Margins and Sales Volumes of Restaurants

Pricing can play an important role in the success or disaster of any product. Too high a price and the product will fail; too low a price and not enough profits will be made to sustain business operations (Hisrich, Peters, & Shepherd, 2014). The key is to make the customer think that they are paying exactly the right price for the product. Anything else though in this regard means the product is not positioned well in the mind of the consumer. First of all, Gril-Kleen will have to decide on what sort of strategy it needs to pursue. This strategy is decided on three factors namely costs, margins and competition.

In this paper I am going to explain some of the key terms that companies need to keep in mind when operating their business. First, we will start with marginal revenue, which is defined simply as the extra revenue that is made for each additional unit of a product that is sold. This is directly related to marginal cost, which is what it costs the company to make that additional unit of product.

Wilkerson’s competitive situation is that of declining profits due largely to chronic and severe price-cutting on pumps, the company’s main product in terms of units produced (Exhibit 4). Being a standard commodity product, demand for pumps is price elastic, and customers look for the cheapest price irrespective of the company they buy from. With its competitors constantly lowering their prices, Wilkerson’s only option for remaining competitive in the pump market was to match these price cuts. As a result, the actual selling price of pumps is $87, well below the target selling price of $107.69 (Exhibit 2). Consequently, Wilkerson’s actual gross margin of 19.5% on pumps is well below the company’s uniform target line of 35% for all

New employment agencies dealing with temp and contract workers face no shortage of challenges regarding profit margins. You need to meet your overhead costs (office rent and supplies, admin, compliance, etc.) and ensure that your team is securing target numbers for placements made.

As the price of the products is comparatively low, that will increase the purchasing power of the customer and they will buy in larger quantity and thus the company gains the profit. (Soni, P. (2016))

The setting of ‘fair’ prices to consumers: the company should bear in mind that customers nowadays will shop around to compare the intended products and services. However for the business survival and growth purposes, the company should also maintain its profit margins to ensure its business growth and expansion. The company needs to consider its cost factors and business operation areas to reduce or minimise the costing areas.

Pricing strategies are important because maximizing profits is the goal but keeping the prices reasonable for consumers. Pricing strategy has been based on historical rates; the menu and pricing had been consistent for the past five years. This year, the student managers did an analysis of product pricing and local stores and opted to alter the pricing of select item which impacted returns. Pricing analysis determined customers still purchased comparable quantities of the same items. For example, one popular item Pirate Concession sells is a walking taco. This item is a combination of fritos, chili, cheese and sour cream. The price to prepare this item is $1.01 and was traditionally sold at $2.00 for a $0.90. Student managers chose to raise the price to $2.50 and sales of the item did not alter. Profit on this item increased an average of $32.00 per game. The markup percentage increased from 98% to 147%. Student managers wanted to increase prices on candy offerings. Traditionally, candy bars have been sold at $1.00 and are purchased from the supplier for $0.33, a 200% markup. The primary consumers for candy is a young customer, whom of which often obtains the dollar from their parent/ guardian. This year, the management team has decided to leave pricing consistent, even though the markup percentage could be

Companies strive to choose not only the best marketing channels, but also the best profitable channel. A profitable channel can promote and successfully sell out of a product that might not otherwise turn a profit for their producers (New Charter University 2015). “The calculations from the cost accountant for the retail segment accounts were 60 percent of sales, and for the foodservice segment accounts were 40 percent. The cost accountant believes that both channels are profitable. The accountant also believes that the company achieves an overall average gross margin of 60 percent on its sales (Bowersox, D. J., Closs, D. J., Cooper, M. B.,

However, there are several factors for the company to choose its pricing strategy. In this case, it may be better if the company choose to sell its product at $21.50 instead of $15.50. This is due to the fact that price-cutting appears to be not a good strategy in this industry. If every player in the same industry starts to lower the price of their products, every company will end up having the low price, which in turns lead to a low profit margin. Moreover, referring to the calculation in a below table, it also implies that if the price is lower than $12, sales will not be able to cover the variable cost incurred, thus it will bring about a loss in net profit.

Research Challenge Identifying the optimal price for a new product is a critical step in the innovation process – and correcting the price of an existing product is a necessary component of successful brand management. With the wide range of pricing research techniques practiced in the industry, it is not always clear which technique best addresses the business issue at hand. This paper describes the most common methods used for consumer goods pricing research and offers guidelines on when – and when not

To make his business successful, Colin must consider an integration of price, promotion, place, and product. He must also try and distance themselves from their competition. To do so the brothers must maintain the quality of their merchandise and customer service, reasonable prices, and improve their promotion strategies. For one thing, the price of his products must be within a

The strategy for setting a product’s price often has to be changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition.

The left-hand side of this expression is the proportion of the price which is a markup over marginal cost. It is known as the “price-cost margin.” Historically, it is also known as the “Lerner Index.” The price-cost margin matters because, in the standard neoclassical model, a competitive industry prices at marginal cost. Thus, the price-cost margin can be viewed as a measure of the deviation from marginal cost. A price-cost margin of zero means that price equals marginal cost, which is the competitive solution. A price-cost margin of ½ means the marginal cost is marked up by 100 percent—half the price is markup. The formula shows that profit maximization entails a price-cost margin of 1/H. If costs are not negative, the left-hand side is not greater than one, and profit maximization entails an elasticity at least as large as one. What happens when the elasticity is less

Price interacts with all other elements of the marketing mix to determine the effectiveness of each and of the whole. The objectives that guide pricing strategy should be a subset of the objectives that guide overall marketing strategy. Thus, it is probably wrong to view price as an independent element of marketing strategy or to assert that price, by itself, is a central element in the marketing mix.” (Webster, 1979)

The paper presents an analysis of the different factors influencing the restaurant industry and how these factors increase or decrease the demand for such services. The hypothesis that will be examined is that the performance of restaurants is mostly based on the type of food chosen by customers when they decide to go out for dinner, lunch, breakfast, or simply for a snack. What type of food refers mainly the nationality or concept of the food, (traditional American, Italian, Indian, Latin, or from any other type of culture). This factor is important because when customers go out to for dinner; they decide what to eat before deciding where to eat. That is why this factor is considerably important according to the hypothesis.