Pricing strategy Pricing Strategy for organic food atSlices RestaurantPricingout menu in a restaurant might seem simple and straightforward, but there aremany elements that need to be factored in when pricing menu. In this paper, Iwill outline how the marketing team at Slices restaurant in UAE can use pricestrategy to price food so that the restaurant can increase its market share, aswell as help the company meets its financial goals. The restaurant is a foodand beverage company whose brand is selling organic foods and aims to supportgood eating habits all over the country Pricing objectivesInsetting up prices, an organization must select a suitable pricing objectivefrom the five major pricing objectives.
They include: Currentprofit maximization Mostcompanies tend to sell products at prices that will maximize current profit aswell as higher long-term profits. Most companies estimate demand and costs inthe other alternative prices and pick up the price that will maximize currentprofits, bring high return on investments or higher cash flow.(Mc Donald &Wilson,2016) Sometimes with poor analysis, and ignorance of other variableslike marketing mix, legal strain on price or competitor’s reactions, thecompany might sacrifice long-run performance.
If the menu price at Slicesrestaurant will cause lower long-term profits, then the price need to bereviewed.Maximummarket shareMostcompanies believe that by increasing market share, the unit cost of the productwill be reduced. To do this, they end up lowering the price of the product withthe assumption that the product is price sensitive. The factors that wouldfavor lowering of price is if the product is price sensitive, when productionand distribution costs drop and if thereis a belief that setting up a lower price will reduce competition. The kind ofproduct that the restaurant provides is unique and of great value to consumers.It is not price sensitive.
The marketing team should investigate if there areother factors like potential competition and costs of preparing the meals,before they decide to lower prices for the purpose of increasing their marketshare.Maximummarketing skimming.Thishappens when companies set a high initial price when introducing a product inthe market and then lowering it down with time. This plan is only applicable incases where the unit cost of production is not high, if the market demand ishigh or when the high price is used to communicate the superiority of theproduct. Before using skimming in setting a price for the organic food at therestaurant, the marketing team should take the above factors intoconsideration. Is the cost of preparing the meals reducing with increasedselling or if it is constant? Such that the price can only be lowered if thecost is reducing. If the price initially is set high to present an image of aquality meal, will it actually work or are there other ways of marketing theproduct as high quality without necessarily setting a high initial priceProductquality leadershipWhena company aims at being the product leader in the market, they adopt a highprice to reflect the quality, taste or status of the product, but the price isnot that high such that its target market can afford it.
Companies that sellluxurious items say like coffee, BMWs, shampoos etc. Slices’ product brand isselling high quality organic food. The pricing of these meals should high inorder to reflect the quality and uniqueness, but it should be affordable by itsloyal customers.
SurvivalThisstrategy is only temporary such that it is only adopted by companies when theyare experiencing problems like market decline or overcapacity. The price is setjust enough to cover the costs and help the company survive and stay inbusiness. The price is expected to change in future or the company can adoptany other appropriate method to add value otherwise it faces extinction.
(Kowalkowski & Kienzler,2017)PricingWhensetting the price of a restaurant, various factors need to be considered. Thefirst one is the cost of purchasing the ingredients of a meal as well as thecost of preparation. Slices restaurantto its benefit sells organic meals which are certainly cheaper to acquire thanprocessed. This can help boost pricing because of the low food costs.
Challenges that might cause the cost to rise, such as natural disaster whichcould cause reduced supply of the ingredients can be overcome by the companygrowing their own vegetables instead of depending on the farm market.Competition may affect the pricing of the restaurant such that other companiesstart selling the same organic food at lower cost. Slices can overcome theprice differences by offering better customer services or providing betterdining 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 costand picking the market price of the industry. Some companies find it difficultto adjust price when there are market changes. That’s the reason a pricingdepartment is set aside to determine the price, or they are to work with thefinancial department and top management to determine the price.
Value based or cost based pricingValuebased pricing is a pricing strategy that considers how much value a product isto a consumer and not just the cost of production. The price of the productdepends on the benefit that this product gives the consumers.(Strauss 2016) Onthe other hand Cost based pricing strategy bases its price on cost even thoughit considers other factors like the marketing conditions.
It is considered tobe the easiest pricing method. At this restaurant, the best pricing would bevalue based pricing. The restaurant’s operations are aimed at one goal, sellinghealthy food, in a healthy atmosphere, using delicious recipes to prepare mealsand selling to many nationalities. They also offer community service byintroducing a school program to provide students with knowledge of how todevelop in health and nutrition field. This uniqueness of food is what makesvalue based pricing the appropriate strategy to use.Determining demand and price sensitivityEveryalternative price available for a product has a different effect on level ofdemand. The relationship of how demand changes with change in price can becapture in a demand curve. Normally, these two are inversely related such thatdemand increases with decrease in price and vice versa.
