Chinese Restaurant Pricing Strategy - Essay Example

? Restaurant Pricing Strategy inserts his/her s Question The mission of the upscale Chinese restaurant is to deliverpremium quality food to our customers whom we regard as patrons. Our fine dining experience and exclusive ambience express the highest level of hospitality and service to our customers. Only the freshest products make it to our kitchen- we do not believe in selling anything below our premium standards. Question 2 Organizations usually have a choice between cost-centric, demand-centric and competition oriented pricing strategy (Levy & Weitz, 2012). As opposed to the conventional practice of setting prices to cover costs in the restaurant industry, this upscale Chinese restaurant shall adopt a demand-based pricing strategy. Demand-centric pricing usually has three major components. Firstly, such a pricing allows companies to set prices to achieve particular sales targets (Levy & Weitz, 2012). Secondly, it allows the firm to assess the maximum and minimum prices acceptable by the target market (Levy & Weitz, 2012). Finally, psychological pricing allows companies to take advantage of the “high price, high quality” rule as well as odd pricing (Levy & Weitz, 2012). A cost-based approach is an inside-out approach which is clearly not suitable for the cafe as it would leave the cafe vulnerable to fluctuating commodity prices. Such a strategy would downplay customers’ perceptions of the upscale image of the restaurant. There may be certain food items for which customers would be willing to pay more yet the cost-based approach treats every offering equally and fails to capture the added profit that can be earned from such products. In such cases, a demand-based approach would be most suited which would allow the restaurant to charge a premium price for its high demand dishes such as Chicken Szechwan and Tempura fish. Although the restaurant is upscale, it must be understood that the presence of several Chinese restaurants makes this marketplace highly competitive for the restaurant. Skimming the market would, therefore, not be a suitable option. This is because skimming strategy works best for new products or those with little competition. Keeping this in mind, a penetration pricing would be used with an introductory offer for the new Chinese restaurant. The major advantage of penetration pricing is that it draws customers’ attention to newly launched products and encourages them to try them because of their affordability. At the same time, it would serve as a strategy for “breaking the clutter” by encouraging customers to switch from competitors to this restaurant. This would have the effect of attracting and developing a strong customer base during initial years of the restaurant’s operations. Although such a pricing strategy would result in lower margins initially, market share shall be increased in the long run. At this time, however, the creation of brand identity would be very significant. This restaurant brand shall not be recognized by its low prices but the VIP treatment given to customers and food quality at unbeatable prices. Only the highest quality of ingredients and expert chefs shall be used to prepare the meals. The articulate presentation as well as exceptional customer service shall be used to set high standards. By providing low prices and high quality of food along with dine-in facilities, long waiting cues are anticipated to develop in the restaurant which shall only be opened at one location initially. This shall further signal the restaurant’s popularity which will be precisely the time when the penetration pricing strategy shall be replaced with premium pricing. This is because the upscale ambience and perception of high quality will justify the higher prices. Since the company will have developed a strong customer base that is loyal to the company’s high quality food and dining experience, the high prices later on would not deter them from eating at this restaurant. Also, by attracting customers through penetration pricing it would become easier to establish food items that are highly demanded by customers. For instance, if Chicken Szechwan and Tempura fish are the restaurant’s specialties then they would be price higher compared to regular products. This would communicate the exclusivity of these food items. Furthermore, using demand-based pricing would allow the newly launched upscale Chinese restaurant to take advantage of different prices for different options such as lunch versus dinner as well as table location. Since the unique and exclusive store ambience would be a unique selling point, the locations of tables would vary from in-door dining to dining on huts with curtains to ensure exclusivity built on the sea. The tables towards the sea would be considered as part of the prime location in the restaurant for which a premium price would be charged. This would also ensure that only a limited number of visitors make it to the huts area considering that it would be the most attractive location in the restaurant. This would be ideal for seating VIPs or business executives who want to avoid the mainstream. Additionally, the restaurant would cater to customers’ demand of making reservations for parties, special occasions as well as corporate lunches. Large parties and corporate reservations would be given special discounts on the basis of the capacity reserved. As a general rule, reservations for a group over 15 members would be given a 20% discount. This, however, will only come in force when market skimming strategy is adopted and will not be used during initial years of the restaurant’s operations. Question 3 One of the issues facing businesses such as restaurants is that customers remain unaware of the value of the offerings unless it is explicitly communicated by the seller. Value communication, therefore, becomes particularly important when value is not visible to customers (Nagle, Hogan, & Zale, 2011). The process involves developing a value proposition and communicating and delivering it. Four strategies are available for the new Chinese restaurant. These strategies include Economic Value Communication, Economic Value