Screenshot_20191007-192919_Word.jpg - Of course the food at Panera goes well beyond bread Fresh bagels pastries egg sout‘lles soups salads sandwiches

Screenshot_20191007-192919_Word.jpg - Of course the food at...

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Unformatted text preview: Of course, the food at Panera goes well beyond bread. Fresh bagels, pastries, egg sout‘lles, soups, salads, sandwiches and pani- ing a new grill that churns out paninis in half the time. "This is the time to increase the food experience, when the customer least ex- pect: it," Shaich insists. Panera‘s strategy of adding value and charging accordingly has paid off hand- somely, through good economic times and bad. At a time when most chains, including those that are slashing their prices, are strug- gling and closing stores, Panera is flourishing. Over the past five years, its sales have more than tripled, and profits have more than doubled, including six straight quarters of double-digit profit gains through the hean of the recent recession. This year, Panera plans to add 100 new stores to its current portfolio of 1,500 cafes. " Most of the world seems to be focused on the Americans who are unemployed,“ Panera Bread understands that. even in uncertai economic times, low prices often aren't the best value. says Panera CEO Ronald Shaich, “Give people something ofvalue and they'll happily pay for it." Chapter 10 I Pricing: Understanding and Capturing CustomerValue 295 says Shaich. "We're focused on the 90 per- cent thatare still employed." Although every- one wants value, he insists, not everyone wants it in the form of a value meal. Anne Skrodzki, a 28-yeardd Chicago attorney, agrees. She recently spent $9.72 at Panera on a chicken Caesar salad and frozen lemonade. ”I think its a pretty good value. The portions are generous. The food is high quality. . . I've also go1ten used to coming here for the free Wi-Fi.” The Panera Web site spells out the chain's valued-added positioning this way: "We are Panera. We are bakers of bread. We are fresh from the oven. We are a symbol of warmth and welcome. We are a simple pleas- ure, honest and genuine. We are a life story told over dinner. We are a long lunch with an old friend. We are your weekday morning nt- ual. We are the kindest gesture of neighbors. We are home. We are family. We are friends." Low prices? Not even on the radar. Sources: Kate Rurkwmd, ”Rising Dough: Why Panera Bread Is on a Roll,’ Fast Con-assay, October 2009, pp. 6})‘0; Emily Bryson York, 'Panera.‘ An America's Hottest Brands Case Study,‘ Adi/enmity Age, November 16, 2001p. 16; Julie Jargon, 'Slicing the Iread But Not the Prices,’ Wail Street joiJmai', August 18, lung, p. Bl; Bruce Hoiovitz, 'Panera Bakes a Recipe lot Success,” USA Today, July 23, 2009, acoased at wwusatodaycom; and vwwv panerabreadcom, accessed September ZIJ‘i D. Cost-based pricing Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Aulhor Costs set the floor for Corument price, but the goal isn‘t always tominr'mize costs. In fact, many firms invest in higher costs so that they can daim higher prices and margins (think about Steinway pianos). The key is to manage the spread between costs and prices—how mudt the company makes for the customer value it delivers. 296 Part Three Fixed costs (overhead) Costs that do not vary with production or sales level. Variable costs Costs that vary directly with the level of production. Total costs The sum of the fixed and variable costs for any given level of production. however, the Stag was threatened by cheaper imports from China. Stag responded by dropping prices and scrimping on quality. It was a bad move. For the first time since the 19405, the brand began losing money. Finally, however, Stag came to its senses. It abandoned the price war and started innovating. It launched designer umbrellas in funky designs and cool colors. Teenagers and young adults lapped them up. It then launched umbrellas with a built-in high- power flashlight for those who walk unlit roads at night and models with prerecorded times for music lovers. For women who walk secluded streets after dark, there‘s Stag's Bodyguard model, armed with glare lights, emergency blinkers, and an alarm. Cus- tomers willingly pay up to a 100 percent premium for the new products. Under the new value-added strategy, the Stag brand has now returned to profitability. Come the morn- soon season inlune, the grand old black Stags still teappearon the streets of Mumbai— but now priced 15 percent higher than the imports.“ The Stag example illustrates once again that customers are motivated not by price but by what they get for what they pay. "Lt consumers thought the best deal was simply a ques- tion of money saved, we’d all be shopping in one big discount store,” says one pricing ex- pert. "Customers want value and are willing to pay for it. Savvy marketers price their products accordingly”? Cost—Based Pricing Whereas customer—value perceptions set the price ceiling, costs set the floor for the price that the company can charge. Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. A company’ 5 costs may be an important element in its pricing strategy. Some companies, such as Ryanair and Walmart, work to become the ”low-cost produc- ers” in their industries. Companies with lower costs can set lower prices that result in smaller margirs but greater sales and profits. However, other companies—such as Apple, BMW, and Steinway—intentionally pay higher costs so that they can claim higher prices and margins. For example, it costs more to make a "handcrafted" Steinway piano than a Yamaha production model. But the higher costs result in higher quality, justifying that eye- popping $72,000 price. The key is to manage the spread between costs and prices—how much the company makes for the customer value it delivers. Designing a Customer-Driven Strategy and Mix Types of Costs A company‘s costs take two forms: fixed and variable. Fixed costs (also known a overhead] are costs that do not vary with production or sales level. For example, a com- pany must pay each month‘s bills for rent, heat, interest, and executive salaries—whatever the company’s output. Variable cost vary directly with the level of production. Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other in- puts. Although these costs tend to be the same for each unit produced, they are called vari- able costs because the total varies with the number of units produced. Total costs are the sum of the fixed and variable costs for any given level of production. Management wants to charge a price that will at least cover the total production costs at a given level of production. The company must watch its costs carefully. If it costs the company more than its com- petitor's to produce and sell a similar product, the company will need to charge a higher 0 < ...
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