Pricing Strategy Essay Example | Topics and Well Written Essays - 1500 words

Pricing Strategy - Essay Example 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 â€Å"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 â€Å"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 sign al 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 prici