Pricing Strategy
Jobber and Lancaster (2003, p. 560) defines price as “the value placed on what is exchanged. Something of value – usually buying power – is exchanged for satisfaction or utility.”
When we go to a supermarket or a place where we want to purchase something – food or goods – we see the price attached to the product. We can say that price is part of a product, although a price does not mean money all the time. During early times when barter was used, goods were exchanged for other goods.
781 pricing strategy aims to lower the prices of hamburgers, sandwiches, and other food including ethnic food, to emphasize a bargain and attract customers who go out of their way, spending extra time and effort, and to save a small amount. Students and office workers can take the bait. But this is no bait, rather a strategy to make a mark on the target customers.
Somehow, 781 can also raise the price to emphasize the quality of its products and increase the status of its brand and ownership. This can be done with meticulous and careful study after a while, when the going gets smooth for the restaurant, or when it has determined its market niche.
Jobber and Lancaster (2003) say, “Price competition gives a marketer flexibility” (563).
This means the marketer can alter prices of its products when changes occur in the market which can be attributed to the demand of the product. Hamburgers and sandwiches can “float”, high and low, depending on the demand, just like any other product.
“If competitors try to gain market share by cutting prices, an organization competing on a price basis can react to such efforts” (Jobber and Lancaster, 2003, p. 563).
The result is a “price war”, a competition similar to “survival of the fittest” in evolution. Why? Because if you cut prices and are not too financially solvent, your firm suffers financially. However, that is not the way of a competition. Competitors too are sane enough not to lower prices in a losing scenario.
Integrated Marketing Communication
The restaurant can set prices to recover cash or to recover the capital that has been spent. This can trigger up prices of the hamburgers and sandwiches and other products. But it can be done through a slow process, i.e., when the going gets smooth.
Marketing Mix Variables
There is an inter-relation on all marketing mix variables. Some of the marketing mix variables associated with pricing decisions are: product, distribution, promotion and price.
Jobber and Lancaster (2003, p. 22) state that “these components are called marketing mix decision variables because a marketing manager decides what type of each component to use and in what amounts. A primary goal of a marketing manager is to create and maintain a marketing mix that satisfies consumers’ needs for a general product type.”
7871 provides products sold in the restaurant, but it has diversified; it has created branches and has introduced many other products aside from local and ethnic cuisine, to include hamburgers, sandwiches, and other fast food items. A low or high price can affect 781 products. And it has to take into consideration the distribution and promotion.
Moreover, 781 should be able to maintain a minimum price for its products, to lead the market. It has to maintain equilibrium. A marketer puts some of his luck in the buyer’s charge, because he/she may withdraw support of the product in case of price changes.
Price has different effects on the mind of the buyer. He may or may not take the bait. There are times that by raising the price of their products, marketers can emphasize the quality of their products as compared to others.
Jobber and Lancaster (2003) state:
Because price has a psychological impact on customers, marketers can use it symbolically. By raising a price, they can emphasize the quality of a product and try to increase the status associated with its ownership. By lowering a price, they can emphasize a bargain and attract customers who go out of their way – spending extra time and effort – to save a small amount.” (p. 561-562)
“Prices affect an organisation’s profits, which are its life-blood for long term survival. Price affects the profit equation several ways. It directly influences the equation because it is a major component. It has an indirect impact because it can be a major determinant of the quantities sold. Price influences total costs through its impact on quantities sold.” (Jobber & Lancaster 2003, p. 561)
This is true and applicable with a restaurant or where food and consumable items are involved. The quantities sold can be determined by the price of the food. For example, if 871 Restaurant sells a lot of hamburgers and sandwiches, the quantity of the food can be affected by the price offering. If it’s a bit cheap, a lot of customers will buy (but of course it has to be delicious). If it has an effective distribution channel, it can sell a lot of hamburgers, and the price now may vary.
