Taylor’s University Bachelor of Culinary Arts & Foodservice Management
SUBJECT: Menu Design & Development TOPIC 10 DURATION: 1.5 hour
TITLE: Menu pricing strategy
VENUE: CLASSROOM
OBJECTIVES
1. To discuss the methods used in the industry for pricing a menu
2. To identify the technique relevant for pricing strategies
PRE-REQUISITES
• None
LESSON PLAN
CONTENTS
Introduction
1 – Pre-requisites and needs
2 – Non-cost pricing
3 – Value perception & pricing psychology
4 – Market research
5 – Economic influences
6 – Evaluating pricing methods and changing menu prices
L.O.1: to identify the various techniques used to fix a price
L.O.2: to choose and adapt the most relevant method according to a given situation
REFERENCES
1. Lendal H. Kotschevar and Diane Withrow, “Management by Menu”, Wiley, 2007
2. Jack E. Miller, and David V. Pavesic, “Menu: pricing & Strategy (Hospitality, Travel & Tourism)”,
Wiley, 1996
3. http://entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy_2.htm
4. http://www.restaurantrevolution.com/food-pricing-for-your-restaurant/
5. http://smallbusiness.chron.com/restaurant-pricing-strategy-5118.html
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Taylor’s University Bachelor of Culinary Arts & Foodservice Management
Introduction
After a menu is planned, each item on it has to be priced. There are number of items to
be considered in pricing. Price must cover cost. This requirement is essential for both
commercial operations and institutions that charge for meals but do not operate for
profit. However, noncommercial operations may seek supplemental help from
government or charitable contributions to balance losses. Profit averages 3 to 7% of
sales, so there is not a wide margin for error.
1 – Pre-requisites and needs
1.1 Factors to consider while pricing a menu
One of the most difficult, yet important, issues an entrepreneur must decide is how
much to charge for their product or service. While there is no one single right way to
determine your pricing strategy, fortunately there are some guidelines that help to take
decision. Here are some of the factors that need to be considered:
1. Positioning - How are you positioning your product in the market? Is pricing
going to be a key part of that positioning? If you're running a discount store, you're
always going to be trying to keep your prices as low as possible (or at least lower than
your competitors). On the other hand, if you're positioning your product as an exclusive
luxury product, a price that's too low may actually hurt your image. The pricing has to be
consistent with the positioning. People really do hold strongly to the idea that you get
what you pay for.
2. Demand Curve - How will your pricing affect demand? You're going to have to do
some basic market research to find this out, even if it's informal. Get 10 people to
answer a simple questionnaire, asking them, "Would you buy this product/service at X
price? Y price? Z price?" For a larger venture, you'll want to do something more formal,
of course -- perhaps hire a market research firm. But even a sole practitioner can chart a
basic curve that says that at X price, X' percentage will buy, at Y price, Y' will buy, and at
Z price Z' will buy.
3. Cost - Calculate the fixed and variable costs associated with your product or
service. How much is the "cost of goods", i.e., a cost associated with each item sold or
service delivered, and how much is "fixed overhead", i.e., it doesn't change unless your
company changes dramatically in size? Remember that your gross margin (price minus
cost of goods) has to amply cover your fixed overhead in order for you to turn a profit.
Many entrepreneurs under-estimate this and it gets them into trouble.
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4. Environmental factors - Are there any legal or other constraints on pricing? For
example, in some cities, towing fees from auto accidents are set at a fixed price by law.
Or for doctors, insurance companies and Medicare will only reimburse a certain price.
Also, what possible actions might your competitors take? Will too low a price from you
trigger a price war? Find out what external factors may affect your pricing.
1.2 Pricing objectives
The next step is to determine the pricing objectives. What are you trying to accomplish
with your pricing?
1. Short-term profit maximization - While this sounds great, it may not actually be
the optimal approach for long-term profits. This approach is common in companies that
are bootstrapping, as cash flow is the overriding consideration. It's also common among
smaller companies hoping to attract venture funding by demonstrating profitability as
soon as possible.
