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MENU MERCHANDISING

Introduction
Of all the limitations placed on menu planners, costs are probably the most
challenging. Normally,
menu planners are concerned mostly with food and labor costs. But other costs are
also
important, such as the cost of energy, equipment, nonfood supplies, and storage.
Whenever possible,
the menu should reflect the overall costs of running an operation, whether the
operation is
institutional or commercial.
The menu planner has to know the operational costs to stay within a price budget or
cost
allowance. The costs of running a commercial operation must be more than covered
in the budget
if a profit is to be made. Cost is also the basis for pricing many menus. If costs are
not known,
selling prices are impossible to reasonably determine. The planner of the
institutional menu who
pays no attention to costs will not be employed long. This is because institutional or
noncommercial
establishments must operate within a budget, and costs are tightly controlled, both
tangible
and intangible.
Obtaining Operational Costs
For costs to be controlled, they must be known. Managers must identify costs,
determine their
magnitude and frequency, and then, if they are too high, take steps to reduce them.
It is important
to recognize that locating such information is not, in itself, a control. It only
indicates that control
is needed. Such information about costs indicates a symptom, not a cure. Reports
such as
budgets, daily food cost reports, precosting sheets, financial statements, and payroll
figures are
tools used by foodservice managers to analyze data and root out any food-cost
problems.
Once a menu is planned, priced, and analyzed, it can be implemented, and a series
of operational
functions can be set in motion. These functions are purchasing, receiving, storage,
issuing,
preparation/production, service, and cleanup. During each of these steps, controls

must be established
to assure that only planned costs occur and that the menu price or meal charge, if
any, gives
the desirable return. Today computers are used to do most of this.
In the purchasing function, the proper kind of food and its cost, quantity, and quality
must be
determined and the right supplier found. If the wrong kind, quantity, or quality of
food is
bought at the wrong cost, the menu will not have the desired end result.
Many aspects of the purchasing function can be computerized for greater efficiency.
The
operations chef and purveyors are helpful in developing product specifications to fit
the
standardized recipes used. When these recipes are input into available software
systems that are
linked with production scheduling and front-of-house point-of-sales systems, utilized
items are
subtracted from inventory. Management is signaled when it is time to order more
recipe components.
Similarly, recipe component costs can be monitored so that management is alerted
when
food and supply item prices have climbed above a range deemed acceptable.
Substitutions can be
suggested that are acceptable.
Efficiency during the receiving is essential to see that exactly what was ordered is
obtained.
This also starts a series of accounting and inventory steps that are important to cost
control.
Handheld devices that can read barcodes so that inventory can be captured
electronically can be
purchased. Data from the handheld devices can be uploaded into the primary
computer system,
eliminating the paper and pencil method.

Marketing characteristics of a menu

One must use the marketing techniques to design and construct menus to increase
the ability to merchandise not only items on the menu but also the restaurant as a
whole. The marketing characteristics of a menus are as follows:
1. Paper
2. Printing
3. Colour

4. Balance
5. Variety
6. Composition
7. Descriptive copy
8. Listing of items
9. Size
10.Cover

PAPER: To begin the process of designing the menu start with paper
characteristics. The menu planner should keep in mind how the menu is going to be
used if the menu is going to be changed daily, the paper can be less expensive and
less durable, that is uncoated and light weight. For a menu that does not change
often, the paper should be durable, coated, heavy stock, water resistant and stain
resistant.
For most menus the outside cover must be durable. Inside pages can be lighter and
somewhat less durable.
When selecting the paper, the following factors must be considered by the menu
planner:
1.
2.
3.
4.

