Pricing can use price strategy to price food

Pricing strategy

Pricing Strategy for organic food at
Slices Restaurant

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Pricing
out menu in a restaurant might seem simple and straightforward, but there are
many elements that need to be factored in when pricing menu. In this paper, I
will outline how the marketing team at Slices restaurant in UAE can use price
strategy to price food so that the restaurant can increase its market share, as
well as help the company meets its financial goals. The restaurant is a food
and beverage company whose brand is selling organic foods and aims to support
good eating habits all over the country

 

Pricing objectives

In
setting up prices, an organization must select a suitable pricing objective
from the five major pricing objectives. They include:

Current
profit maximization

Most
companies tend to sell products at prices that will maximize current profit as
well as higher long-term profits. Most companies estimate demand and costs in
the other alternative prices and pick up the price that will maximize current
profits, bring high return on investments or higher cash flow.(Mc Donald &
Wilson,2016) Sometimes with poor analysis, and ignorance of other variables
like marketing mix, legal strain on price or competitor’s reactions, the
company might sacrifice long-run performance. If the menu price at Slices
restaurant will cause lower long-term profits, then the price need to be
reviewed.

Maximum
market share

Most
companies believe that by increasing market share, the unit cost of the product
will be reduced. To do this, they end up lowering the price of the product with
the assumption that the product is price sensitive. The factors that would
favor lowering of price is if the product is price sensitive, when production
and distribution costs drop and if  there
is a belief that setting up a lower price will reduce competition. The kind of
product that the restaurant provides is unique and of great value to consumers.

It is not price sensitive. The marketing team should investigate if there are
other factors like potential competition and costs of preparing the meals,
before they decide to lower prices for the purpose of increasing their market
share.

Maximum
marketing skimming.

This
happens when companies set a high initial price when introducing a product in
the market and then lowering it down with time. This plan is only applicable in
cases where the unit cost of production is not high, if the market demand is
high or when the high price is used to communicate the superiority of the
product. Before using skimming in setting a price for the organic food at the
restaurant, the marketing team should take the above factors into
consideration. Is the cost of preparing the meals reducing with increased
selling or if it is constant? Such that the price can only be lowered if the
cost is reducing. If the price initially is set high to present an image of a
quality meal, will it actually work or are there other ways of marketing the
product as high quality without necessarily setting a high initial price

Product
quality leadership

When
a company aims at being the product leader in the market, they adopt a high
price to reflect the quality, taste or status of the product, but the price is
not that high such that its target market can afford it. Companies that sell
luxurious items say like coffee, BMWs, shampoos etc. Slices’ product brand is
selling high quality organic food. The pricing of these meals should high in
order to reflect the quality and uniqueness, but it should be affordable by its
loyal customers.

Survival

This
strategy is only temporary such that it is only adopted by companies when they
are experiencing problems like market decline or overcapacity. The price is set
just enough to cover the costs and help the company survive and stay in
business. The price is expected to change in future or the company can adopt
any other appropriate method to add value otherwise it faces extinction.

(Kowalkowski & Kienzler,2017)

Pricing

When
setting the price of a restaurant, various factors need to be considered. The
first one is the cost of purchasing the ingredients of a meal as well as the
cost of preparation.  Slices restaurant
to its benefit sells organic meals which are certainly cheaper to acquire than
processed. This can help boost pricing because of the low food costs.

Challenges that might cause the cost to rise, such as natural disaster which
could cause reduced supply of the ingredients can be overcome by the company
growing their own vegetables instead of depending on the farm market.

Competition may affect the pricing of the restaurant such that other companies
start selling the same organic food at lower cost. Slices can overcome the
price differences by offering better customer services or providing better
dining atmosphere. Most companies do not approach the issue of pricing well.

There is a tendency of setting a price based on the company’s determined cost
and picking the market price of the industry. Some companies find it difficult
to adjust price when there are market changes. That’s the reason a pricing
department is set aside to determine the price, or they are to work with the
financial department and top management to determine the price.

Value based or cost based pricing

Value
based pricing is a pricing strategy that considers how much value a product is
to a consumer and not just the cost of production. The price of the product
depends on the benefit that this product gives the consumers.(Strauss 2016) On
the other hand Cost based pricing strategy bases its price on cost even though
it considers other factors like the marketing conditions. It is considered to
be the easiest pricing method. At this restaurant, the best pricing would be
value based pricing. The restaurant’s operations are aimed at one goal, selling
healthy food, in a healthy atmosphere, using delicious recipes to prepare meals
and selling to many nationalities. They also offer community service by
introducing a school program to provide students with knowledge of how to
develop in health and nutrition field. This uniqueness of food is what makes
value based pricing the appropriate strategy to use.

