1. Offering Value to Customers Via Price

2. Setting Prices In services, price often plays an important role in a consumer’s expectation of quality. Thus, if price is used as a primary marketing tactic, operators must take into account at least two roles of price (Kotler et al., 2005). First, when price acts as a dominant indicator of quality, the pricing aspect of the marketing mix can be used to position the product. Alternatively, when price acts as a relative indicator of quality, it can be used to alter guests’ perceptions of value. Customer’s price-value relationship usually extends beyond the simple monetary price of a service and includes other aspects of value, such as search, credence, or experience costs (Zeithaml et al., 2006).

3. Setting Prices Price sensitivity measurement (PSM) is a technique that reveals how relationships between price and quality affect customers’ perceptions of value (Lewis and Shoemaker, 1997). The Taco Bell fast food restaurant chain’s value-pricing menu is an example of the application of PSM. Usually, value pricing is misconstrued as offering deep discounts, which can lead to a detrimental industry-wide focus on price cutting. Value pricing becomes a technique that actually establishes a balance of price with product or service value (Lewis and Shoemaker, 1997).

4. Setting Prices However, standard operating practices in restaurants still reflect the fact that individual menu item prices often do not directly incorporate any major operating costs, such as labor, utilities, direct operating expenses, or fixed costs (Schmidgall, 1997). Hence they fail to provide better value to customers. To improve customer’s perception of value companies need to find out the range of acceptable price ranges of customers. This situation presents a major challenge for companies, since in highly competitive market conditions, proper pricing measures become extremely important as profit margins are subjected to downward pressure.

5. Case 1. Global fish restaurant is into serving launch and dinner to customers. They are into buffet system. From last couple of years they have been loosing their market share. Company launch its price promotions and gave good discounts to win back its lost customers and acquire new however it did not work. Their regular price is Rs 375 per plate Their Discounted price is Rs 200 per plate The management hired a consultancy firm to investigate into the matter and as a matter of suggestions asked them to focus more on achieving operational excellence and bring down the cost of plate down in anticipation of higher demand in the future. The consultants decided to first evaluate customer’s perception of value from this restaurant by interviewing them using a questionnaire. To select the right sample they asked a base question, whether they have availed its services with and without discount? Some of the other questions asked were presented in the next slides.

6. Questionnaire 1.At what price would you consider this food to be so inexpensive that you would have some doubts about its quality? (Too Cheap) 2.At what price would you still feel this food is a good deal and you will have no doubts about its quality? (Cheap Food) 3.At what price would you think that this food is kind of expensive, but still worth buying because of its good quality? (Expensive Food) 4.At what price would you feel this food is so expensive that it is not worth purchasing at Gold fish regardless of its good quality? (Too Expensive)

7. Data to be mined from the study Indifference Price Point (IDP): which is the pricing point at which an equal amount of customers feel that the price is cheap as it is expensive. Optimal pricing point (OPP): The point at which the purchase resistance is at its lowest. Price Sensitivity = Difference between OPP & IDP Closer OPP & IDP means less Price consciousness/Sensitivity and vice versa. Range of Acceptable prices (RAP)

8. Data to be mined from the study Range of acceptable price and price sensitivity will help the company determine what should be the upper and lower cap for determining price. From consumer survey the company found that RAP was 200-500 and Price sensitivity was at 450 so company should charge price from 450 till 500 not below that.