Strength
Texture
Colour
Opacity ( Opacity is the substance or the property of the paper that
minimizes the show through of printing to the back side of the next
page of the menu )

PRINTING:
The printing that is difficult to read results in dissatisfied customers.
It is vital that the menu be sufficiently large and easy to read.
Type come in various forms: the three major types are roman, modern and script.
Roman type is characterized by its thin and thick character. It is very readable and
found in newspapers, magazine articles and books. Roman types should be used in
the descriptive copy on the menu. Descriptive copy means describing items on the
menu in an appetizing way.
Modern type does not have the thick or thin character like Roman type. It has thick
block letter. Many government building have modern type on them.
Script type looks like handwriting. Script is difficult to read and should only be used
in subheadings or headings on the menu .Headings on the menu might read
appetizers ,soup ,salad entrees, and desserts. Subheadings would be stuffed
mushroom for an appetizers and sirloin steak with Hollandaise sauce for an entre.

The menu planner must also decide on the type size .Type size is measured in
points, starting with 6 point and ending up with 192 points .Most menus should be
at least12 point .Smaller type will be too difficult to read. For descriptive copy,
space between lines must be allowed, called leading. Leading is also measured in
points. No space between lines is referred to as set solid. All menus should have at
least 3 point between each line.
It is important that the type is in character with the restaurant, for example, if your
restaurant is modern, the type for your menu should be modern as well .modern
type is airy and light in character and can reflect the dcor of the restaurant.
Finally, color of the type is factor. The type on a menu should be dark and the
background with dark blue type is acceptable .when the type is light and the
background is dark, it is called reversed type.
As previously mentioned, there are many variations of typefaces within these. There
are two parts, lowercase and uppercase. Lowercase letters are small letters.
Uppercase letter are capital letters. Lowercase should be used for heading or
subheadings on the menu .
Menu planers must also decide on the italic variation of the typeface .Italic variation
means that typeface is designed at an angle or slant, whereas most typeface is
usually straight up and down. The menu planner should use caution with regard to
italics. This from of type can be difficult to read and should be used only for
subheading or headings and to highlight items on the menu so that the customer
will look at that item and perhaps select it over other items of the menu.
Avoid reversed type (light or white type on dark background) on the inside of the
menu. Reverse type is acceptable on the cover of the menu however.
COLOR:
The color chosen for the paper and type on a menu should match well together .A
red background with yellow lettering does not blend for instance. .These colors
clash. Pink paper with red type blendes. Professional printer or artists can help
determine what colour go together and what colours do not.
BALANCE:
A menu is said to be balanced if all the food group are proportioned, for example, if
a menu has four appetizers, four soup, four salad, eight entrees, four potatoes, four
vegetable, and four desserts the menu is well balanced. A larger amount of entrees
than other item is not only acceptable but also recommended because entrees are
the focus of the menu and are the most expensive items.
VARIETY:

Varity is crucial to good menu .Variety is important in the amount of selection


within the food group and in the ways the items are prepared, for example ,under
the appetizers, the menu might include clams casino, stuffed eggplant ,and
fettuccini alfredo for a good verity .Entrees can be steamed ,broiled, sauted,
poached, braised, boiled, fried, roasted, or simmered. Customers like to see variety
reflect the chefs creativity .
COMPOSITION:
Composition of menu items is important in planning a menu. The menu planner
must look at how well certain dishes go with certain entrees. For example sweet
potatoes are excellent with ham just as popovers go with roast beef. In general
where entrees have lots of flavourings, side dishes should have less pronounced
flavor, for example beef stroganoff could be served with peas and carrots. On the
other hand if less rich entrees are served, side dishes should be more pronounced in
flavor. For example if entre is baked chicken, the vegetable might be
zucchini.Provonc,al, bread crumbs, parmesan cheese, garlic and assorted spices.
Another way to address composition is through eye appeal. Colours of food can hold
tremendous eye appeal with proper composition. A plate of white baked haddock,
steamed green broccoli and ruby red stewed tomatoes. Remember eye appeal
enhances customer satisfaction.
DESCRIPTIVE COPY:
Descriptive copy is an explanation of an item, how it is prepared and how it is
served. It is the descriptive copy that helps sell the item on the menu in most cases.
Entrees on the menu should have the most descriptive copy because they are the
most expensive items on the menu. One important rule to follow when composing
descriptive copy is to avoid using words that describe a killing process, such as
slaughtered or butchered. As far as possible the descriptive copy should be written
in English or some such popular language.
Descriptive copy of all food service operations fits into one of the three philosophies
of profit management. The first one is an exclusive gourmet menu with high check
average,. This type of operation wants the customer to wine and dine themselves
for a period of one to two hours. There is a substantial amount of descriptive copy
on this type of menu. More descriptive copy on a menu does two things. It gives the
customer more information about the food products and it keeps the customer in
the restaurant longer by having more to read on the menu.
The second philosophy of profit management is to have a short limited menu with
low check average. This type of operation wants the customer to remain only for 15
to 20 minutes in the restaurant or less. The menu has little or no descriptive copy.
The food selection are limited and simply listed with the price thus eliminating the
wasted time in the customers decision making process.