Determining demand and price sensitivity

Every
alternative price available for a product has a different effect on level of
demand. The relationship of how demand changes with change in price can be
capture in a demand curve. Normally, these two are inversely related such that
demand increases with decrease in price and vice versa. For prestigious
products, the demand increases with increase in price. However, if the prices
become too high, demand might drop. Slices restaurant sells a unique product
that can be viewed as a prestigious product, and therefore its demand curve
will show an increase in demand as prices increase

Price
sensitivity

This
is a major factor in setting prices for any good or services. Price sensitivity
refers to how the market will react incase price of a product is increased or
decreased. Customers tend to be price sensitive to those products that have
high prices or products they buy frequently but they are less price sensitive
for those products that cost less or for those product that they don’t buy
much.  Some products are more price
sensitive than others. Price sensitivity is determined by various factors. The
uniqueness or quality of a product determines the price sensitivity of the
product. For instance, if a product is highly unique or of high value,
customers might be less sensitive to price. Another factor is the ability of
customers to compare qualities of the available alternative products. Customers
are less prices sensitive if they have difficulty in comparing the quality of
restaurant services in the university and finally if the product can easily be
substituted by lower priced products.(Wang et. al, 2016)

New product pricing

A
company must set its price when it introduces a new product in the market, when
it introduces its regular product in a new geographical area or a different
distribution channel or when it enters in a new contract. When setting price
for a new product, the company must study its market first. Study the demand
for the product and apply the rule of demand depending on the type of
product.(Armstrong et. al., 2015)For slices restaurant, the product is deemed to
be prestigious and therefore demand won’t drop even if the prices are high. If
it decides to introduce a new product, it still has a loyal customer base.

            Companies
will often use skimming strategy on new products. They will tend to set the
price relatively compared to other competing products. The aim is to give the
market information that the new product is of high quality. With a loyal
customer base, Slices restaurant can use skimming on a new type of meal because
it already has established its brand as a seller of healthy and organic meals

Most
initial product pricing are usually temporary. A company can’t keep on selling
products at either too high or too low price. It has to adjust the price of the
product as the product continues to sell in the market.

The
most effective method of determining price of a new product is by asking the
customers. The management can instruct a research to be conducted on the target
market customers. For instance, if Slices decides to introduce a new breakfast
menu, ten customers can be asked how they feel about the price on the new
breakfast.

Product mix pricing

When
a company is selling a product that needs another product, it must price it
well. An example is a razor whose price could be lower than the price of a
changing blade. There are five product mix pricing strategies. The first one is
product line pricing which sets out prices of products in its line. The second
one is optional product pricing where a product has a base price, but any
additional product that a customer might need, is charged separately. The
strategy involves evaluating well what is to be include in the base price.

(Zeng, Dasgupta &Weinberg, 2016)

 Captive product pricing occurs where companies
that make a product that must be used along with the main product. It is not
optional. When using this strategy, the company must come to a balance between
the price of the main product and that of the captive product. The forth
strategy is the by-product strategy where the price of the by-product is set to
make the price of the main product. This strategy is adapted sometimes to help
a company dispose its waste. The last strategy is the product bundle strategy
where the company puts several of its products together and sells it as a
bundle at a reduced price. This strategy is well applicable in a restaurant
setting like Slice restaurant where a drink, a burger or sandwich are sold to a
customer at a lower price.

Product
mix pricing is not simple because all the products are related and so is the
price. Price of one product determines one of the other.

Price adjustment strategies

The
most common price adjustment strategies are; First Discount and allowance
pricing, common in large businesses where the price of a product is reduced to
honour a client’s response. Segmented pricing is a strategy used to assign
different prices of a product depending on geographical location, the customers
or products. A third adjustment pricing is promotional pricing which is done by
reducing the price of s product for a short period of time so as to increase
sales volume. Another adjustment pricing strategy is dynamic pricing where the
price of a product is continually changed to suit the requirements of customers
or to suit various occasions. For example, a restaurant when offering outside
catering might change the price of the product due to the extra cost of the
service. International pricing is applied when the product is sold to
international markets. The last strategy discussed here is psychological
pricing which involves adjusting a price for psychological effect. This is
possible if it is believed by customers that price has something to do with
quality. .(Strauss 2016)

Price
adjustment strategies application depends on the situation of the company. Like
the example given above, if Slices restaurant one day gives an outside catering
service, the prices of the meals in this situation will change, to a higher
price so that the company can meet its costs.