Question

Question B1

Alex opened Supreme Chinese Seafood Restaurant (Supreme) in the housing estate in Tung Chung two years ago. As Supreme is the only restaurant selling seafood in the neighbourhood, it has enjoyed very profitable business since it opened despite the fact that its prices tend to be higher than similar products sold elsewhere.

Early this year, Supreme is facing very keen competition after another restaurant called Bravo selling seafood opened in the same housing estate. Most of Bravo’s seafood are priced almost the same as those of Supreme, except lobster is only HK$78 each which is lower than the cost and much lower than that of Supreme. During weekends, Bravo also offers “Set Dinner for Four” at a special price of HK$280. Therefore, a lot of loyal customers of Supreme have switched to Bravo. As a result, Supreme has suffered financial loss in the past few months.

1. (a) Identify the THREE types of pricing objectives. Then, justify which pricing objective was adopted by Supreme in the first two years. And, debate whether this pricing objective is appropriate for Supreme at that time.

2. (b) Justify the THREE pricing strategies used by Bravo.

3. (c) Discuss and justify whether Bravo may fall into ONE ethical issue on pricing.

Answer 1

a. Pricing Objectives are classified into three types: Profit oriented, Sales oriented, and Status quo.

Profit oriented : There are three types of Profit objectives on which an organization should base its price; boosting benefits, arriving at a sensible pace of rate of return, and extricating cash as fast as conceivable to keep cash flowing through the organization. The optimization of profit objectives can be reported in money related terms or as a percentage change contrasted with past profits.

Sales oriented : The goal of this pricing is to build a firm sales volume. This objective is typically spoken to over a predetermined period of time as percentage of sales. Another sales objective is market share. For instance, keeping up or expanding market share might be an organization pricing objective.

Status quo : With their present market position and sales, Status quo objective is embraced. There are three pricing goals that fall under Status quo objectives; meeting the prices of competitors, accomplishing price solidness and enabling great image. The Status quo objectives are the least forceful of all pricing objectives planned for keeping up a firm present circumstance and maintaining a strategic distance from rivalry.

In the initial two years, Supreme has adopted Profit oriented objective. Its prices are higher than comparable items sold somewhere else. It has likewise enjoyed the benefits. This goal is suitable for supreme around then as there are no competitors around then. By picking up benefits, it can also enlarge its business.

b. Justifying the 3 pricing strategies used by bravo are

Competitive pricing - It is setting a value dependent on what the competitor charges. The majority of the Bravo's items are valued same as Supreme.

Penetration pricing - It is setting a low cost to enter an aggressive market and raising it later. This strategy is applied if there should be an occurrence of lobster.

Economy pricing - Margins are exceptionally low for this. Focuses on the mass market and high market share of the overall industry. Bravo's "Set Dinner for Four" is economy pricing strategy..

c. Bravo may fall under Price fixing issue. Value fixing includes an understanding between a group of individuals on a similar side of a market to purchase or sell a good or service at a fixed cost. As the majority of the Bravo's sea food are evaluated nearly equivalent to those of Supreme , it might fall under value fixing moral issue on pricing.