Economics Pricing: Impact Of Expected Guests On Pricing Strategies

Perceived Value So far, we have discussed the math involved in pricing but not the art of determining the amounts of markup. There are no easy answers to these equations. Most caterers learn pricing by trial and error within their markets. They quote a price too high, they do not earn the work; they quote too low, they earn the work, but lose money. As these caterers progress through the learning curve, if they are to survive, they learn the art of pricing for profit. Market Factors Several factors influence pricing within various catering markets: • What are competitors' prices for similar events? • What are previous prices charged to clients? • How many guests are expected? • How badly is the business needed? • Is this a bidding or nonbidding situation? • Who else is bidding on the events? • What is the customer's perceived value of the party? • Once quoted, do clients expect to negotiate the price? • Once quoted, do clients expect a discount? Mark up More for Smaller Parties. For example, a markup factor of 2 for a chicken dinner that costs $5 each for 20 guests will only produce a margin of $ 100 ($5 x 20x2 = $200 less $100 cost). Is this sufficient profit? It certainly is not for a full- service caterer who is cooking at the party site. In this instance, a larger markup factor would be appropriate. $15. A markup of 2 on the chicken produces a $5 margin, while a markup of 2 on the lobster produces a $15 margin ($15 x 2 less $15 = $15). Number of Expected Guests. With more guests, smaller markup factors may be suf-ficient. The $5 food margin on the chicken dinner for a group of 1,000 will produce a food margin of $5,000. Many caterers charge less per person for larger events. Number of Previous or Expected Bookings for Particular Day or Night. Special holidays and other major events such as New Year's Eve, the last Saturday before Christmas, or the Super Bowl are generally busy days for off-premise caterers. There is a large demand for work. Astute caterers realize that they can charge more on these days than during slow periods, such as a Tuesday night in July in Arizona. Also, since these days and nights are generally busy, when pricing, offpremise caterers should remember that there may be additional, unexpected expenses, such as renting extra vehicles and paying premium pay to staff on New Year's Eve. Probability of Need to Negotiate or Discount. In some instances, it is better to price parties higher, anticipating the later need to reduce the price or offer other concessions. It is not advisable to reduce the price without deleting something from the party, or receiving a concession from the client. For example, a $2 per-person price reduction will result in the elimination of some food, or perhaps, the client agrees to pay for the complete party one month in advance. Some caterers offer discounts for parties held during slow seasons and for those held during certain times of the day. Others offer discounts for those clients who sign contracts months or years in advance, or who agree to buy all parties from the caterer. Inexpensive Parties Breed More Inexpensive Parties. When pricing parties, ivery offpremise caterer has learned not to give a low price to those clients who say there will be many people there who will buy in the future. There may be, bur these people inevitably will expect the same low price. Beware! Catering for Charities. Most charities are able to negotiate very low prices because there is always a novice caterer who is willing to work for nothing in order to obtain exposure. For newcomers to this field, this may be a great launching pad. Most experienced caterers have learned that they must charge a realistic price which will result in not only a profit, but also a sufficient budget to produce excellent food and provide excellent service. Charitable events are not ones to reduce quality or quantity, regardless of the input received from the event plan-ners. Their main goal is to carn as much as possible which, unfortunately, does not work to many caterers' advantage. Value of Time. Off-premise caterers reach a point in their careers when they ask themselves "What is my time worth?" For example, is it worth it to sacrifice a long- awaited day off to carn a meager profit? For a regular client, it might be worth it. In other situations, perhaps by quoting a higher price, the result will be carning a sufficient profit to make it worthwhile. Looking Beyond the Price. There are clients who are looking beyond the price to things such as elegance, the "look and image," and other tangible and intangible factors. Some clients take pride in saying that "so-and-so is the caterer." Some, rare as they may be, enjoy telling others how much they paid for an elegant party.