2. Short-term revenue maximization - This approach seeks to maximize long-term
profits by increasing market share and lowering costs through economy of scale. For a
well-funded company, or a newly public company, revenues are considered more
important than profits in building investor confidence. Higher revenues at a slim profit,
or even a loss, show that the company is building market share and will likely reach
profitability. Amazon.com, for example, posted record-breaking revenues for several
years before ever showing a profit, and its market capitalization reflected the high
investor confidence those revenues generated.
3. Maximize quantity - There are a couple of possible reasons to choose the
strategy. It may be to focus on reducing long-term costs by achieving economies of
scale. This approach might be used by a company well-funded by its founders and other
"close" investors. Or it may be to maximize market penetration - particularly appropriate
when you expect to have a lot repeat customers. The plan may be to increase profits by
reducing costs, or to upsell existing customers on higher-profit products down the road.
4. Maximize profit margin - This strategy is most appropriate when the number of
sales is either expected to be very low or sporadic and unpredictable. Examples include
custom jewelry, art, hand-made automobiles and other luxury items.
5. Differentiation - At one extreme, being the low-cost leader is a form of
differentiation from the competition. At the other end, a high price signals high quality
and/or a high level of service. Some people really do order lobster just because it's the
most expensive thing on the menu.
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6. Survival - In certain situations, such as a price war, market decline or market
saturation, you must temporarily set a price that will cover costs and allow you to
continue operations.
Now that we have the information we need and are clear about what we're trying to
achieve, we're ready to take a look at specific pricing methods to help us arrive at our
actual numbers.
2 – Non-cost pricing
A number of methods that are not based on cost have historically been used in pricing
menus. Some, such as pricing based on tradition, competition, or what the market will
bear, are in this category. Surprisingly, they were used often and, even more
surprisingly, were sometimes successful. Finding a price based on what the market will
bear is an involved process and takes a lot of testing and observation. Others, such as
traditional pricing or pricing against competition, are relatively simple.
2.1 Pricing based on tradition
Many operations look at traditional prices, often those set by the leaders in a particular
market niche. Tradition in pricing may relate not only to a specific price but also to the
pricing structure and market. Many operations find they cannot get as high a markup for
California wines as they can for European ones, although the California product may be
equal or better quality. Tradition has it that the domestic product is usually lower in
price, and, therefore, the pricing structure must be varied to suit this tradition.
Different types of operations will also find that the pricing structure they must follow is
one in which a lower markup must be taken than that of another type of foodservice.
Thus, while two operations may sell exactly the same thing, one will be able to set prices
on a different basis from the other.
Some operators may find that prices have been the same for so long that they become
traditional with their customers. When they attempt to change these prices, they may
meet with very strong sales resistance and customer dissatisfaction. Thus they may
decide not to change the price on a particular item but get a higher markup on other
items that are not so restricted. It is possible for a price to become traditional because a
leader in the market charges this price. Thus an industry leader like Mc Donald’s sees its
prices often become traditional among similar operation. With changing costs, this is an
impractical and risky method of pricing.
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2.2 Competitive pricing
One of the most common pricing methods is to base the price on what the competition
charges. Although it is wise to pay attention to competitors’ prices, it is unwise to base
your prices completely on them. What the competition charges may bear no relation to
your costs. Pricing in this manner wrongly assumes that prices satisfactory for the
competitions’ customers are also satisfactory for your customers. In addition, copying
competitors’ prices does little to differentiate an operation.
If competitive pricing is indicated by research, a unit should study its own cost to analyze
how it can price menu items to produce a more favorable response than that produced
by the competition’s prices. A competitor’s price may be studied to reveal information
about the food, labor, and other operating costs. Food and labor are standard
commodities that will have a known price. A close scrutiny of these may indicate what
the competition might be doing to achieve a favorable price structure. A study of
competitive pricing and its effect on one’s own business is also warranted. In some
cases, prices may have to reflect the influence of competition. Value bundling is a
competitive strategy adopted by quick-service restaurant, reluctantly but in response to
customer demand.
2.3 What the market will bear
A method of pricing used by some companies is to design a product and then test
market it at a given selling price. The product may be put on several markets at different
prices, and customer reaction will be studied to ascertain which is the best price.
