Question

Hamburgers are America’s favorite food. Consumers spend more than $100 billion on the beef sandwiches every year. But despite America’s infatuation with burgers, there is considerable dissatisfaction among consumers based on hamburger quality and value. Many customers just aren’t happy with what is served up at market-leading fast-food outlets. They want a better burger, and they won’t hesitate to pay a higher price to get one. Enter Smashburger. Started just a few years ago in Denver, Colorado, Smashburger is now a rapidly expanding chain of more than 100 stores in 17 states. And all this growth happened during a severe economic downturn despiteSmashburger’s average lunch check of $8. Many customers pay as much as $10 or $12 for a burger, fries, and shake. The Smashburgervideo shows how this small startup has pulled off a seemingly impossible challenge.

Discuss the three major pricing strategies in relation to Smashburger. Which of these three do you think is the company’s core strategic strategy?

What effect does Smashburger’s premium price have on consumer perceptions?

Is Smashburger’s success based on novelty alone or will it continue to succeed? Explain.

Answer 1

According to Tom Ryan, founder of Smashburger, there are 4 basic strategies that the company has followed over the course of its existence, of course apart from various others too. These are:

1) Go after the product which is in demand and develop a different version of it. Ryan and co. never went after something for which they were responsible to generate demand among the customers. They went after hamburgers, and hamburgers are the heart and soul of USA. What they did was to crush the stuffing of the burger, which was very different from what their competitors were doing and it was effective. The burgers were better tasting than the non crushed ones and Smashburgers went on a roll, as its burgers made other's burgers obsolete.

2) Work in the industry before starting your own venture. This is something that Ryan and the others cofounders (and first generation smashburgers's employees) did brilliantly. Ryan was a food science expert and a high quality chef before venturing with smashburgers. This made him experience enough to know about the nitty grittys of the food industry and this helped smashburgers to grow rapidly. This was the case with other strategic members as well. They were all experienced enough in this industry and hence had no problem in gauging what would work and what would not.

3) Choose the product that effects a lot of people. Ryan and co. chose hamburgers here, which as said are in heavy demand in US pretty much always. This idea of the core strategic group made them grow rapidly as thier product was always in demand.

4) Choose different set of employees. Smashburgers has a good mix of experienced and youthful employees. This makes them different from other companies and also helps them to stay relevant in the changing market, alongwith remaining relevant because of its foresightedness as well. The group is always ready to work for the customers and the company and therefore, the company is experiencing such a rapid growth.

I believe the first strategy of 'going after something that is already in demand' is company's core strategy. They have never experienced with something that is completely unknown. Yes, they have changed the way burgers are served by using crushed ingredients for better flavor, but the product they are still selling is hamburgers, which remains in heavy demand.

Smashburger's premium price has made customers believe that good burgers costs a little more than what they've paid all their lives. And this is not a bad thing if customers are ready to pay a bit more for real quality. This is the same strategy as Apple uses to sell its products. Its products are so much better than their counterparts, and they charge premium for it and customers are buying from them more than they are buying from their competitors. Smashburgers too has changed customers perception about burgers and they are ready to pay more for the quality they are getting.

I believe Smashburgers would continue to succeed. Its model (not talking about crushed burgers only) is not something that can be replicated easily. Yes, some of its components can be adopted, but overall it is still difficult to copy it, and therefore it'll continue to succedd in the long run as well.