Shall We Put up Our Price

Case 4

Shall we put up our price?

Competition, price and revenue

1. Why might a restaurant charge very high prices for wine and bottled water and yet quite reasonable prices for food?

As it is known price is one of the most important factors in competition. Thus price strategy on products/services should be carefully chosen in order to use it as one of the main competitive advantages and take the upper hand on competitors. In case of restaurants, the primary product is cuisine and special dishes that they offer visitors, wine and bottled water are secondary products. Because of that, restaurants try to set reasonable prices on their main products in order to attract customers, and they place relatively higher prices on beverages, as they are like additional attribute or value, for which customers have to pay extra money.Though it should be remarked that very few of the customers get away without beverages, and in spite of the price they mostly order some drinks with the meal, hence demand on beverages in restaurants stay inelastic.

2. Why are clothes, with designer labels so much more expensive than similar ‘own brand’ clothes from a chain store, even though they may cost a similar amount to produce?

Brand name and goodwill are one of the most precious assets of the company, it requires years and decades to acquire popularity and loyalty of the brand among customers, and when any company reaches this stage in business, they try to sell it and generate formidable revenue just by their “name”. This is the reason why clothes with popular designer labels cost far more expensive than alike own brand clothes in a chain store. The second factor that causes such difference in price, is dominating desire o f people to wear something distinctive and exclusive, they are ready to pay triple and ten times more for clothes that are produced in a very little quantity compared to the clothes from chain stores, which are produced in bulk. Famous label is a very good tool for showing off and many people can’t help being open-handed to use such opportunity. Elasticity of demand for label products and the level of competition are very low in such cases.

3. Using the example of