Pricing is always a tricky subject. If we price our products too high, we risk losing customer demand whereas if we price them too low, we risk not making a profit at all. Therefore, there needs to be a fine line when it comes to pricing anything.
That being said, there are specific steps that you can follow in order to help in your pricing framework. First is setting price objectives. Why are you pricing a product the way you are pricing it? In other words, what is the objective behind that pricing decision? Is it profit-oriented, sales-oriented, status quo and prestige oriented?
Similarly, the second step is to estimate the demand accordingly. Establishing a premium restaurant with higher prices would mean that the demand will be less than that of a medium restaurant. Conversely, fast food restaurants will have a high demand due to the nature of the business.
Then, we move on to determining the cost. What are the expenses like? Expenses include fixed assets such as furniture and kitchen supplies and interior decors as well as variable expenses like rent, salary, marketing cost and so on. Understanding the cost and then putting a profit margin on that cost is a better way to see whether the price will be competitive in the market or not.
Then we also need to determine the pricing strategies that we want to use. We could either use a price skimming strategy where we raise the price from the start to cover up the investment cost or price penetration strategy which allows us to capture a lot of market share.
Using cost plus pricing, leader pricing, price bundling and so on are all part of giving an incentive to the people in order to capture their attention. We can later give them offer and make price adjustments as needed.
Nowadays, there is a trend of investing a lot of money and resources into making the best internal decor and buying top class furniture and sofas and an OLED TV for the restaurant. Restaurant owners hire architects and interior designers to build the best bars, best kitchen, best BBQ place and so on.
I am not saying this is a bad thing. Actually, this will make the customers feel special and valued especially after seeing the environment and the decorations. But I want to point out that internal marketing is equally if not even more important than instagrammable walls and colour changing lanterns.
The restaurant owner should focus on raising the morale of employees first and foremost. By employees, it includes everyone working in the restaurant: the chef, the waiter, the manager, the sous chef and so on. If the employees are given ample play, their performance appraisal process is justifiable, good services are appreciated then the employees will be satisfied.
Employee satisfaction leads to quality service. The chef will start preparing the dishes with love, the waiter will start serving the customers with a big smile, the cashier will be welcoming and kind and so on. With all of this, the customers will be satisfied. They will feel special and their experience with the restaurant will be memorable.
Once a customer remembers the restaurant and its happy memories, they will become a regular customer and regular customers means higher profit. It would mean more happy customers and a full house every time.
This will allow the restaurant owner to reinvest the profit back into the restaurant through increased salary, pay raise, more employee benefits, vacations and gifts and so on.
We hear about brands all the time. We want Nike shoes and Gucci jackets, BMW cars and Rolex watches, so on and so forth. There is always a brand attached to the product/service and that’s what makes the people want to buy and visit again for that brand experience. Branding on restaurant works almost the same. We know fast food chains like KFC and McDonalds not because the food is good or the ambience is great, but because of the branding itself. Yeah, the food might be good as well but the familiarity is the reason why most of the people opt for those fast food restaurants rather than a normal one.
What does that mean for us? It means that branding is a life-long journey and in order to stay afloat in the market, the restaurant should have a great branding. Your target audience should know that your restaurant exists and that they come regularly just because of how well the branding of the restaurant is. If you primarily sell pizza and somebody craves pizza, they better come to your restaurant to satisfy their cravings.
The power of the brand empowers the employees to work with full dedication. They can brag with their friends that they work for your restaurant and how amazing it is. It allows for brand extension. You will be able to create franchise opportunities and that brand name can help you to kickstart your new restaurant in a new location. You won’t have to start from the bottom due to the power of branding.
Similarly, it helps to create bonds with consumers which in turn increases the sales revenue. The customers can be updated about your restaurant through online presence and be wary about the different events and offers. And lastly, great branding allows the restaurant to have a better bargaining power with suppliers. The suppliers will be glad to supply products to your restaurant based on the positive responses.
We all need to understand that a new restaurant surely does generate a lot of traffic if you know the neighbourhood or you have a lot of network. But everything has a honeymoon phase and once that phase is over which could be 2-3 months down the line, the restaurant will stop getting as many customers as there were, during the opening stage.
That’s when the restaurant owner starts to panic because he had already hired a lot of staff in order to meet the growing demand and all of the sudden, only 3-5 customers come to the restaurant a day. Every restaurant owner faces this dilemma no matter how famous the restaurant gets. You need to start thinking about utilizing consumer sales promotion.