For prestigiousproducts, the demand increases with increase in price. However, if the pricesbecome too high, demand might drop. Slices restaurant sells a unique productthat can be viewed as a prestigious product, and therefore its demand curvewill show an increase in demand as prices increasePricesensitivityThisis a major factor in setting prices for any good or services. Price sensitivityrefers to how the market will react incase price of a product is increased ordecreased. Customers tend to be price sensitive to those products that havehigh prices or products they buy frequently but they are less price sensitivefor those products that cost less or for those product that they don’t buymuch. Some products are more pricesensitive than others. Price sensitivity is determined by various factors. Theuniqueness or quality of a product determines the price sensitivity of theproduct.
For instance, if a product is highly unique or of high value,customers might be less sensitive to price. Another factor is the ability ofcustomers to compare qualities of the available alternative products. Customersare less prices sensitive if they have difficulty in comparing the quality ofrestaurant services in the university and finally if the product can easily besubstituted by lower priced products.(Wang et.
al, 2016)New product pricingAcompany must set its price when it introduces a new product in the market, whenit introduces its regular product in a new geographical area or a differentdistribution channel or when it enters in a new contract. When setting pricefor a new product, the company must study its market first. Study the demandfor the product and apply the rule of demand depending on the type ofproduct.
(Armstrong et. al., 2015)For slices restaurant, the product is deemed tobe prestigious and therefore demand won’t drop even if the prices are high. Ifit decides to introduce a new product, it still has a loyal customer base.
Companieswill often use skimming strategy on new products. They will tend to set theprice relatively compared to other competing products. The aim is to give themarket information that the new product is of high quality. With a loyalcustomer base, Slices restaurant can use skimming on a new type of meal becauseit already has established its brand as a seller of healthy and organic mealsMostinitial product pricing are usually temporary.
A company can’t keep on sellingproducts at either too high or too low price. It has to adjust the price of theproduct as the product continues to sell in the market.Themost effective method of determining price of a new product is by asking thecustomers. The management can instruct a research to be conducted on the targetmarket customers. For instance, if Slices decides to introduce a new breakfastmenu, ten customers can be asked how they feel about the price on the newbreakfast.Product mix pricingWhena company is selling a product that needs another product, it must price itwell. An example is a razor whose price could be lower than the price of achanging blade.
There are five product mix pricing strategies. The first one isproduct line pricing which sets out prices of products in its line. The secondone is optional product pricing where a product has a base price, but anyadditional product that a customer might need, is charged separately. Thestrategy involves evaluating well what is to be include in the base price.(Zeng, Dasgupta &Weinberg, 2016) Captive product pricing occurs where companiesthat make a product that must be used along with the main product. It is notoptional. When using this strategy, the company must come to a balance betweenthe price of the main product and that of the captive product. The forthstrategy is the by-product strategy where the price of the by-product is set tomake the price of the main product.
This strategy is adapted sometimes to helpa company dispose its waste. The last strategy is the product bundle strategywhere the company puts several of its products together and sells it as abundle at a reduced price. This strategy is well applicable in a restaurantsetting like Slice restaurant where a drink, a burger or sandwich are sold to acustomer at a lower price. Productmix pricing is not simple because all the products are related and so is theprice. Price of one product determines one of the other.Price adjustment strategiesThemost common price adjustment strategies are; First Discount and allowancepricing, common in large businesses where the price of a product is reduced tohonour a client’s response.
Segmented pricing is a strategy used to assigndifferent prices of a product depending on geographical location, the customersor products. A third adjustment pricing is promotional pricing which is done byreducing the price of s product for a short period of time so as to increasesales volume. Another adjustment pricing strategy is dynamic pricing where theprice of a product is continually changed to suit the requirements of customersor to suit various occasions. For example, a restaurant when offering outsidecatering might change the price of the product due to the extra cost of theservice.
International pricing is applied when the product is sold tointernational markets. The last strategy discussed here is psychologicalpricing which involves adjusting a price for psychological effect. This ispossible if it is believed by customers that price has something to do withquality. .(Strauss 2016)Priceadjustment strategies application depends on the situation of the company. Likethe example given above, if Slices restaurant one day gives an outside cateringservice, the prices of the meals in this situation will change, to a higherprice so that the company can meet its costs.