Setting the correct price for hospitality products is a crucial management task that has a major influence on a firm's profitability. In general, there has been a lack of academic interest in the area of pricing in services. The restaurant industry typically establishes prices by marking up a variable cost percentage and by intuition, or by trial-and-error methods. This study illustrates how restaurant managers can use price-sensitivity measurement to assess their guests' price sensitivity. By means of a relatively simple survey, restaurant managers can gain insights about their menu pricing directly from their customers. This study uses data collected from a Hong Kong buffet restaurant, but the technique could be applied in virtually any restaurant setting. The results reveal price ranges that represent real value for dinner buffet patrons.
This paper presents a two‐dimensional model of service process that is linked to customer encounter satisfaction and is modified by a customer’s perceptual filters, including brand image and customer mood. The first dimension is comprised of fixed (structural) descriptors, while the second dimension consists of variable (situational) descriptors. The proposed model delineates eight descriptors in each dimension. Their origin in the services marketing literature is explained. The model suggests that service process and a customer’s perceptual filters both have a direct influence on encounter satisfaction. The utility and limitations of the proposed model are discussed.
PurposeThis research paper aims to examine whether using menu engineering (ME) together with activity‐based costing (ABC) for menu analysis gives new insights about true menu profitability. The traditional ME approach only uses food cost to determine the contribution margin of individual menu items. This combined approach uses both food and traceable operating costs to estimate contribution margins more accurately.Design/methodology/approachAn improved menu engineering model was developed and tested in a buffet restaurant in Hong Kong. Direct observation of restaurant activities allowed most costs to be traced (not simply allocated) to individual menu items.FindingsThe results found that only three of 20 dinner menu entrées were profitable. This unique insight would not have been possible using traditional ME methods alone. The results also showed that ABC methods are applicable to a buffet‐style restaurant.Research limitations/implicationsOnly a single restaurant and only the dinner menu were examined in this study. Future research should apply the model used herein to other restaurant types located in different geographical areas in an effort in order to validate the approach.Practical implicationsThe paper suggests that ME can be improved upon by first assessing variable costs using ABC methods. Thus, the extra effort required to apply ABC in a restaurant appears to be worthwhile.Originality/valueThe paper combines two disparate analytic techniques (ME and ABC) in a new approach that reveals a menu's true profit and loss picture. The paper also makes several modifications to the traditional ME approach.
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