It could be anywhere from discount offers, contests, premiums all the way to pop-up stores and point of purchase displays. Let me explain. If you have watched my menu engineering course, I have mentioned that there should be high margin foods and low margin foods in order to balance the food menu. You can run discount offers and use coupon codes for those high margin food items.
Giving a free appetizer with an order above 1000 might not cost you much but it could bring in a lot of customers and the profit would increase solely based on that offer. You are already paying for the staff, the rent, the decor and everything, why not spend a little by giving out free appetizers or sodas or 10% discount offers?
Similarly, you can run giveaway contests, organize different events, bring in local celebrities and musicians and so on. It will surely bring in some new customers if the marketing is done correctly. You can launch membership cards where someone will receive some benefits if they visit the restaurant by X amount of times in a month.
Pop-up stores are also a great idea to see whether your unique food items have enough customer demand or not. You might think that Nepalese will love tacos. This is just a hypothesis and in order to test it, you can open a small pop-up store in a mall and see whether the customers like it or not. This is a great way to test a new menu item without breaking big bucks. And lastly, the restaurant can have a point of purchase display of different desserts, bakery items; things that will entice the customers to order it.
Customer Relationship Management can be defined as the strategies and practices to analyse and manage customer interactions and data. Its primary purpose is to improve relationships with the customers which in turn leads to customer loyalty and business growth. There are a lot of CRM software which helps with retaining the customer but I am not going to talk about that.
Let’s focus on how we can measure consumer satisfaction. There are two critical ways to do that – by establishing appropriate expectations and then delivering those expectations. For example: You can ask questions like were the order taken promptly, how long did you have to wait for your food and so on. Giving a customer review paper at the end would help the restaurant to understand where they are doing great and where they need to improve.
You might ask, what’s the reason that makes the customer dissatisfied and there are multiple reasons. First is the communication gap which simply means overstating the offering. If you say that there is a discount on the food menu and when you go to the restaurant, they say that the offering has expired; that counts as a communication gap.
Similarly, the next one is knowledge gap which means not understanding customer’s needs. As mentioned in the earlier videos, you need to do market research before opening a restaurant. You need to understand who the target audience is and what they want. If you open a restaurant and customers aren’t coming, that suggests a knowledge gap on your part.
Third one is the standard gap. There is also an expectation attached while going to a restaurant. We expect the waiting time to be low in a fast food restaurant; we expect the service to be phenomenal while in a fine dining restaurant and so on. If the restaurant cannot meet those standards, the customers will be dissatisfied.
Last one is the delivery gap which simply means failing to meet performance standards. This is mostly related to the human resources department. You need to make sure that the staff are doing the best of their abilities. What this means is that the waiters are being friendly, the cook is making the best dishes, the manager is keeping track of all the inventories and many more. When the whole system is not running properly, that’s when the restaurant fails.
A Marketing Plan is basically a document that outlines the advertising strategy and how the restaurant is going to function throughout the years. Every marketing plan consists of these 5 things: executive summary, business challenge, the market, the strategy and finally the budgeting.
Starting with the executive summary, it talks about why the restaurant exists and what is the purpose of opening this specific restaurant in a specific location catering to a specific type of audience. You need to define your vision and mission statement and the value proposition of the restaurant.
Moving on, you need to mention the business challenges. Where are you opening the restaurant and what are your offerings? Are the customers willing to come to the restaurant and pay for the price that you are selling the foods at? This requires market research and a lot of planning. Doing a location audit as well as looking at the restaurants nearby helps to understand whether the restaurant is going to sustain in the future or not.
Then, we focus on the market. The market consists of 3Cs: Customers, Collaborators and Competitors. Who are the target audience and do they know about your restaurant? Who are the collaborators and are they willing to partner with us? It could be an event management company, local artists, local musicians and so on. Who are the competitors and how are they attracting customers?
Now, we dive into the strategy. What are the 4 P’s like? Are the prices set appropriately? Is the place suitable for what you are offering? Are the products appealing to the target audience? Is the promotion done right to attract those target audiences? The strategy should also focus on IMC and CRM.
Finally, we move on to the budgeting part. Do we have the investment to run a restaurant or do we have to take a loan? What is going to be the ROI meaning how long will it take to cover the investment cost? If it takes more than 10 years, is it worth taking that risk as the restaurant industry is ever-changing. Are you planning on opening a restaurant alone or with partners? How will the work be divided? These things should be planned from the start before starting the restaurant.