Assemblage -- Pricing Strategy There

Assemblage -- Pricing Strategy

There four basic pricing strategies: economy, penetration, skimming and premium (No author, 2010). For the Assemblage, economy does not fit with the business model. A penetration strategy has some merit given that the Assemblage is a new business. However, low prices for the segment are not congruent with the brand image that is being built. The objective of the pricing strategy is to support the development of a differentiated brand image; low penetration pricing supports more of a me-too strategy. Moreover, the existing players in the industry are placing significant emphasis on low prices in order to rejuvenate their businesses, so a penetration pricing strategy may not be possible to execute profitably under current market circumstances.

A skimming strategy implies that the quality level is low. The Assemblage is not offering a low quality product, but rather a differentiated product. A skimming strategy may work in this industry, but not for a new company that is trying to build its brand. Consumers would see the poor value proposition and quickly return to their previously established casual dining chains. A premium strategy supports the brand image that the Assemblage is trying to build. We are offering a premium, differentiated product within the casual dining segment, and a premium pricing strategy will support that. It is recommended therefore that a premium pricing strategy be adopted.

2. Within the premium strategy there are a number of different pricing tactics that can be adopted. The product line strategy is sometimes used in the restaurant business. With this strategy, each product in a line receives the same pricing (Bovay, 2008). This can be used for each product line -- small plates, mains, desserts, cocktails, etc. The advantage of this tactic is that it is easy for the customer to understand. It fosters sampling of different dishes, sharing food for the table and other elements that contribute to the overall fun level of the dining experience. The disadvantage to this tactic is that it makes menu design for profitability more challenging. It will be difficult to maintain the 300% markup on food cost maxim by which the industry typically operates.

Value pricing is not appropriate for the Assemblage. Our much larger competitors -- with their superior economies of scale in purchasing -- are competing vigorously with value pricing. We will be unable to match their prices at a level that will generate sufficient profits to ensure future growth. Moreover, value pricing is not congruent with our differentiation strategy.

Differential pricing refers to pricing the same product differently to different customers. In the restaurant business, this can only be done in terms of geography. It is highly likely that our prices at our flagship Manhattan outlet will be higher than those in other locations due to the cost of doing business in New York City, a practice that is common in the industry from McDonalds to the fine dining segment. However, outside of the New York exception, differential pricing is not appropriate for the Assemblage. As we build the brand we expect that customers will visit different locations and we feel that we would reduce the value of our brand if our pricing was inconsistent from location to location.

It is recommended therefore that a product line strategy is adopted. While this strategy makes it more difficult for our head chef to design recipes that can fit into rigid price categories, it is felt that the benefits of this strategy outweigh the challenges. Customers will respond to the simplicity of the pricing strategy, will order more food to share, will and will experiment with different dishes. All of these outcomes add to the fun element that is central to the Assemblage experience. We will have four or five pricing categories. Exceptions may be made to account for specials. The wine list will likely have more than one price level to accommodate for the presence of some higher end wines.

3. There are few legal issues anticipated with respect to the pricing tactics at the Assemblage. Contract law for example allows for near complete flexibility in pricing strategy such as the market will bear it. Charging what the market will bear is the best strategy in a competitive market, where the market serves to moderate the prices in the industry (Altman, 1987).

In terms of ethics, there are few potential ethical violations with our pricing strategy. It is true that same items on the menu under a product line pricing strategy will be better value than other items. However, the nature of the restaurant business is such that the customer makes his or her selection of his or her own free will. If a value is poor, the customer is not obligated to make that choice.

In addition, there will be no back door pricing, hidden charges and/or any other practices that may be considered ethically questionable. All of the pricing will be up front. In addition, it is the intent of the Assemblage to pay a fair wage to its employees, so the customer will not feel obligated to leave a larger than average gratuity in order to make up the server's wages for the evening. A normal gratuity will suffice.

4. The Assemblage is a restaurant, which makes the distribution channel analysis fairly straightforward. Technically, the server is the distribution channel, with the product coming from the kitchen. There are no wholesalers, distributors or retailers with which to have relationships.

The main decisions that need to be made with respect to distribution are the location of the restaurants. Location is critical to the restaurant business and the casual dining segment in particular. The Assemblage, to support its differentiated strategy, is going to focus on urban core areas in entertainment districts. This is a critical distribution element because the Assemblage needs to be where the customers are. The areas were customers of our demographic congregate for fun need to be the locations of our restaurants.

The first location is in Manhattan. This location will benefit from a number of factors. The first is high visibility, being in the economic and media heart of America. The brand-building process will be accelerated by having a Manhattan location -- as the cliche goes "if you can make it here you can make it anywhere." In addition, this location will benefit from high levels of traffic everyday, which will allow the restaurant to become profitable quickly and allow ownership to build capital for the opening of subsequent locations. The flagship location will also attract customers from all over the country, which will help the brand to become established when expansion does take place.

The concept of the server as the distribution channel also bears some mention. The server is more than just a means of distribution but is a part of the service component of the business. The server is not expected to be a robot, merely dropping plates of food onto tables. Instead, the server is expected to be a value-added part of the distribution channel, contributing to the overall fun and pleasure associated with the meal. In terms the servers of distributing a fun product with a sense of fun, the medium is as much the message as the product is.

5. The distribution strategy also supports the premium brand image. Manhattan is perceived as a flashy, high-end location by most Americans. Starting the company here is going to help the image of the Assemblage as it moves across the country. Being a well-known Manhattan eatery is more powerful for the building of the brand image than being a well-known Albany eatery -- the prestige value of Manhattan as a base is an important part of this element of distribution strategy.