restaurants. Restaurants in Korea and most Asian
countries do not have a tipping system except for restaurants in
luxury hotels and resorts, which host many foreign guests. Restau-
rant customers in general do not pay any gratuity to servers when
dining out; the prices shown on the menu are considered the end
prices, including taxes and tips. In the US, tips are a primary driver
of servers’ quality service (Lynn, 2001), and most previous studies
that demonstrated service as a significant antecedent of meal price
were conducted in western countries (Falvey et al., 1992; Gergaud
et al., 2007; Susskind and Chan, 2000). For that reason, it is not sur-
prising to find that service is not a significant factor in explaining
meal price in this study.
Another significant determinant of meal price is the type of
cuisine served. The five most popular cuisines from ZAGAT Seoul
(Japanese, Italian, Korean, Chinese, and French) were examined
using dummy coding, and the results indicate that Korean and Chi-
nese cuisines do not have significant effects on meal price (see
Table 7) while the impacts of Japanese, Italian, and French cuisines
are significant. In detail, the results found that Japanese (t = 2.114;
p < .05) and French (t = 2.192; p < .05) cuisines have positive effects
on meal price, but Italian (t = −2.203; p < .05) does the opposite.
This finding is interesting because a previous study presented a
different result regarding cuisine effect. Fogarty’s (2012) study
examined cuisine types and other factors in determining meal
prices in restaurants in New South Wales and Victoria, Australia,
and found that Japanese and regional Australian cuisines did not

Table 7
Estimation results of the hedonic pricing model.

Variable Coefficient Effect on price (%)a Standard error Beta t p VIF

*
Constant 8.688 .193 45.062 .000
Food .052 5.2 .011 .255 4.655 .000* 2.097
Décor .027 2.7 .009 .205 3.010 .003* 3.253
Service .021 .013 .132 1.621 .107 4.619
Cuisines
Japanese .131 14.00 .062 .107 2.114 .036* 1.791
Italian −.142 −13.24 .065 −.105 −2.203 .029* 1.579
Korean −.005 .068 −.003 −.069 .945 1.565
Chinese −.127 .068 −.087 −1.870 .063 1.529
French .191 21.05 .087 .098 2.192 .030* 1.405
Parking .252 28.66 .070 .149 3.621 .000* 1.186
Franchising −.117 −11.04 .055 −.085 −2.150 .033* 1.099
Private room .205 22.75 .050 .198 4.093 .000* 1.643
First floor −.108 −10.24 .044 −.103 −2.471 .014* 1.219
Blogger review −.002 −0.20 .000 −.307 −7.280 .000* 1.245

Note: dependent variable = ln meal price; R2 = 0.756, Adj-R2 = 0.737, F = 40.673 (p < .001).
a
For continuous variables, the percentage change in price caused by changing the variable by 1% is calculated by (coefficient × 100). For dichotomic variables, the change
is calculated by (e
ˇ
− 1) × 100, where ˇ is coefficient of the variable (Rigall-I-Torrent and Fluvià, 2011).
*
p < .05.
18 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20
have significant effects on meal prices while French and Italian
cuisines had strong positive effects. In addition, he found Chi-
nese and Indian food had strong negative impacts on meal prices.
Different results imply that where the restaurant study is con-
ducted matters when cuisine types are involved. In Korea, a popular
Japanese restaurant generally serves a pricy, fixed-course meal,
while a popular Japanese meal in Australia may be an a-la-carte
plate of sushi, noodles, gyoza, and tempura. It is important to under-
stand that consumers across different countries may perceive each
type of cuisine differently, and if the venue of the study changes,
the choice of cuisine types and effects should change. Considering
the region of this study, the results seem logical since, in Korea, tra-
ditional Japanese food is considered expensive and lavish, French
restaurants are fancy and luxurious, and Italian food is affordable,
accessible, and casual. In line with the results of cuisine types,
another determinant, franchising, can be explained. The findings
indicate that franchised restaurants tend to have lower meal prices
(t = −2.150; p < .05) than independent restaurants, primarily due to
the economies of scale of franchising operations, which result in
reduced marketing and food costs. The goal of franchising is to share
marketing costs with other franchisees and take advantage of brand
reputation (Connell, 1997) so that a restaurant can attract higher
customer traffic under the branding with affordable prices.