The third philosophy is to try to combine the best of the first two. A family style food
service will just list food items such as appetizers, desserts, and beverages and
descriptive copies of the soup, salad and entre. This type of operation wants the
customers to eat and enjoy themselves for about 45 minutes to one hour. The check
value is generally moderate.
LISTING OF ITEMS:
Items should be presented in the order they are consumed.. For example most
menus list appetizers, soups salad and entrees and starches, vegetable, bread,
desserts and beverages. The listing is the proper one. In other cases the listing
depends on the formality of the cuisine foe example, a French Classical menu places
the salad immediately before the desserts. It is recommended that the most
profitable items be listed first and last in a particular list. The most popular and
least profitable food item should be listed in the middle. When reading a column of
any type of listing, a person will always look at the first few items on the list first,
will skim the middle sections if it is a long column and then read the last few listings
before going to the next column. The most popular items however will most likely
be ordered, no matter where they are placed on the menu.
The best location for the most profitable item is in the top half of the second
quadrangle on a single fold menu. When a person opens a menu from right to left,
the first page or quadrangle seen is 2 and 4 or the second page. Because we are
taught to read from left to right, a customer will start reading from quadrangle 1 but
the eye will first see quadrangle 2.
Entre falls into place nicely on the right after listing appetizers, soups and salads
on the left. Items should be listed in order of profit. High profit entre such as
chicken and pasta should come first and then lobster, veal and lamb etc.

SIZE:
The menu should be large enough to merchandize the food items without appearing
crowded. Avoid types that are too small for customers to read. Too large a menu,
however will be awkward to handle. Most menus are four pages. The cover forms
pages one and four and the inside with food items form pages two and three. The
most common popular size is 8.5 inches by 11 inches.
COVER:
The front and back of a menu cover can yield tremendous merchandising power.
The cover of a menu should reflect the dcor and theme of the operation. For
example, a specialty restaurant featuring broiled steaks that has red table cloth and
black napkin could have a red menu cover with black print.

The front cover should have the name and recognizable symbol or logo of the
restaurant on it. The logo of a seafood restaurant named The White Cap should
be an anchor. It is amazing to note that fifty percent of the back of the menu
cover are never used. The back should have the phone number and address of the
operation and any information on credit card accepted, directions, hour, restaurant
history and banquet and take away service information are some examples of
effective merchandising used for the back of the menu.
On a more practical note, the menu cover should be durable, water resistant and
stain resistant unless the menu changes daily and is disposable.

