Food & Beverage - Avoid These 2 Common Pricing Mistakes - By Ken Burgin

Make sure these two errors don't undercut the profit strength of your entire menu or beverage list:

#1 Cannibal Pricing: when customers swap from their usual purchase of a $22 Sirloin Steak, to your new 'bring the crowds back' special of a 'Tender Steak for $10'.

It was meant to open up a whole new market, but how do you stop the regulars trading down for a bargain? The original item gave you a $15 Gross Profit and the special only gives you a $5 GP - bad news!

The point of specials and coupon deals is to attract new people who enjoy the offer, realise they've found a great place and become a regular. They can also increase purchases by existing customers who will come back more often or buy an extra item. Maybe.

The cannibalism happens when you compete with your own hero items or best sellers. Better to introduce a $1 Dessert or Half-price Wine Night, and pile on extra promotion for the existing steak or fish platter.

There's nothing wrong with lower prices (and many menus need a serious correction). But when a discount is made to one or two items without considering the impact on the entire menu, the results can be damaging.

#2 Welfare Pricing: when you deliberately underprice an item because you feel the profit margin is 'excessive'.

If you costed the delicious Ribs Platter at $3, did you feel charging $15 was unjustifiable, and settled for $11? Even if you know $15 is what customers expect? When you found that home-made lemonade only costs 20c, did you decide to cut the price, or charge the same as other fruit drinks? We've all experienced Greedy Pricing in resorts and tourist traps, but Welfare Pricing is not the antidote!

There's an old saying 'if you want to help the poor, don't join them!' Underpricing confuses customers, who wonder about quality, and robs you of margins to pay for all the other expense. Your profits are built one recipe at a time - don't waste any of them!

Profitable Hospitality offers management and cost-control systems (Manuals & CD-ROMs) for restaurants, cafes, hotels, bars and clubs. The systems are based on the extensive consulting and operating experience of CEO Ken Burgin, and enable busy owners and managers to set up complete operating and cost-control systems in minutes, not months. Profitable Hospitality also runs regular management training workshops in the areas of kitchen profit & efficiency, restaurant marketing and functions management. A free monthly e-newsletter keeps you up to date on the latest industry management issues. www.profitablehospitality.com.

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