The most salient determinant among the variables in the model
is the number of blogger reviews (t = −7.280; ˇ = −.307). The results
show that the number of blogger reviews has a negative impact
on meal prices (coefficient = −.002), which indicates that a price
premium decreases by 2% when ten bloggers write about a restau-
rant. Therefore, the greater the number of bloggers writing about a
restaurant, the more affordable the restaurant’s meal price is. Since
this variable has not been examined in previous studies, and consid-
ering the fact that 77.3% of restaurant blog readers have in fact
visited the restaurants mentioned by bloggers (Lee et al., 2010),
this variable and its impact on meal prices is a significant find-
ing of the study. This result indicates that the restaurants bloggers
visit have good quality overall and they are relatively cheap and
popular. In other words, restaurant bloggers prefer visiting acces-
sible and reasonably priced restaurants to expensive restaurants;
therefore, expensive and luxury dining receive limited exposure
from bloggers or the public. In reality, people tend to spread infor-
mation about good deals they get, and in the case of restaurant
experiences, they tend to leave more online reviews about good
meals. The results of this study present future research issues about
how bloggers and power bloggers can influence restaurant busi-
nesses apart from other types of e-WOM (i.e., customer ratings and
comments, Twitter, Facebook).
A few tangible attributes of restaurants were examined in the
model. The availability of parking, the availability of private rooms,
and first-floor location were tested, and each showed a significant
effect on meal prices. Previous literature (Fogarty, 2012; Gergaud
et al., 2007; Zhang et al., 2010) has demonstrated that the geo-
graphic location of a property (i.e., street location, city district) is
an important determinant of hospitality product pricing. In this
study, a new measurement, restaurant location within a building,
was adopted in place of geographic location because it is a mean-
ingful way of defining location in a downtown setting. Easy access
from the streets of a metropolitan city can be a huge advantage
for restaurants, and accessibility can clearly serve as a competitive
advantage for a restaurant located in a high-rise building in a big
city area. As is the case in metropolitan cities in the US, leasing
a property or space is very expensive. Rental costs are one of the
fixed costs for a restaurant, and restaurants with high rental costs
are more likely to charge higher menu prices to absorb the costs.
The results of this study are interesting, because the model shows
that there is a negative relationship between meal prices and first-
floor restaurants. Restaurants located on the first floor have lower
meal prices than restaurants located on other floors, which is not
in line with the high rental costs charged for first-floor spaces. It
is important to note that restaurants operating on the first floor of
buildings have the greatest accessibility and convenience from the
customer point of view; therefore, this locational advantage leads
to larger numbers of customers and foot traffic. In order to cover
the high rental costs, restaurant operators in first-floor locations
rely heavily on driving large covers rather than charging higher
menu prices. This makes more sense when the locational attribute
is combined with another variable discussed earlier, franchising.
Franchised restaurants prefer convenient locations (i.e., the first
floor), and the majority of chain restaurants in first-floor locations
are quick-service restaurants with lower average checks. Thus, it
is expected that franchised restaurants located on the first floor
charge relatively low meal prices.
Having a parking facility implies additional expenses for restau-
rant owners in a big city, and a parking facility shows a strong
positive effect on meal prices (t = 3.621; p < .05). As noted in the
previous studies (Rigall-I-Torrent and Fluvià, 2011; Susskind and
Chan, 2000), a parking area means a restaurant has the financial
resources to afford a parking space in the metropolitan area, and
this additional fixed cost easily raises meal prices. Customers who
patronize restaurants with parking facilities should expect the meal
prices to be higher than those of restaurants that do not have
parking lots. Another attribute that has a strong impact on meal
price is a private room setting (t = 4.093; p < .001). Restaurants with
a private room option can appeal to diverse customer segments.
The results of this study are consistent with the previous study
(Fogarty, 2012) that indicated a price premium increases when a
restaurant has private rooms. In Fogarty’s study, the availability of
a private room increased the price premium 3.5% in restaurants
in New South Wales and Victoria, Australia, while in Seoul, Korea,
it was 22.8% (coefficient = .205; see Table 7). To comprehend the
results, the cultural background and local characteristics of Seoul
need to be considered. Having a large space and separate rooms
requires large capital investment from the entrepreneurs’ perspec-
tive, but it pays off if the restaurant is able to attract companies
wanting dinner engagements in a private setting. Collectivism is
dominant in Asian cultures, and a person’s identity is based on the
social network to which he/she belongs (Ayoun et al., 2010; Triandis
et al., 1990). Companies in Asia often arrange regular or special din-
ner engagements by teams, departments, or companies, and this is
a common practice for Korean companies. Most importantly, the
meals are paid for by the companies, so customers are less sen-
sitive about the price of the meal, and those business customers
generally contribute higher average checks in a private setting.