Assurance, Psychological End-Benefit Framing and Psychological End-Benefit Assurance (Nagle, Hogan, & Zale, 2011). Since the benefits sought from the Chinese restaurant aren’t economic and are primarily psychological, the first two strategies are not suitable. Clearly, this upscale restaurant shall deliver psychological benefits of comfort, pleasure and status for those who utilize its services. It is not just the meals per se but the decor and exceptional customer service that will draw customers towards the restaurant. Although the cost of search is expected to be low due to presence of tough competition, the value customers attach to the restaurant’s offerings will nevertheless be subjective. The Psychological End-Benefit Assurance strategy is particularly useful for products that offer psychological benefits and are high experience goods (Nagle, Hogan, & Zale, 2011). With respect to the new Chinese restaurant, Psychological End-Benefit Assurance shall be used as customers may have a hard time judging which restaurant is better than the other due to similar taste of Chinese food offered by competitors. Not only is value ambiguous but also the benefits customers derive from the food experience are highly individualized. It is prudent, therefore, not to emphasize differential value but focus on the total value offered by the restaurant. Furthermore, the product offered by the upscale Chinese restaurant (which is food) has no economic value as such and primarily delivers psychological value. Customers, therefore, need to be assured that the dining-in, take-away as well as delivery service offered by the restaurant will deliver the desired psychological benefits. Furthermore, considering that ‘taste’ is a highly subjective experience which differs from person to person, differences amongst this restaurant and other Chinese restaurants may be difficult to ascertain. Customers, therefore, carry the risk of suffering from disappointment upon making the wrong choice. This strategy can allow customers to try out the restaurant’s offerings at relatively low rates or through initial discounts as well as through the penetration strategy as discussed. Word of mouth from friends and family regarding the quality of food served the dining experience and customer service including waiting queues shall be of immense importance. Nevertheless, the results remain uncertain as taste differs widely and, therefore, customers’ experience may or may not be pleasant. This is because a new brand can only promise a pleasant performance or service which cannot be tested previously until the services are bought and tried. However, using one value communication strategy for the entire target market may not do justice to the restaurant. In this case, the market for the upscale Chinese restaurant’s products may be split into novice and experienced buyers. Convincing novice customers who have little experience with eating Chinese food from competing restaurants may require the strategy of Psychological End-Benefit Assurance as suggested earlier. This will attract new customers. However, customers who regularly dine out or try different cuisines may find it easier to judge this restaurant’s worth relative to that of competing brands. Hence, for this target market Psychological End-Benefit Framing may be used to justify the steep prices due to the “psychological end-benefits” delivered by the restaurant. The perceived value of the service such as comfort, prompt service and premium quality of food may be emphasized. This shall enable the restaurant to retain its regular customers. Attempts shall be made to clearly differentiate the restaurant’s offerings from competitors through its advertising messages. This shall include an emphasis on the ‘freshness’ of ingredients used as well as the store ambience. Question 4 It is important to promote specials to attract potential customers while reinvigorating the interest of current customers. For instance, suppliers may experience a drastic fall in prices of lobsters during a particular season. Considering that this restaurant does not have lobsters in its regular food line, a Lobster special could be useful. As far as the daily special is concerned, a price higher than the regular price would be charged. Daily special shall include Butter Poached Lobster. Specials have traditionally been used as profitable items for restaurants. Daily specials such as chef specials are usually products that are not on the current menu of restaurants. They can be by-products of other regular food items or they can simply be the supplier’s best picks. Ideally, restaurants make use of chef’s expertise to prepare these specials with as much creativity as possible which allows restaurants to generate higher profits from them (Ojugo, 2010). A price premium shall be charged for daily specials. This high price shall be justified by creating a visually attractive appearance of the plate in which they are served. In order to develop the perception that the meal is truly ‘special’, special attention shall be paid to the aroma and presentation of the food. Although charging a lower price may be logical keeping in mind that no additional food supplies may be used, it can hurt the image of this product line. Charging a price lower than the regular food line can hurt the perception of exclusivity that the restaurant is trying to create through the daily ‘special’. It can also hurt the overall brand identity of this ‘upscale’ restaurant. On the other hand, charging a price similar to that of the current menu would not be suitable as, once again, this would not reinforce the ‘specialty’ of the daily special item. Since food is one of the products whose perceived value is determined by its price, therefore, charging the same price for this would not be suitable as it would not create the “high price, high quality” effect. References Levy, M., & Weitz, B. A. (2012). Retail Management. New York: Mc Graw-Hill. Nagle, T. T., Hogan, J. E., & Zale, J. (2011). The Strategy And Tactics Of Pricing: A Guide To Growing More Profitably. New Jersey: Prentice Hall. Ojugo, C. (2010). Practical Food and Beverage Cost Control. Mason: Delmar Cengage Learning. Read More