Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Key Words:
Restaurant, Profitability, Price-Sensitivity Measurement, Price. 
INTRODUCTION 
Establishing pricing strategies is critical to marketing managers. The pervasive influence of price is due, in 
part, to the fact that the price cue is present in all purchase situations and, at a minimum, represents to all consumers the 
amount of expense that must be incurred in the given purchase transaction. A considerable number of authors have 
pointed to the importance of pricing for every company’s profitability, mainly because it is the only element of the 
marketing mix that generates revenues for a firm, while all others are associated with costs (O’Connor, 2003; 
Shoemaker, Lewis & Yesawich, 2006; Kotler, Bowen, & Makens, 2006). Avlonities and Indounas (2006) suggest 
that pricing decisions can be implemented easily and at low costs. In addition, Zeithaml, Bitner and Gremler (2006) 
propose that, because price serves as a proxy for quality for customers, it must be determined very carefully. 
Additionally, Shoemaker, Lewis and Yesawich (2006) suggest that pricing is a powerful force in attracting attention 
and increasing sales, and that it can also have major influence on customer loyalty. Despite the aforesaid 
significance of pricing, several authors view pricing as the most neglected element of the marketing mix (Avlonities 
& Indounas, 2006; Hoffman, Turley, & Kelly 2002).
The marketing discipline of pricing grew out of the basic theory of economics, which assumes that the 
economy responds to the customer (Shoemaker, Lewis & Yesawich, 2006). When it comes to setting prices, these 
basic theories need to be remembered, but prices also need to be established with the concept of customer loyalty, 
not only short-term profits, in mind (Shoemaker, Lewis, & Yesawich, 2006).
James Abbey (1983) states that pricing decisions should be based on solid market research and thorough 
understanding of the economics of price changes.
Management guru Peter Drucker (1993) talks about the 
importance of pricing in his ‘five deadly sins of business.’ The first three sins relate to pricing; the worship of high 
profit margins, mis-pricing new products, and pricing concentrated solely on costs. The next section of this paper 
will illustrate how prices are commonly set in the hospitality industry. 
 

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