Marketing specialist state that one of the best routes to success is to develop a product
the market wants and then price it so that healthy profit is made. With proper pricing
and strong demand, these specialists say there is a high chance of developing a
successful market. They recommended studying the value of the product in the minds of
patrons and then charging accordingly. Some products may have to be priced only
slightly above cost to be accepted by the market; others can have a much higher margin.
Establishing a selling price based on what the market will bear is not just a trial-and-
error method; it should be based on sound research. To some extent, prices can be
tested to see how well patrons accept them; however, not too much experimentation
per item can be done. Perhaps, three or four prices can be tested on an item, and then
the testing must be stopped. Otherwise, patrons might reject the item because of the
instability of the price. If a customer attaches a certain value to a product and is willing
to pay a higher price for it, there is no reason why it should not be marketed at that
price. Patrons are not interested in what it costs to produce and market an item. They
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are much more interested in getting something they feel represents a good value for
their money. If the price is within the value they have in mind, they are happy.
Success is pricing according to what the market will bear is enhanced if some attempt is
made to show patrons the true value of the menu item. It is often difficult for patrons to
see the value in atmosphere, service, fine tableware, linens, and foods that are
somewhat out of season or brought in at additional cost. If a way is found to get patrons
to understand that these increased costs increased value, they may be willing to pay a
higher price. Having a differentiated product is one way of getting patrons to see and
appreciate value.
3 – Value perception & pricing psychology
3.1 Value perception
Value perception, or what patrons think of the desirability of a product compared with
its menu price, is an important factor in menu pricing, since prices largely influence
patrons’ thinking about the value of menu items. A high price may be associated with
high quality and a low price with lower quality. Some people want to go to a place where
prices are high, feeling that they will be provided with an ultimate experience. A
businessperson may take potential customers to a luxury restaurant to impress them
with lavish pampering and hope this will transfer into a lucrative relationship. The menu
must tie in with any attempt to present high prices and luxury by using proper menu
wording and item presentation.
The way patrons perceive value is often manipulated favorably by getting buyers to
think there is something special about a product that competing products do not have.
We call this development of special, unique characteristics in a product differentiation. If
a product can be favorably differentiated, buyers will want it rather than a competing
product, and the seller has better control of the market and pricing. Through good
advertising, buyers can be persuaded that it is better in some way than competitive
products.
Foodservices can differentiate products and services in various ways. Often several
special items on the menu can do the trick, such as a unique chef creation, a marvelously
indulgent dessert, or a unique cocktail. Location, atmosphere, and decor are also used to
differentiate one operation from another. A smiling maitre’d greeting new guests with a
warm welcome and calling returning patrons by name can differentiate the service from
that of a competing operation. When a foodservice achieves differentiation, patrons
may pass up competitors, going a long way just to eat at a particular place.
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3.2 Pricing psychology
Studies have been made on how menu planners set, and how patrons react to, menu
prices. Menu planners usually try to avoid whole numbers and try to shade numbers just
below them. A price of $6.95 or even $3.99 is perceived as less than $7 and $4. Number
“5” is the most-often used ending digit. Some authorities say that a price ending in .99 is
more suited to quick-service menus, and 0 and 5 as ending digits suit full-service menus
better. Some fine-dining establishments use reverse psychology, casually pricing items
with the number indicating the dollar value of the guest cost: “six, “twenty-three,” and
so on.
Price length also has importance; many menu pricers hesitate to use four-digit prices if
they can avoid it. They feel that a price of $9.95 is better than $10.95, that three digits
appear as a much lower price to patrons than four.
Patrons tend to group prices by range and think of them as single-figure amounts. For
example, prices from $0.86 to $1.39 are considered to be about $1.00; from $1.80 to
$2.49, about $2.00; and from $2.50 to $3.99, about $3.00. Prices from $4.00 to $7.95 are
thought of as being about $5.00. Instead of raising a price into the next full price range,
the menu planner may try to hit the upper limit of the range the current price is in. That
is, instead of raising a menu price from $2.25 to $2.55, the planner may raise it to $2.45.
A price of $7.75 is preferable to $8.25 because the former is in the “about $5” range and
the $8.25 is in the “about $10” range.
