By pricing popular items at very low levels, retailers might succeed in enticing consumers into their stores, where they tend to make additional purchases of other, more conventionally priced and profitable items. At Red Lobster for example, the annual “Endless Shrimp” deal was a popular inducement. Families would come to enjoy as many tasty crustaceans as they could handle, but they also were likely to order some appetizers, drinks, or desserts to go along with it. Some members of the party also might want something other than shrimp and order more expensive options. Thus, the restaurant chain might not make a profit on the unlimited shrimp entrée, but it could make up for that loss with other sales.

It was such a popular promotion that, when a new parent company took over Red Lobster, it decided to maintain the discount all year long. Rather than hosting it for just a few weeks per year, it hoped to keep customers coming back regularly for the unending plates of shrimp arriving at their tables.

Unfortunately though, the move appears to have been a bit short-sighted. First, part of the appeal of the promotion came from its limited time character. People eagerly waited for and saved up for the Endless Shrimp promotions, and during the weeks it ran, they likely visited Red Lobster more often than they normally would have, to take advantage of the great deal. Once it became a daily offering, they lost the time-constrained inducement to visit more frequently.

Second, it got expensive for the restaurant, and fast. With the option to have as many shrimp as they wanted for an initial price of $20 per person, visitors who otherwise might have purchased a more expensive, conventional entrée felt induced to select the endless option. Without the balance of other meals contributing higher revenues, Red Lobster announced a loss of approximately $11 million in just one recent quarter.

On the bright side, making the deal permanent brought more people into Red Lobsters in general, with a 2 percent increase in traffic. But because virtually all of that traffic was coming in for a loss leader for the company, it realized some changes were needed. Accordingly, the initial $20 price point already increased to $22, and the chain indicates that it will soon be raising the price again, to $25. At that point, it doesn’t make a lot of money on the dish, but at least it doesn’t lose money. But when it makes this move, will it instead lose the traffic increases it has been enjoying?

Discussion Questions

1. What outcome do you anticipate when Red Lobster raises its promotional prices, in terms of store traffic, revenues, and other relevant pricing outcomes?
2. What other options does Red Lobster have to make the loss leader a profitable and effective promotion?

Sources: Ramishah Maruf, “Red Lobster’s Endless Shrimp Deal Was Too Popular, Company Says,” CNN, November 29, 2023; Red Lobster, “Red Lobster Announces Iconic First: Ultimate Endless Shrimp Is Here to Stay,” press release, June 6, 2023