Pricing Strategy of Rain Forest Cafe to Fulfills its Market Objectives

Question: Describe about the Pricing Strategy of Rain Forest Caf ? Answer: Introduction Rainforest Caf is a restaurant chain that is owned by Landrys Inc of Houston. In 2008, the chain of restaurants started their operations in UK. The Rainforest Caf is spread in various parts of the world in United States, UK, Canada, France and Japan. The main source of income for Rain Caf forest is the local tourism. Some features of the rain forest are depicted in the decorum of the Rainforest Caf. The features include growth of plants, mists, waterfalls and figures of animals including frogs, tigers and elephants. The rooms of the restaurants are partitioned by means of rain curtains that run from the top of the partition walls and booths and the aquatic tanks. The food served by Rain Forest Caf ranges from seafood, pizzas, pastas (Rainforestcafe.com, 2015). History of the Business The business was started in Texas in the year 1994. The caf was started by entrepreneur Steven Schussler. By 1997 there was chain of six restaurants in United States. In 1998 the restaurant opened 10 more restaurants in United Stated. Later in the year 2008 the Caf opened 22 restaurants of which seven were in Mexico and 5 were in UK. The company is spread across all parts of the world from United States, UK, France and Canada. The major source of income for the company is local tourism (Theme Park Insider, 2015). Nature of the Business Rainforest Caf operates in the hospitality industry. It is a wild place to shop and eat. The family can enjoy at the caf as it is adventurous, partly has features of restaurants and it is fully entertaining. The caf of Rainforest re-creates a tropical rainforest which comprises of waterfalls, lush vegetation and indigenous creatures. At Rain Forest Caf, everyday is an adventure. The Caf organizes group events such as birthday parties and various other events (www.valiantmedia.com, 2015). Target Market Rain Forest Caf is visited by people of all age group. Families can organize birthday parties. The target market of the Caf is wide. It is aimed at people belonging to all age group. Families form an integral part of the target market. Objectives for the next 5 years The strategy of the Rain Forest Caf is to increase the market share the company in the next five years. This will be achieved by unwavering commitment towards customer service and meeting the need of the customers. The objective for the next five years is to maintain the same commitment. They promise to offer the guests with food items at reasonable prices. One of the major unique selling propositions of the caf is the courteous service. Mission and Vision The mission of Rain Forest Caf is to provide the customers with finest quality of food items at fair market price. The sustainable resources of the food items are collected via environmentally sensitive methods. Customers service is an important aspect of the organizational goal. The firm pledges to treat the customers with respect, efficiently and in a friendly manner. The mission will be accomplished by the support from the staff members. The support of the staff members is essential for the success of the business. It will foster the development of career and provide job satisfaction to the team members (Rainforest Cafe, 2015). Approach to Pricing by Rain Forest Caf Rain Forest caf is committed to maintain long term relationship with the customers. Thus it has kept the prices of the food items lows. This has helped to attract more customers to the Caf. The competitive advantage of the caf has enhanced. Business Plan for 24 months Existing Pricing Strategy The pricing strategy of Rain Forest Caf is focused to maximize the strength of the customers. This can be achieved if they price the food items at lower level. The target market of the caf is families who find the coffee house a friendly place. Rain Forest Caf utilizes competitive based pricing. It prices it products at cheaper rates depending on the prices set by the competing firms. They believe that the daily coffee consumers are not influenced by the discount program or the coupons. Pricing will directly affect the profitability of the Rain Forest Caf, so it is crucial to set the right price in order to succeed. The pricing strategy for the caf will take into account not only the costs that are the considered as the major expenses of the caf. Apart from the major expenses of the caf, the style of the caf is crucial to address to the target market. The location of the caf also plays a crucial role for competitive advantage of the caf. Menu pricing Strategy The menu offered by the caf has tremendous impact on the profitability. The pricing of the food items has to be made according to the menu. While setting the price of the menu it is important to identify the food items that will be offered in the menu. The pricing strategy will depend on the condiments that will be offered in the menu. For example for sand witches , fries and salads there will be a separate price. On the basis of the menu , the cost of the items in the menu is calculated(Magloff, 2015). This is the baseline for the cost of the food. Apart from this the fixed and variable cost has to be calculated to set the price of the food items. In case of Rain forest Caf , there is a separate menu for the kids and separate menu for people visiting with families and friends. The caf offers food that range from range of mouth watering appetizers. The menu comprises of exotic salads. It also comprises of burgers, sea food items, pastas, chicken and steak. Apart from the snacks offer ed by the caf, they also offer range of sparkling deserts. The menu is also set for people of the age group of 10 years. The prices of the food items offered in the menu are moderate to low. They follow competitive pricing strategy (rainforestcafe.com, 2015). Flexible Pricing Strategy The pricing strategy used at Rainforest Caf is flexible in nature. They set the prices according to the