Patrons do not seem to like wide ranges in menu prices. They want prices grouped
together within the price range they want to pay. If too wide a price range occurs,
patrons will tend to select the lower-priced items.
Patrons do not always view price increases in the same way. A price increase from $5.95
to $6.25 is seen as a bigger jump than from $6.25 to $6.75. Some operations find that
patrons resist buying after a certain price is reached. A Montana restaurant built as a
stockade and located on a high mountain pass found there was resistance to any dinner
price above $10. Items priced below $10 were popular. Items over that were not. To
resolve this, the table d’hôte meals were dropped and all items were listed à la carte at
seemingly lower prices. The highest-priced steak with a salad, potato, and roll and butter
was $8; a popular Trappers Stew was priced at $6.50, and so on. If patrons wanted
appetizers, soup, or desserts, they paid extra. The strategy worked. Most checks now
came to more than $10 per person. The $10 wall was broken.
4 – Market research
Market research should point out what kind of market exists and what consumers will
pay. If a gourmet restaurant opens, it must be located where it will attract customers
with money. Adequate market information can lead to greater precision in setting
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prices. A base price and top price can be defined and the menu planned to work within
this range. Of course, the product must be perceived to be worth the price paid.
5 – Economic influences
Many methods are used to price menus. Some managers calculate their costs as a
percentage of sales and then calculate the selling price. Others base selling prices on
factors other than costs.
5.1 Pricing based on costs
One of the most common methods of pricing is for the planner to list costs of the food
for each item on the menu and then mark up the final figure to obtain a selling price. For
instance, if an à la carte item has a food cost of $2 and the operation wants a 30 percent
food cost percentage, the base selling price would be $6.66 ($2 ÷ 0.30 = $6.66). Per
pricing psychology, it might be nudged to $6.75 or $6.95. If the operator wants to
maintain a 30 percent food cost in relation to sales, all foods would be marked up by
dividing food cost percentage into food cost.
The disadvantage of this method is that it assumes that other costs associated with
preparing menu items remain the same with every menu item. On the contrary, menu
items vary considerably in the cost of labor, energy, and other factors needed to
produce and serve them.
For instance, a steak is on the menu for $16.95, while a pasta dish sells for $11.95. The
labor cost to make a portion of pasta is $4.25 and the labor cost to prepare the steak is
$3.50. The pasta’s labor cost is 42.7 percent of the selling price and the steak’s is 20.6
percent. Assuming other costs have the same ratio to food cost for each menu item is a
mistake. This leads to undesirable pricing that fails to cover costs on some items and can
work against the sale of others. Costs must still be a paramount factor in pricing, and all
costs—not just one or two— should be considered.
Pricing experts also claim that food cost pricing does not work because many
foodservice operators do not know all their costs. These critics point out that many
hidden food costs, such as spoilage, are not determined.
5.1.1 Derived Food Cost Percentage
The most common method is to use a derived food cost percentage. Simply divide the
dollar cost of the food by the desired percentage (food cost ÷ food percentage). If a
menu item has a total food cost of $2.73, and the operator wants a food cost percentage
of 35 percent, the calculation is $2.73 ÷ 0.35 = $7.80.
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5.1.2 Pricing factor or multiplier
Sometimes managers may convert a desired food cost percentage into a pricing factor or
multiplier. For this, one divides the desired food cost percentage into 100 percent. This
formula gives a factor by which a food cost is multiplied to get a selling price. For
instance, suppose a food’s cost is $2.73 and the desired food cost percentage is 35
percent; 100% ÷ 35% = 2.86, and 2.86 × $2.73 = $7.81, the selling price. The table below
provides the multipliers for many common foot cost percentages, but any other
multiplier can be determined by dividing 100 by the desired food cost percentage. The
multiplier can then be used to calculate selling price. Thus, if an operator wants a
multiplier based on a combined food and labor cost of 65 percent, the calculation would
be 100% ÷ 65% = 1.54. If the combined food and labor costs were $5.20, the selling price
would be 1.54 × $5.20 = $8.01, probably set at $8.00 or $7.95.
