Pricing Strategy and Business

¶ … strategy for a business concept that would compete with an identified small sandwich shop. The paper also weighs the pros and cons of opening the new business or purchasing the identified business. In addition, the paper discusses the most appropriate form of ownership for the new business and provides a plan for the business.

The sandwich market is characterized by intense competition. There are numerous players in the market, and distinguishing oneself from the competition can be a daunting task. The right strategy must be selected in order to attract and retain customers. Mark's Sandwich Shop, a local sandwich shop frequently visited by the author of this paper, has been in operation in the last five years. A major shortcoming of the shop, however, is its pricing strategy. The shop's pricing strategy is particularly characterized by a poor menu strategy, price inflexibility, lack of price bundling, inattention to complementary pricing, and lack of a well-developed customer loyalty program.

Pricing strategy can be a key source of competitive advantage for a sandwich shop. Prices are crucial for attracting customers, and hence driving profitability (Mills, 2002). Having the right strategy is, therefore, vital for success in a competitive market space. With a pricing strategy characterized by a more customer-friendly menu, flexible pricing, price bundling, complementary pricing, and customer loyalty discounts, a new sandwich shop can successfully compete with Mark's Sandwich Shop.

A sandwich shop's menu significantly drives costs and pricing. Unlike Mark's Sandwich Shop, the new shop will focus on a shorter menu. This will drive costs and prices down. Moreover, the main dish will be served with an additional salad. Price flexibility entails frequent adjustment of prices (Mills, 2002). Mark's Sandwich Shop rarely adjusts its prices, even when costs are down. Based on a flexible pricing approach, the new shop will raise or lower prices in accordance with the movement of costs. Flexible pricing will be important for increasing revenue from some items. Another competitive disadvantage of Mark's Sandwich Shop is that it does not take advantage of price bundling. Price bundling entails serving two or more items together at a single prince (Mills, 2002). At Mark's Sandwich Shop, for instance, a sandwich normally costs $5 while a large cup of Cappuccino coffee sells for $3, which would cost a total of $8 for a customer that wants both the items at once, which is a norm. With price bundling, however, the two items can be offered together at a lesser price - $7, for instance.

Complementary pricing involves charging a lower price relative to competitors for a commonly ordered item while increasing the prices of other items slightly above the price of competitors (Mills, 2002). For instance, the price of coffee may be set below the competitors' price, while that of a sandwich may be set slightly above to compensate for the lower price of coffee. Typically, the low-priced coffee would lure customers, who would more likely also purchase the somewhat costlier sandwich upon entering the cafe. The pricing strategy for the new shop will also focus on building customer loyalty. This will particularly involve offering discounts as well as loyalty cards. Overall, the above pricing strategy will place the new shop at a greater competitive advantage compared to Mark's Sandwich Shop.

Build or Buy

Whether to build or buy can often be a challenging decision for a new or existing business. The pros and cons of each option must be weighed carefully from different perspectives. The build strategy essentially entails developing a business from scratch, while the buy strategy entails acquiring an existing business (Besanko et al., 2010). Creating a business from scratch often involves a substantial amount of time and costs. In this case, for instance, it would take a great deal of time and money to locate a space for the new shop, acquire equipment and labor, and, most importantly, develop a customer base, a supplier network, and brand identity. With the buy strategy, however, one would instantly inherit infrastructure, customer base, suppliers, and a brand name -- all of which are essential ingredients for business success.

Nonetheless, acquiring an existing business can presents its own fair share of challenges. For instance, it may be difficult to customize the business to one's specifications in entirety, or fully impose their culture or way of doing things on an existing entity (Besanko et al., 2010). In spite of this, purchasing the existing sandwich shop would be by far, a much better option than starting a new shop from scratch. It would significantly save on the costs and efforts required to set up a new shop and familiarizing customers with it as well as establishing relationships with suppliers. The challenge of adjusting aspects such as pricing strategy is one that can be readily overcome.

Ownership

Business ownership can take several forms. These include sole proprietorship, partnership, joint venture, and corporation. Due to financial constraints at the moment, a partnership would be the most appropriate choice. By teaming up with a few willing and like-minded individuals, the new business can be readily established as access to funds becomes much easier. In addition, the partners can complement one another's skills, knowledge and experience (Dlabay, Burrow & Kleindl, 2012). Nonetheless, a partnership reduces the share of an individual's profit. Furthermore, as decisions are generally consensus-based, disagreements can arise, which may harm the business interests (Dlabay, Burrow & Kleindl, 2012). The exit or demise of a partner can also affect the life of a partnership. Despite these challenges, a partnership presents the best form of ownership for the new business.

Business PLAN

Executive Summary

MM's Sandwiches is a small upcoming sandwich shop that will be established through acquisition of an existing sandwich shop. The business, which will operate as a partnership, will provide uniquely prepared sandwiches at affordable prices. Pricing will be the shop's major competitive advantage. Focus will be on providing a customer-friendly menu, flexible pricing, price bundling, complementary pricing, and customer loyalty discounts. The shop will be characterized by a simple organizational structure comprising the general manager, one operations manager, one accountant, two chefs, one marketing manager, and five waiting staff. The business will rely on outdoor advertising, social media, and sales promotion to market and promote its products. Projections indicate that the shop will be profitable in the first three years of operation.

Company Description

The new business, tentatively named as MM's Sandwiches, is a small upcoming sandwich shop that will offer delicious and uniquely prepared sandwiches. The shop will also offer other items such as coffee, fresh juice, salads, soups, as well as shakes and smoothies. A major advantage of the shop compared to other shops will be its pricing strategy. The shop will particularly focus on a customer-friendly menu, flexible pricing, price bundling, complementary pricing, and customer loyalty discounts. Based on this strategy, the shop expects to surpass and stay ahead of the competition.

Market Analysis

Sandwiches are one of the most consumed foods in the U.S. A report published by the U.S. Department of Agriculture (USAD) indicates that approximately a half (47%) of American adults eats a sandwich every day, mainly during lunchtime (Sebastian et al., 2015). The report further shows that more men than women eat sandwiches. Generally, sandwiches may be obtained from a store or a restaurant, or prepared at home. The report indicates that 27% and 58% of the sandwiches eaten in the U.S. are obtained from a fast food restaurant or a store, respectively. Evidently, sandwiches can be described as a major component of the American diet. Virtually every store, shop or quick service restaurant provides or serves sandwiches. The consumption of sandwiches is likely to increase significantly in the near future as the consumption of fast foods in the country has been growing exponentially. This means that there is immense potential in the market.

Organization and Management

Similar to most small businesses, the shop will have a simple organizational structure. The structure will comprise the general manager, one operations manager, one accountant, two chefs, one marketing manager, and five waiting staff. The general manager will be the overall overseer of the business. He has a background in hospitality management and culinary arts, and has worked as a manager and chef collectively for seven years. The operations manager will be responsible for processes such as procurement, inventory management, and supervision of waiting staff. The accountant will be responsible for bookkeeping, receiving and making payments, and other related tasks. The chefs will be in charge of food preparation, while the waiting staff will be involved in receiving customers as well as taking and delivering their orders. Finally, the marketing manager will be involved in marketing activities, especially designing and developing flyers, gathering customer feedback, and engaging customers online.