A great example might be Yong Kang Beef Noodle on Yong Kang road. There’s two different beef noodle shops right next to each other, but only the one on the left is the famous one. But because it’s always full, the one on the right gets lots of business and honestly it isn’t bad either. Clever location.
I understand fully why you shouldn’t always compete on prices. Going upscale, targeting a certain clientele, etc. are all good strategies depending on the product or service. Thing is, many local businesses that are not aimed at more upscale markets still don’t compete on prices.
Exactly the same thing happens with DingTaiFeng on the Yong Kang Jie, although the nearby restaurant is slightly cheaper but not more expensive than a regular XiaoLongBao place.
[quote=“engerim”]Most companies just use a formula to calculate their margin.
Usually just something like “price * 1.2”.
It follows some lame US rules that have been made in the 60’s and still get teached here.
Its enough to survive in Taiwan.[/quote]
When you do that in the restaurant business you’re broke the first month you’re open …
[quote=“Belgian Pie”][quote=“engerim”]Most companies just use a formula to calculate their margin.
Usually just something like “price * 1.2”.
It follows some lame US rules that have been made in the 60’s and still get teached here.
Its enough to survive in Taiwan.[/quote]
When you do that in the restaurant business you’re broke the first month you’re open …[/quote]
cost based pricing is usually bad anyway unless your product/service has no differentiating value whatsoever.
to OP, if you are implying that there is implicit (or even explicit) collusion going on that is preventing price-based-competition on similar, brand-less goods here, there’s probably some truth in this. but this sort of signaling between competitors exists everywhere.
even the “dollar menus” that are popular in US fast food is a form of signalling to not start a price fight. you don’t see burger king offering a $0.98 menu and then mcdonald’s countering with a $0.97 menu because continuing that would be ruinous to everyone who decides to play. in a way it’s sort of like the mechanisms of nuclear war. by saying the menu is a dollar, they have implicitly signaled that they want to play on differentiating factors.
simple game theory tells us that stores would be literally on top of each other where the chance of getting customers is highest, cost considerations of the space aside. so it does make sense that new players open next to their successful incumbents. in the usa, you can’t find a home depot without a lowes nearby. pinkberrys and red mangos are across the street from each other more often that not. i once saw a shopping mall in the states where there were two identical abercrombie stores within eyesight of each other. one was situated next to banana republic, the other next to american eagle.
for the foreign firms that have entered and who are selling non-arbitrageable goods (eg: perishable food like your ice cream example)… pricing is already hard enough without the complication of doing it it a foreign market, so an explanation on the similar pricing might be that they simply looked at the prices incumbent competitors were charging for similar goods and did the same thing.
obviously, also the multinational brands selling durable goods can’t or don’t want to discount their goods at all compared to what they are selling to the rest of the world. i have seen a lot of locale-endemic goods here stamped with a multinational brand and priced lower that the rest of that company’s goods to compete with local goods. obviously, these locale-specific variants are usually pretty well designed to be a lower perceived value than the rest of the goods the company sells.
I only know restaurant pricing in the Yook and it is a simple formula. To break even, you do the costing per plate and tack on 45 percent to the spend. If you’ve been on the TV, you can tack on up to 70 percent or even more, but you have to be prepared to reduce that once your 15 minutes are up. Just ask Gordon Ramsay or Jamie Oliver.
at some point, if the food carries sufficient prestige, isn’t the price simply an afterthought for the customer? as long as it’s not so much as to be absurd or unaffordable, i don’t care the specific price as long as i know that whatever i went to eat is purported to be the best xyz in the world.
and given that, wouldn’t the proprietor be better off figuring out what the threshold of absurd or unaffordable is for me and charge just below (or even above, depending on what he wants to accomplish) than that?
[quote=“mabagal”]sandman, counter question to that:
at some point, if the food carries sufficient prestige, isn’t the price simply an afterthought for the customer? as long as it’s not so much as to be absurd or unaffordable, I don’t care the specific price as long as I know that whatever I went to eat is purported to be the best xyz in the world.[/quote]
Different grades of produce and meat. A good chef isn’t going to use anything that isn’t going to make his restaurant look good. I seriously doubt you would want dog food grade chicken served to you. You never see those chefs using anything but beautiful tomatoes and even at wholesale they are stille expensive.