5.1.3 Variable Cost Pricing
A variable food cost pricing method is sometimes used for à la carte menu items. For
instance, an operator may assign food cost markups for menu items, as shown in Exhibit
A. This variable pricing can also be used to arrive at table d’hôte menu prices.
Using the food costs in Exhibit B and the percentages in Exhibit A, a table d’hôte meal
can be priced out. Labor costs also can vary with different menu items. In these cases,
menu items are divided into high (H), medium (M), and low (L) labor costs. Different
percentages of food costs are then assigned to these. For instance, for high-labor menu
items, a food cost of 25 percent is assigned; for medium, 35 percent; and for low, 40
percent Exhibit C indicates how the pricing of three items turns out compared with an
overall price based on a 33.3 percent food-cost-only calculation. This method weighs
food cost and allows the price to reflect the influence of labor as a cost.
Exhibit A Exhibit B
Exhibit C
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5.1.4 Prime Cost Pricing
A selling price can be based on a dollar prime cost value divided by a cost percentage or
multiplied by a factor. Prime cost is raw food cost plus direct labor, or labor spent in
preparing an item. Thus, if food cost is $1.00 and direct labor is $1.25, prime cost is
$2.25. An operation that wants a 35 percent food cost and a 25 percent direct labor cost
has a prime cost percentage of 60 percent. Direct labor time is usually obtained by
timing work. A selling price based on prime cost is obtained by establishing a desired
combined food and direct labor cost percentage. Suppose 60 percent is the desired
prime cost percentage and a cook takes 1.5 hours to make a recipe that gives 30
portions. The food cost of the recipe is $126.56. The cook is paid $8.75 per hour; 1.5 ×
$8.75 gives a direct labor cost of $13.12, which, added to $126.56, gives a prime cost of
$139.69. The prime cost per portion is then $139.69 ÷ 30 portions = $4.66. The selling
price would be $4.66 ÷ 0.60 = $7.76.
5.1.5 Combined Food and Labor Costs
Prices may sometimes be based on a combined food and labor cost percentage. For
instance, if you want a 35 percent food cost and a 30 percent labor cost, the combined
cost would be 65 percent. If food cost for an item is $3.94 and all labor costs are $4.60,
then using these figures the selling price would be ($3.94 + $4.60) ÷ 0.65 = $13.14. For
this method, it is necessary to use a dollar value for labor cost that is based neither on a
percentage of the selling price nor on a percentage of sales. It has to be a labor cost that
is specific for the item.
5.2 Gross profit pricing
In this method, a gross profit dollar figure is taken, usually from the profit and loss
statement for a certain period. This is divided by the number of guests served during
that time to get an average dollar gross profit per guest.
Gross profit pricing is a useful method because in many operations the cost of serving
each patron is much the same after food costs are considered. It tends to even out
prices in a group.
5.3 The one-price method
In some foodservices, the overall cost of menu items is the same, such as a doughnut
shop where all doughnuts and beverages cost about the same. This is the one-price
method in action. The operation can charge just one or a few prices to simplify things.
The small differences will usually even out. A nightclub with a cover charge can also use
the one-price method because the cost of what is served is nominal when compared to
other costs, such as entertainment, music, and decor.
Another kind of operation that might charge one price regardless of the item selected is
one in which selling food is not a primary purpose. This operation could be a tavern that
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makes all sandwiches one price. Or it could be a casino, where the objective is to get
people in to gamble, and if food at one price helps do that, the operation benefits.
5.4 Cost-plus-profit pricing
In the cost-plus-profit pricing method, a foodservice may decide it needs a standard
profit from every patron who enters. The rationale behind this is that every customer
who comes through the door costs the operation money, no matter what is ordered.
The operation may reason that it wants a set amount of profit from every patron.
Therefore, total costs may be calculated and then a set amount is added to this. For
instance, an operation that wants to make $600 a day in profit may find it has an
average of 400 patrons per day. Then, when pricing, the food, labor, and operating costs
are added together, plus a $1.50 profit. This covers all costs and should result in the
desired profit of $600. Next, an average labor cost value and operating cost value are
determined from the profit and loss statement, and both are divided by the number of
patrons served in that period. If labor costs, including all benefits, are $80,511, operating
costs are $50,336, and 83,001 patrons are served, then the average labor cost per
patron is $0.97 and the operating cost per patron is $0.61. The selling price calculations
for items A, B, C, and D are shown in the table below. In this case, the low operating and
labor costs give low selling prices. This method tends to even out selling prices.
