The Australian Small Business Blog

Friday, October 09, 2015

Increasing Prices in a Difficult Market

by Dr.Greg Chapman



It seems there is never a good time to increase your prices, even if your costs have gone up. So it is interesting to see how it is done in one of the most competitive industries around- restaurants.


Restaurants typically clear 5% and usually the owner gets little return for the investment of their time and money. It is also highly competitive. When you walk through restaurant districts such as Lygon Street in Melbourne, there are dozens of them sitting side by side, depending on spruikers to drag passing pedestrians into their restaurant before they find something better1 minute’s walk past their own.

With such competition pricing becomes important. Fortunately restauranters have found strategies to increase their prices and survive. Owners know customers who look at their menu before deciding to dine with them, look at the cost of the main courses to judge the cost of a meal. So an easy way for restaurants to increase their prices is to disassemble the main course but leave the nominal price unchanged. Most diners don’t just want a slab of meat. So if they want vegetables, salads, or fries, they are extras which may have previously been included in the cost of the main course. This is a price increase for the restaurant.

A more extreme version of this tactic to increase prices was once the preserve of just a few types of restaurants, most famously, Chinese. A Yum Cha style menu may be provided. Lots of small dishes may be offered, each on its own inexpensive, but each with a significant margin. A whole meal may be provided in this way and the total spend for a meal is likely to be higher as diners are no longer thinking of the cost, as each dish selection on its own is low cost. The staff’s job is always to be on hand for new dish suggestions as the diners finish a dish.



Another way restaurants increase their prices is by leaving the cost of the main unchanged, but increasing the cost of other items such as drinks, entrees, desserts, and even the sides. This is what service stations do in their convenience store. They make little margin on petrol, but the cost of the Mars Bar by the register is likely to be 50% or more than the cost in a supermarket.

Restaurants also increase prices by reducing the amount of the most expensive ingredient in the dish and surround it by lower cost ingredients, like potato mash or other vegetables. Coulis seems to be a favourite. (What is coulis?) Effort may also be placed on presentation of the dish so it appears like a work of art. (Doesn't art deserve a higher price?) The menu descriptions may be written by specialist menu copywriters using a bit of French or Italian to give a greater feel of value, even though the actual cost of the dish has decreased. This is just an example of packaging.

There are many more ways to increase your prices than the obvious ways your competitors try. In my latest book “Price: How You can Increase Your Prices without Losing Sales” you can read about 57 different ways to increase your prices. To become a Price Maker, Not a Price Taker you must think and act differently to your competitors. Discover how you can become reassuringly expensive.

All you need to do now is to Empower yourself and take action ...



May You Business Be - As You Plan It!

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Dr. Greg Chapman is also the author of
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