Scientists study pricing to improve price elasticities. Kalyanam and Shively (1998, cited in Weitz and Weisley, 2006, p. 274) took “a stochastic spline approach to estimate market response to price”. Other scientists, such as Montgomery and Rossi (1999, cited in Weitz and Weisley) used methods to improve estimation of store-based price elasticities.
“Price is a key element in the marketing mix because it relates directly to the generation of total revenue. The following equation is an important one for the entire organization: Profits = Total Revenues – Total Costs.” (Jobber and Lancaster, 2003, p. 561)
The equation alone tells us that the costs of production will influence the price of the hamburgers, sandwiches and other food products of 871 Restaurant. The higher the cost of production, the higher will the hamburger be. And we have to take into consideration some moves that 871 Restaurant might do. What if it will outsource the products such as bread? Suppliers may demand higher prices for the bread, and 871 will be forced to add the cost to the product.
Moreover, Blythe (2006) says that “Price also has a strategic element, since price is commonly how products become positioned against other products in the market: undercutting competitors on price is a common way of competing” (p. 446).
Undercutting can be done when the cost of production has already been considered. But when the firm undercuts, competitors will do the same. That will result into a price war.
Pricing Objectives
Jobber and Lancaster (2003, p. 565) state that “Pricing objectives are overall goals that describe what the firm wants to achieve through its pricing efforts.” Pricing objectives influence decisions in functional areas, hence these objectives must be consistent with the restaurant’s over all mission and purpose.
781 Restaurant aims for specific profit objectives which, according to Jobber and Lancaster, are stated in terms of actual monetary amounts or in terms of percentage change relative to the profits of a previous period.
Return on Investment – 781 aims for return on investment which can be achieved by trial and error. This is true because not all cost and revenue data were available from the start, so that it has to be experimented from the beginning.
Following factors influence pricing decisions, according to Jobber and Lancaster (2003):
- organizational and marketing objectives;
- pricing objectives,
- costs,
- other marketing mix variables,
- channel member expectations,
- buyers’ perceptions,
- competition and
- legal regulatory issues. (p. 576)
Legal and ethical issues
Marketing ethics is not well developed in the area of business and this is often misunderstood. Jobber and Lancaster (2003) state that “Ethics relate to moral evaluations of decisions and actions as right or wrong in the basis of commonly accepted principles of behaviour” (p. 740). They define marketing ethics as “moral principles that define right and wrong behaviour in marketing” (p. 740). They further state that marketing ethics go beyond legal issues, because marketing decisions foster mutual trust among individuals, especially between the marketer or salesman and the customer or buyer.
If 871 Restaurant cares for its customers and takes into consideration the capacity of the customers to buy their products, there will be a bond between them. The question of ethics on some pricing decisions varies because ethics also change in different situations, especially in the case of marketing.
“An individual will make an ethical decision only when he or she recognizes that a particular issue or situation has an ethical or moral component. Thus developing awareness of ethical issues is important in understanding marketing ethics.” (Jobber and Lancaster, 2003, p. 744)
Ethical issues can influence pricing decisions. This involves money, and more so profits. If the aim of the marketer is solely for profits, it will redound to the organization’s aims as selfish and only concerned for profits, contrary to the marketing concept of customer satisfaction as the primary aim. Nothing should be sacrificed when it comes to the present marketing concept of primarily satisfying the customer.
Marketing Channel Strategy
A restaurant like 871 has a direct buying market, and this is because of its geographical location and the “kind” or “type” of population present in the area. On the other hand, a distribution channel for hamburgers and sandwiches and other kinds of fast food is through stalls, shops and branches throughout many parts of the country.
The presence of our restaurant, 871 Restaurant, in a strategic location fits our objectives of serving the target segment of the young demographic – office personnel, and common folks of the urban setting. And 871 may not depend on direct sales; a channel of distribution should be studied and made available.