6. Implications and conclusion
This research investigated the determinants of restaurants’
average meal prices by applying the hedonic pricing model. The
results provide several contributions to the hospitality literature
as well as to restaurant operators. First, a content analysis of
recent hospitality literature summarizes research that has applied
the hedonic pricing model by industry, variables, and analysis
methods. Future researchers can use this information to find
what is lacking in the previous studies and improve their future
research. Second, the proposed model includes new, additional
variables to explain meal price variations. Most of the previous
studies on meal price have included three common variables:
food, service, and décor. In addition to those, the hedonic pricing
model in this study includes variables, such as ease of access (first
floor location), franchising, and the number of blogger reviews,
that have not been tested in previous studies. Third, data collected
in this study are from the perspective of customers, from ZAGAT
 E.S. Yim et al. / International Journal of Hospitality Management 39 (2014) 11–20
Survey and restaurant blogs. Previous studies used expert reviews
such as Michelin Star (Gergaud et al., 2007) and Exxon Mobil’s star
ratings in explaining the pricing of products. In addition to physical
characteristics of restaurants (parking, private room availability,
first floor location, franchising, and cuisine type), this study used
data determined by customers (meal price, food quality, service,
décor, and the number of blogger reviews).
For restaurant operators, the estimated hedonic pricing model
offers a strategic tool for menu pricing. The model explains the com-
plicated structure of a restaurant’s meal pricing, and by using this
model, managers can easily adjust their meal prices and analyze
the areas to improve in comparison with competitors. The model
also provides important information about how the presence or
absence of particular characteristics (e.g., a parking space or pri-
vate room setting) can affect menu pricing. Management should
balance the premiums a restaurant commands on meal prices and
customer traffic derived from the investment in additional ameni-
ties or facilities. The hedonic pricing model will allow restaurant
operators to incorporate additional features into meal pricing.
The most influential attribute on meal price in the proposed
hedonic pricing model, in terms of price premium, is having a
parking facility (t = 3.621; coefficient = .252). A restaurant with a
parking space should charge 28.7% more on menu items than a
restaurant without parking when other conditions for both restau-
rants are the same. On the other hand, the most significant driver
of meal price among the independent variables in the model is the
number of blogger reviews (t = −7.280). The larger the number of
blogger reviews for a restaurant, the more competitive the meal
price. A higher number of blogger reviews can be translated into
greater popularity of a restaurant partly due to great location and
easy accessibility. A restaurant with greater exposure from bloggers
naturally generates more e-WOM, which helps restaurant opera-
tors obtain higher customer counts, leading to higher sales. The
revenue management strategy of the restaurant operator should
focus on driving customer traffic; it is important that increases in
customer traffic be great enough to compensate for a decrease in the
average check, ensuring that incremental revenues are warranted.
This study employed the hedonic pricing model to explain the
pricing structure of a restaurant’s average meal price. The estimated
results provide an important indication of which characteristics
positively or negatively impact meal prices. It is reassuring to find
that this hedonic model accounts for as much as 73.7% of the varia-
tion in meal prices. Overall, the results of this study provide useful
information and implications to both restaurant operators and
customers. For restaurant operators and marketers, the hedonic
pricing model provides important information about menu pricing
decisions, depending on the amenities and facilities offered. If an
investor has multiple restaurants, he/she can differentiate prices for
the different restaurants depending on the characteristics of each.
The model will also help restaurateurs design new restaurants and
develop pricing plans. On the other hand, the hedonic pricing model
allows restaurant patrons to compare the menu prices of restau-
rants and evaluate the fairness of meal prices among a competitive
set with given amenities and facilities.
Regardless of our best efforts, this study has some limita-
tions. The proposed hedonic model was tested in Seoul, Korea,
which is one of the biggest and most populated cities in the
world. This hedonic pricing model can be applied to restaurants
in New York City, Tokyo, London, or Hong Kong, since they share
the same characteristics by being located in mega-metropolitan
areas, but the model may not be applicable to medium-sized cities
like Jacksonville, Florida, or Napa Valley, California, or to rural
areas. Therefore, the generalization of some variables (e.g., parking,
private dining facilities, and floor location) needs to be made cau-
tiously. Further validation of the model is needed across different
cultures, countries, and locations (e.g., metropolitan city, suburban,
19
and rural settings). Testing of the proposed hedonic model may
be extended into other types of dining establishments (e.g., food
and beverage units in hotels, private clubs), and industry-specific
variables should be added to explain the price variations.
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