Re-opening after COVID-19: Do you need low prices to attract customers?

Due to the current pandemic, all the premises have been forced to close completely. Certainly, after the reopening it will not be possible to gain back all of the lost turnover, but a good flow of customers could help recover at least a part of it.

But how do you attract many customers? Here are some tips on a well-known strategy: the one of low prices. How to adopt and follow it.

Re-opening after COVID-19: Do you need low prices to attract customers?

In addition to the typologies and varieties of the offering, there is still another fundamental element that in some cases has a decisive influence on the success of a bar: the price.

There is a large number of studies on the topic ‘prices and consumer behavior’, in which it is stated that the human being does not only make rational and logical decisions. Indeed, it is shown that consumers’ attitude toward price is often influenced by external factors that intersect with more complex elements, for example the perceived value and the communicated value.

In the following we have tried to group together some tips for entrepreneurs to identify these ‘external factors’ that compose a price list. To do this, you must first answer a main question:

On which elements is the price of a product built?

Applying low prices to attract large-scale customers can certainly be useful. However, when creating a price list, you must take into account three really important factors:

  1. Food Cost: This is the difference between the selling price and the purchase price. Under optimal conditions, the turnover of our business should be at around 30 or 32% of food cost. Here the selling price guarantees a reasonable profit compared to the cost. 
  2. Competition: On basic products such as coffee and cappuccino the customer is confronted with a wide choice. In the event that you decide to have higher prices than the competition, it is necessary to explain why so. From here we get to the third point:
  3. The commercial strategy of the bar: Offering very low sales prices can give advantages over the competition. But it could also lead to a progressive erosion of the margins and a noticeably lower profit. At the same time, selling at a high price entails the need for a good ‘storytelling’ to justify the more expensive prices to the customers. It is therefore essential to decide the positioning of your price compared to the competition.

Considering all three factors simultaneously may seem complicated, but the choice of prices is the second most important element (after the location) for a successful entrepreneur. In addition to the quality of the product and the associated value, this choice also depends on the customer’s mentality.

Unfortunately, many bar managers consider themselves bartenders and not entrepreneurs. This is why they do not consider books and manuals on the topics of marketing and pricing. 

We recommend to: Read them all! According to our experience it is of great importance to know the trends, both of pricing and marketing, of the product or the customer. No business can escape from these external factors!

In regards to this last statement, it is essential to observe the current developments worldwide. Here are a couple of examples for simple strategies that can be used in almost any venue:

  • Fluid price: Selling a product at a higher or lower price depending on the target audience (for example, discounts for students) or other factors such as the different times of the day. It may seem an ambivalent technique, but let’s think of the products that at certain times are offered at different prices: happy hours, discounted breakfasts in the very first hours of the day, etc.
  • The so called “Owl” price: a measure of the commercial strategy implemented by many retail chains: advertising a product with very low cost to attract customers. Once they enter, they are exposed to a series of similar or alternative products to the ones initially promoted. This “pushes” the customer to spend more.

Re-opening after COVID-19: Do you need low prices to attract customers?

Do you need low prices to attract customers?

We have to admit: the lowest prices work if not always, at least very often. In the world of HO.RE.CA. where the entire strategy focuses on customers, it is very important to win their loyalty. In this context, the idea persists that every penny and every euro less can make a difference.

An example: a bar just outside Rome’s Termini station offered espresso and cappuccino with twenty cents less than the competition of the area. In the mornings it was difficult to enter because of the queue!

However, a commercial strategy only based on low prices could also have fatal results. Since it is easy to find the next offer at an even lower price than ours, we will not remain impressed and customers will be easily ‘stolen’ from the competition with the best offer.

The success of places which have managed to make a name for themselves is rarely based only on the lowest price policy. Rather, they differ from the competition because they know how to make a good ‘Storytelling’ or because they still offer a choice of products with a better quality.

Probably in every city there is ‘the best coffee shop’ or ‘the best pizzeria’, and so on. These places are always full of customers, but they are rarely the ones that offer the lowest prices.

In conclusion: Low prices are ok, but only on targeted offers and not for all products!

 

Good luck with the (hopefully soon) reopening!

 

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