Another growing mode in the area of channel of distribution is through retailing. The role of retailers in disseminating consumer products has been an important factor in the distribution channel. In our discussion here, we have enumerated below such distribution channels as: branching out, home delivery, advertising, and franchising. Franchising has an edge as to its relevance in the distribution channel because in the food industry franchisees can exert personal management. This means when it comes to food, a franchisee will normally care for the product or handle it like his/her own, unlike other products in the market. There is an immediate bond between the product and the person handling the product. Most food products handled by franchisees tend to succeed.
Branching out
Weitz and Wensley (2006, p. 275) state that “One of the manifestations for a firm of having a channel system other than direct sales is that the power in the channel may be controlled by either the firm or the channel, depending upon a number of factors.”
871’s channel of distribution through different stores and branches can have a great advantage on the firm. This is other than direct sales and can be controlled by the firm. However, the main distribution channel has got to be the main restaurant because this is still a growing restaurant catering to the direct needs of the customers in the area.
Home delivery
Home delivery system is an effective means of selling 781 Restaurant’s hamburgers and sandwiches, and other fast-food products. The system can take the model of Domino’s Pizza. Robert (1998, p. 6) speaks of Domino’s Pizza as one of those success stories. She says:
A company that has had considerable success in a very mundane business over the last 25 years is Domino’s Pizza. And most of that success was achieved by changing the rules of play. Thomas Monaghan, founder of Domino’s, invented the concept of ‘guaranteed home delivery within 30 minutes’.
Monaghan and his trusted employees developed a concept using a special envelope that was placed around the pizza to keep it warm during the delivery. This made Domino’s Pizza very successful and it grew to many thousand outlets all throughout the country with less competition.
871 Restaurant can also grow and multiply into thousand outlets by introducing innovative concepts of distribution, not just the traditional way of selling. There are a number of ways of doing this. Robert says that you have to change the rules sometimes to be able to get ahead of the competition.
“Significant shifts in market share only occur by changing the rules of play on the leader, not by imitating the leader! Imitating the leader, or others in the industry, does not result in significant shifts in market share.” (Robert, 1998, p. 6)
Advertising
Our restaurant should also tap multi-media advertising. Ads through the internet, radio and television and other means of mass media can also be effective. The restaurant should not be confined to just being a restaurant. More products like fast food, ethnic cuisine, and other menu have to be introduced to make it competitive in a fast changing market.
The last but not the least of the marketing strategy in distribution that we recommend is franchising. Franchising is one of the leading trends in strategic marketing. Robert (1998, p. 7) says:
In Europe, another upstart is making substantial gains at its competitor’s expense by changing the rules of play. Martin Carver, CEO of Bandag, Inc. decided that his business could not grow by emulating his competitors. Instead of working through Bandag’s own distribution system, as it had done for decades, Carver dismantled the company in favor of a franchise system that costs each franchisee $150,000.”
Franchising
Franchising can be one of 871 Restaurant’ best ways of distribution. This is in addition to its outlets and main restaurant; it can deliver its products to the exclusive franchisees all throughout the country. Of course, it has to build first the name or the brand before many other interested parties will come out to apply for a franchise and sell the 871 products. When that time comes, all it has to do will be to provide a fleet of vehicles to deliver the many products to its countless franchisees throughout the country.
Franchising does not sound unethical for marketing 871 products. This has been done by other businesses, particularly the food industry. In franchising, contracts are stipulated about how a business can be done. Products will be provided by 871, and so the customers buy the same products.
References
Blythe, J., 2006. Principles & Practice of Marketing. London: Thomson Learning
Jobber, D. and Lancaster, G. (2003). Selling and Sales Management, Sixth Edition. England: Pearson Education Limited.
Robert, M., 1998. Strategy Pure and Simple II: How Winning Companies Dominate Their Competitors. New York: McGraw-Hill Professional
Weitz, B. A. and Wensley, R. (2006). Handbook of Marketing. London: Sage.