5.5 Minimum charge pricing
Pricing based on a minimum price to cover costs and give a desired profit in a
commercial operation is much the same as calculating the price based on costs plus
profit. The rationale for this method is also much the same. That is, every customer costs
a certain amount to serve, and by having a minimum charge these costs will be covered.
A hospital or nursing home might use such a method. A private club might have a
minimum for certain rooms where food and beverage service is provided. Such a policy
is also common in some commercial dining rooms. Pricing may be arranged on a menu
card to make it impossible to obtain service below a certain price. For instance, the Four
Seasons Restaurant in New York City may not want to see a price of less than $25 for
lunch. Such operations will test out various luncheon combinations. Whatever menu
items produce the desired result will be priced accordingly.
Some operations may state on the menu card that there is a check minimum. If a
customer does not order enough food to cover this minimum, the check will still include
the minimum payment. Clubs may require that members spend a specific amount during
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a certain period on foods and beverages so that the foodservice department receives
enough income to operate. If the member does not spend this amount during the
period, the balance is added to the bill.
A cover charge is a set price that is added to customers’ bills, regardless of what menu
items are purchased. This cover charge establishes a base from which costs for space,
atmosphere, entertainment, and other costs will be paid. The cover charge is used by
nightclubs and other operations where entertainment or dancing may be an attraction.
5.6 Pricing based on sales potential
Some menu planners believe that pricing should reflect factors in addition to food and
labor costs, including how an item is expected to sell. They divide items into high cost
(HC) or low cost (LC), high risk (HR) or low risk (LR), and high volume (HV) or low volume
(LV). Thus, one menu item may be labeled HC-LR-HV and another LC-HR-HV. Ratings of
LC, HV, and LR are considered favorable, while HR, HC, and LV are considered
unfavorable. Eight combinations are possible.
HR-LC-HV HR-HC-LV
HR-LC-LV HC-LR-LV HV-LR-LC
HR-HC-HV HC-HV-LR LR-LC-LV
If a plus (+) is assigned for a favorable factor and a minus (–) for an unfavorable one, the
following matrix is obtained, based on the previous combinations.
– + + – – –
– + – – + – + + +
– – + – + + + + –
If this formula is used when pricing, the highest markup would be assigned to any item
having three minuses or two minuses and a plus, a lower markup to one minus and two
pluses, and the lowest markup to the one with three pluses. Perhaps the highest markup
would be based on a 25 percent food cost, the next on a 30 percent food cost, and the
last on a 40 percent cost. This type of pricing would ensure a profit margin for low-
volume, high-cost items. The table below shows how an operation might classify items,
and indicates the desired food cost markup.
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5.7 Marginal analysis pricing
Retail operations, including foodservices, may use the marginal analysis pricing method.
This is an objective method in which the maximum profit point is calculated. The selling
price chosen will be the one that establishes this maximum.
Say a quick-service operation wants to set the most favorable price for its milkshakes in
order to maximize profit. It estimates that at various prices it will sell a certain number
of milkshakes, as shown in Table 1. Fixed costs are $80.00, and variable cost per
milkshake is $0.40. Thus, 100 shakes cost 100 × $0.40 food cost plus $80.00. That is, (100
× 0.40) + $80 = $120.
From the marginal profit column we can see that the bestselling price is $1.10 with 410
sold; the next best is $1.20. The graph 1 shows how this marginal analysis problem
appears in graph form.
The greatest distance between the costs and sales lines is at points a and b, where 410
milkshakes are sold to bring $451 in sales at a cost of $244, giving a profit of $207.
Table 1 - Marginal Analysis Projection
*Estimated from marketing studies or by other means.
† $80 fixed cost + (100 sold × $0.40 each) = $120.
