Importance of Cost in Pricing Strategy
McDonalds has greatly expanded since its foundation in 948. McDonalds is considered as the leading chain of restaurants worldwide. McDonalds offers fast food such as hamburgers, fries and meat pie, as well as chips. The success of the McDonalds is linked to its strategic pricing method that has ensured that it provides its products/services at affordable prices to its targeted markets. McDonalds brands mission is tailored to illustrate customers favorite place to eat. McDonalds is committed to five basic features that entail people, place, promotion, products and prices. McDonalds uses different pricing for different market segments. For example, a McDonalds restaurant that is located in a roadside or shopping mall of an exclusive neighborhood offers its menu at a higher price than a McDonalds restaurant that is not located in an elite area. McDonalds segments its customers by location. This strategy of pricing is considered as a very effective method of availing the same product at different prices in various market segments. In addition, McDonalds has developed pricing policies that are tailored for prices increases, as well as for economic downturns. McDonalds differentiates its prices by introducing cheaper menu such as cheese burgers, chicken burgers as well as drinks that are priced at $ which target low income families. As a result of the recent economic recession that has been experienced s
ince 2008, McDonalds was able to realize profits and particularly in 200 from the profits generated from the sale of Dollar Menu sales (Ghosh&Sidana 202).
Many new business ventures fail for lacking adequate knowledge about strategic pricing methods. Some important marketplace factors in considering when determining prices for new products and services include market segment, distribution costs, as well as the level of competition. In order for business owners to succeed in selling goods and services, they should stay abreast of the factors that affect prices and respond swiftly. There are usually three factors that require to be considered in pricing. Price alone is considered very insignificant if it is not derived within the context of operating costs. One essential consideration in pricing is labor cost. Labor cost is the money that is used to pay for work done. Other essential considerations include material costs as well as overhead costs. Overhead costs are the expenses, which are not classifiable as either material, or labor costs. They include expenses such as advertisements. Overhead costs are variable or fixed. Another important factor to consider when pricing is the costs of goods sold. Cost of goods sold entail the business overall, costs for producing the products a company sells or the overall costs for purchasing products for sale. Delivery as well as fright charges are inclusive (Brodsky 2000).
Appropriate Costing System