Hello heroes! 👋
One of the key factors that affect how customers interact with food stands is pricing. It's a crucial aspect of the business model and has a huge impact on purchase decisions.
Decision Design
Some customers are more sensitive to the price of burgers than others. Students, Parents, and Staffs, for instance, have lower disposable incomes compared to the other segments. For them, affordability/price is a big part of the buying decision.
Other factors that influence buying decisions in the game are:
- Time of day
- How appealing the Stand looks
- The food and service quality of the Stand
- Brand popularity of the business
These customers will shy away from your stand if they consider your burger to be too expensive. How do they decide what's expensive and what's not?
Utility Value
This is where utility value kicks in. They compare the cost of your burger to the cost of alternatives, such as a homemade burger, and decide based on which option offers the best value for their money.
If the cost of buying all the ingredients plus the time and effort to make the burger themselves is significantly less than the burger price, they will likely consider it expensive.
But as the difference between the burger's price and the cost of the homemade option reduces, it will seem more affordable to them, and their likelihood of buying the burger will be higher.
Determining Price Sensitivity
To show you how it works, let's take a closer look at how pricing affects the buying behaviour of the Students segment.
The formula we used:
This results in a graph that shows how the probability of Students buying a burger drops as the percentage difference between the burger price and homemade cost increases:
You can see that Students are very price sensitive as their purchase probability begins to drop at a very low percentage price difference between buying the burger or making it at home.
The graph is different for each customer segment. Some customers like Fit-ones and Managers have a high purchase probability even at a price difference above 200%!
This is because their buying decision is based more on stand appeal, food/service quality, brand name recognition, etc., than on price.
The key to maximizing sales is to consider the target market's price sensitivity when setting menu prices.
That's it for this episode!
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Live Long and Prosper 👋,
Team Visionaries