Graph 1 - Marginal Analysis Graph
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6 – Evaluating pricing methods and changing menu prices
6.1 Evaluating pricing methods
Few operations use only one pricing method. Most use a combination to best meet their
needs and those of their patrons. Pricing based only on competition is generally not a
good method, but considering the prices of competition when establishing one’s own
menu prices is advisable. Using a standard markup over an accurate cost determination
can give a fairly precise price basis and usually assures an adequate profit or budget
performance. However, varying margins over cost based on what the market will bear
should also be considered, as should pricing based on volume. Perhaps markups should
be varied to promote merchandising and entice patrons with loss leaders (items that
have a low markup but can bring in extra business). Additionally, various items may be
priced to cover the high food cost of items with prices based on local competition. Thus,
a quick-service operation may not make as much on its hamburgers and hot dogs as it
does on milkshakes, carbonated beverages, and fries, but in the end the achieved sales
mix can give a very desirable markup level.
And, finally, pricing is not something that is done and then is over. There is a need to
evaluate prices constantly, to study how customers react to prices, and to gather data
on costs. Too often no follow-up occurs, and when a revision of menus and prices is
necessary, there is a lack of adequate information to do a good job. Gathering,
compiling, collating, and filing pricing data are as much a part of the pricing function as
the establishment of prices.
6.2 changing menu prices
At times a change in a menu price is necessary. If it is an item that appears frequently on
the menu and has good acceptance, repricing may present difficulties. Customers may
resent the change and may stop ordering the item to show their displeasure. Sometimes
this does not last long, and the item gradually assumes its former importance as a seller.
During periods in which food prices increase rapidly, most customers recognize that the
establishment must also increase prices and will accept the price increases. In periods
when prices are stable but some other factor makes a change necessary, customers may
not be so willing to accept a price change.
Some operators attempt to change a price by removing an item from the menu for a
time and then bringing it back at a new price. If it also comes back in a somewhat new
form, or in a new manner of serving and with a slightly different menu name, the price
change may be less noticeable. Changes also tend to be noticed less if they are made
when volume is down.
HTM 3552 - Topic 10 – Menu pricing strategy 14
Taylor’s University Bachelor of Culinary Arts & Foodservice Management
Prices are frequently changed when a new menu is printed. In fact, the need to change
menu prices may sometimes stimulate a menu change more than the need to change
items. Some authorities advise against changing format and prices at the same time,
saying that customers will notice price changes because of the new format.
Using menu clip-ons removes the need to print new menus just to incorporate new
prices, and avoids the need to cross out old prices to put new ones in. The latter,
especially, can give patrons a negative impression. In some instances, if a general rise in
menu prices must occur, an operation may change several items $0.05 or $0.10 each
and then let these remain at this price while changing a few others. In this manner prices
are gradually worked up to the desired level. This has the disadvantage of giving
customers the impression that the menu and its prices are unstable. Some
announcement, on a clip-on or table tent, can be helpful in indicating to patrons why a
change in menu prices in necessary. However, this can also have the undesirable effect
of calling attention to changes that some customers might not otherwise notice.
Patrons are likely to be especially aware of price changes for popular items. Also, as
noted, they are more aware of a change when the dollar price changes than when the
cents price does. Rather than changing a dollar amount, it might be wiser to make a
price change in cents, or make it gradually.
Only a few items’ prices at a time should be changed if prices are changed frequently.
More items can be repriced if the change is less frequent. Some say that only two price
changes should be made in a year; others feel that only one is advisable. With some
items for which prices may have to change frequently, such as lobster or stone crab, it is
advisable to list the price as seasonable price or market price.
Printed menus that rarely change their items offered or their format are more difficult to
change in price than are blackboards, panels, or handwritten menus. Computerized
menu programs printed in-house offer versatility in this regard. If a menu has a daily
insert in which items change daily or frequently, it is easier to make price changes on
this than on the permanent, hardcover menu. It is never a good practice to cross out an
old price and write in a new one. Even whiting out a price and writing in a new one is not
recommended. Specials and highly promoted items are difficult to change in price
because buyer attention is often centered on them. They should be dropped from
promotion for a time and then reinserted with the prices changed. In all cases, price
changes on menu items should end up within the range expected by patrons.
HTM 3552 - Topic 10 – Menu pricing strategy 15