charge that is required to break even. Management of supply chain is essential for the success of the business (Paley, 2008). A network of suppliers has been built by the company. This has helped the organization to grow(HAVALDAR, 2015). The company uses a flexible strategy of pricing so that it can raise the price of the food items whenever necessary in order to maximize the profit. By ranging the profit in small increments, the high profit has been displayed as daily specials which will deisgn the prices that will increase the sales of the caf (Vashisht, 2015); (Paley, 2015). Business Plan for 24 months Pricing Strategy Objectives The objectives of the pricing strategy will be to maximize the sales of the organization. It will maximize the profitability of the organization. The coffee shop will target people from all age group. This will increase the sales of the coffee shop. Flexible pricing strategy is presented adopted by Rain Forest Caf. They can adopt value based pricing strategy to boost the margin of sales. Pricing strategy target The target of the strategy of pricing is to maximize the sales of the caf. This can be achieved by offering quality food items at reasonable prices. However the prices of the food items can be increased if there is decline in the sales of the caf during lean season. Even there is increase in price; the sales of the caf shop will not decline if they offer quality food items. The menu offers unique food items which range from sea food to eclectic deserts. Implementation of Value Based Pricing Rain Forest Caf can employ the strategy of value based pricing to maximize the profits. They can use extensive research and perform customer analysis in order to set the target price for the food items (Ferrell and Hartline, 2015). In order to address to maximum customers, the company has to set the price of the food items on the basis of extensive research (Macdivitt and Wilkinson, 2012). Maximization profit is the strategy deployed by the company to determine the output level of the price and the product that will generate maximum profit (Liozu and Hinterhuber, n.d.). Value based pricing strategy is not applied by various firms. It is used to uncover maximum amount of customers who are willing to pay for the products (Nagle and Hagen, 2009). Pricing strategy for the right customers and the right market Price cutting cannot be the prime strategy used by the organization to target to a wide range of customers. But the practice is based on deeper analysis of the actual base of customers. Prices can be raised by the coffee shop to maximize the profit margin. The customers who value the food on the basis of the quality offered they will remain loyal to Rain Forest Caf. The demand curve can be kept inelastic in nature. The small change in price of the food items can increase the profit margin to a considerable extent. But the caf can target only certain regions of the menu to increase the price. The price of the food items will also vary according to the prices set by the current markets. Product Versioning and Communication of Price Rainforest Caf can increase the price of the specific drinks and sizes rather than raising the price of price of whole lot of food items offered in the menu. The increase in price of the food items must be communicated to the customers in order to manipulate the perception of the customers. The hike in the price of the food items can be based on the analysis of the willingness of the customers to pay for the product. The hike in price of the food item must not look insignificant (Sec.edgar-online.com, 2015). Forecast of Sales, Profit and Cash flow for 24 months (2 years) for Rain Forest Caf Budgeted Income Statement Year 1 ( millions euro) Year 2 ( millions euro) Sales 7,186.00 7,235.00 Cost of Sales 4,328.00 4,354.00 Other - - Gross Margin 2,858.00 2,881.00 Gross Margin % 39.77 39.82 Expenses Payroll 3,220.00 3,220.00 Sales and Marketing Expenses 808.00 808.00 Depreciation 260.00 260.00 Utilities 2,400.00 2,400.00 Insurance 2,094.00 2,200.00 Other Taxes 7,084.00 7,084.00 Total Operating expenses 15,866.00 15,972.00 Profit Before Interest and Tax 13,008.00 13,091.00 Interest Expense 480.00 432.00 Tax Incurred 556.00 570.00 Net Profit 11,972.00 12,089.00 Net Profit Percentage / Sales 1.67 1.67 Budgeted Balance Sheet Year 1 (millions euro) Year 2 (millions euro) Assets Current Assets Cash 2,802.00 5,764.00 Inventory 1,296.00 1,228.00 Other current assets - - Total current assets 4,098.00 6,992.00 Long term assets 5,950.00 5,950.00 Accumulated Depreciation 690.00 1,380.00 Total long term assets 5,260.00 4,570.00 Total assets 9,358.00 11,562.00 Liabilities and Capital Current Liability Accounts Payable 1,496.00 1,368.00 Current Borrowing 669.00 (197.00) Other current Liabilities - - Subtotal of current liabilities 2,165.00 1,171.00 Long term liabilities 6,679.00 6,386.00 Total Liabilities 8,844.00 7,557.00 Paid capital 9,800.00 9,800.00 Retained Earnings (9,667.00) 7,575.00 Earnings 1,724.00 3,510.00 Total Capital 1,857.00 20,885.00 Total Liabilities and Capital 10,701.00 28,442.00 Budgeted Cash Flow Statement Year 1 (millions in euro) Year 2 (millions in euro) Cash Received Cash from Operations Cash Sales 5,840.00 6,420.00 Sub Total of cash from Operations 5,840.00 6,420.00 Additional Cash Received Receipt of sales Tax /GST - - New other liabilties - - New current borrowing - - Sale of long term assets - - Sale of other current assets - - Subtotal of cash received - - Expenditure Expenditure from operations Spending in cash 1,246.00 1,438.00 Payment of Bills 3,278.00 3,887.00 Subtotal spent on Operations 4,524.00 5,325.00 Additional Cash Spent Payment of Principal for Current Borrowing 330.00 330.00 Principle Payment of other liabilities - - Repayment of other liabilities - 358.00 Long term asset purchase - 200.00 Dividends - - Subtotal of cash spent 330.00 888.00 Net Cash Flow 4,854.00 6,213.00 Balance of cash 986.00 207.00 References Ferrell, O. and Hartline, M. 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