A recent study from Cornell University states that consumers who paid more for their meal took greater enjoyment from their food than those who paid less. Researchers displayed an all-you-can-eat Italian buffet for a fee of $4 or $8 dollars. Customers who paid the higher price of $8 liked their food 11 percent more than the customers who paid $4, despite the fact that the restaurant and food remained the same. In addition to this, those who paid the lower price reported feeling guilty about overeating, though both groups ate the same amount of food.
This concept is something other businesses can benefit from. The trick is setting a price that is high enough to be profitable, but not so high that it limits your business’s growth. To do this, it’s important to know the difference between value and cost. Cost is the actual amount you spend to produce the product or service. Value is what your customer believes the product or service is worth. Price is your financial gain for providing the product or service. When deciding on the price, it’s best to set it so it reflects the value you provide, instead of the cost.
To further help with this decision are the two basic methods of pricing: cost-plus pricing and value-based pricing. Cost-plus pricing is recommended to businesses that deal with large quantities, as it takes the cost of production and adds the amount required to make a profit. Value-based pricing focuses on the price you feel consumers are willing to pay.
According to the study, it’s more appropriate (and profitable) for restaurants to go with value-based pricing. The results revealed that increasing prices can increase patron gratification, regardless of the rise of food quality. The key point is deciphering how much customers will value your food and restaurant.