[quote=“Okami”][quote=“mabagal”]sandman, counter question to that:
at some point, if the food carries sufficient prestige, isn’t the price simply an afterthought for the customer? as long as it’s not so much as to be absurd or unaffordable, I don’t care the specific price as long as I know that whatever I went to eat is purported to be the best xyz in the world.[/quote]
Different grades of produce and meat. A good chef isn’t going to use anything that isn’t going to make his restaurant look good. I seriously doubt you would want dog food grade chicken served to you. You never see those chefs using anything but beautiful tomatoes and even at wholesale they are stille expensive.[/quote]
for this case (celebrity chef food), i’m not arguing pricing down. i am arguing pricing up. and my argument i believe is independent of the inputs used to create that good.
of course you can’t differentiate your food and price based on perceived-value rather that input cost if you are using junk inputs.
Something I saw in the US quite a bit, which puzzled me:
Two gas stations, across the street from each other. One selling gas for 10 or even 20 cents less per gallon than the other. But for some reason, the more expensive station is still getting business.
As for businesses clustering in certain areas, this has been known to happen in the US: the Garment District, gold shops and Broadway theaters in New York City are examples of clustering. In San Francisco’s Chinatown there are three poultry shops clustered on the northernmost block of Grant Street just south of Broadway. In Berkeley, there are several bookstores clustered together on Telegraph Avenue within a block or two of each other.
Mablis, its a formula, so your analogy doesn’t work. It doesn’t matter the quality of the produce. Its purely calculated on cost. Therefore if you buy substandard tomatoes, say, at a low cost, that will reflect on your per-plate spend, which will in turn reflect on the cost per dish.
Your customers might well not accept your lower-quality purchasing, but that’s another story. And you might inflate your per-plate spend despite buying lower-quality produce, but again, that’s another story.
This is very standard restaurant trade stuff.
often one is brand-name shell/exxon and the other is “private-label” arco/7-11.
another explanation is that it’s easier to access the more expensive gas. for example, gas stations that are on the side of the street pointing away from a highway might be able to charge more. the guy just got off the highway and wants gas and a break from the road right now. he could stop at the light and take a left across the street, but that would be inconvenient.
[quote=“sandman”]Mablis, its a formula, so your analogy doesn’t work. It doesn’t matter the quality of the produce. Its purely calculated on cost. Therefore if you buy substandard tomatoes, say, at a low cost, that will reflect on your per-plate spend, which will in turn reflect on the cost per dish.
Your customers might well not accept your lower-quality purchasing, but that’s another story. And you might inflate your per-plate spend despite buying lower-quality produce, but again, that’s another story.
This is very standard restaurant trade stuff.[/quote]
i understand that this may be trade standard, but to me it seems suboptimal.
i’m not saying to use substandard goods. if you do that, you lose your perceived quality. and in my argument, that is what a good restaurant should base their price on. of course they are going to use the best ingredients if they are good.
if i am a person going to a really really nice steakhouse, i’m not going to really care what the bill is unless it’s totally ridiculous. thus, the proprietor can extract more value out of me if he could perfectly discriminate the price he charges me based on my specific thresholds and perceived value of the good he is selling me. a workable approximation to this is to charge something close to the typical perceived value for the good.
What makes you think the owners of these restaurants aren’t doing that already?
I’m guessing most business owners are trying to sell products at prices that will maximize profits, and not just cater to a select few who are willing to pay a premium price for goods/services.
I’m not a business owner, though, so I could be way off here.
i’m sure they are but he stated the cost-based-pricing method is a food industry standard… ?
as for your question re: maximizing profit. yes, perfect price discrimination is hard, impossible or illegal in many places. but understanding price elasticity of your specific demand base will let you set a uniform price optimally. there are really really f-ing good people at this charging very handsome consulting fees to help big firms get their pricing right.
Sometimes it’s on a company account and the person couldn’t care which they choose. Sometimes the person has a card for that chain, so they can charge it, but they’d need cash for the other. Sometimes they didn’t notice the price difference.
That depends on whether you want to focus on margin or volume, and whether lower prices will really attract customers. If I drop below a certain profit margin, I may be better off shifting my investment elsewhere. And if I lower my prices but don’t succeed in attracting more customers for some reason, I’ve lost crucial profits, and crucial cash flow. Some customers are not price sensitive, and couldn’t be bothered to do a price check. Some habitually shop in the same stores every time, and if you give them a lower price, you’re just losing profit. Some will actually prefer the higher priced items, as they associate price with quality.