MARKETING AND MERCHANDISING THE MENU

A well merchandised menu is a successful menu. The following areas are important
for merchandising. Displaying other information on the menu and listing liqueurs,
wines appetizers, salads. Low calorie items, steaks, seafood, sandwiches, desserts,
take away services and specials.
1. DISPLAYING NON ITEM INFORMATION ON THE MENU:
Examples of non item information that can help to merchandise a menu are credit
cards accepted, history of the operation, a map showing operations location, a
history of certain dishes, catering information, takeaway services, management
background information about other locations if part of a chain, classification and
accreditation, banquet facilities accommodation, tourist attractions in the area, gift
shop information, address, phone number and hours of operation. Many
establishments do not put any non item information on the menu. The back cover
should be used and the back cover should not be used for listing food items.
Leaving the back cover blank is a waste of space and valuable merchandising
power.
2. LISTING ALCOHOLIC BEVERAGES:
In most restaurants the management does not list alcoholic beverages on the menu.
It is often the job of the waiter or waitress to present a separate beverage list to the
guest. Mentioning wine and spirits on the menu often increases the sales even if
there is a separate beverage menu.
A separate beverage list calls for attention to the selections available in the
operation. A beverage list on the back of the menu is less effective for the
merchandising because it may be overlooked.

When listing spirits and liqueurs preferably give brand names for example under
vodka, a recognizable brand bane would be Smirnoff. It is also important to list
alcoholic beverages in the order in which they are consumed at meal time. Before
dinner drinks consists of scotch, whiskey Bourbon, gin, vodka and rum should be
first, beers may come next followed by wines ( sparkling, white, red and rose ) with
brandies and liqueurs at the end. If you do not have a separate after dinner drink
menu, list these drinks after the desserts on a separate page.
3. WINE LIST:
A large wine selection should be on a separate wine list. A smaller wine selection
can be on the menu, but should be listed before the appetizers on the menu,
perhaps as a part of the beverage list. Wines are listed by the following:
1. Where the wine originates or imported from: French, Italian, German,
Swiss, Spanish or Austrian.
2. Colour of wine: red, white and rose.
3. Type of wine: sparkling, still wine,
4. Style of wine, dry: medium sweet, or semi sweet, full bodied or light
bodied.
5. Pricing: Display the prices. Wine normally comes in bottles, half bottles and
by glass.
6. Year of production, Chateau Cheval Blanc 2006.
7. Bin number used primarily for inventory purpose.

4. APPETIZERS: Appetizers should be listed before the soups on the menu.


Good and easy to read descriptive copy will aid in selling appetizers. About
four to six appetizers on an a la carte menu provide a good balance.
Remember the importance of variety. For example shrimp cocktail, snails,
stuffed mushrooms, stuffed eggplant are a good variety on an a la carte
menu.
5. SALADS: Salads on the menu should be located after the appetizers and the
soups. Salads, like appetizers should be in a readable type and be given
adequate descriptive copy. For example chef salad might be described as a
generous portion of romaine, iceberg, chicory topped with Danish ham,
smoked turkey, sliced tomatoes, cucumber, green peppers and sliced egg
with a side of our own Thousand Island dressing, a complete meal in itself.
Salad dressing can also be an important item on the menu with its own descriptive
copy. For example Thousand Island dressing : Our own dressing made with rich
mayonnaise, ketchup, Worcestershire sauce , relish, assorted spices abd just a
touch of Tabasco sauce. A great topping for any salad.
6. LOW CALORIE ITEMS: In today society people are more aware of what
they eat and whether or not it is nutritionally sound. Many customers are
eating low calorie dishes, the most popular being low calorie salad. Low
calorie items can be listed separately or under salad. An example of low
calorie item is cheeseboard with an assortment of fruits. Again make sure
that low calorie items are in large enough type and are given descriptive
copy.
7. STEAKS: Steaks in the menu definitely requires descriptive copy for better
merchandising. There are many factors to be considered while describing
steaks on the menu, for example the kind of steak, thickness, size or portion
and manner in which prepared. One example of effective descriptive copy for
steaks is as follows: A 12 Oz cut of fillet broiled to perfection and topped
with creamy hollandaise sauce abd assorted spices.
Information on what is rare, medium rare, medium and well done helps the
customers. Steaks are one of the most expensive items on the menu. Steaks
should be in readable type and be listed on the right side of the menu.
8. SEAFOOD: Seafood like steak should be large readable type and should
have large descriptive copy. It is good to include information like where the
seafood comes from and how it is prepared and served. An example of
descriptive copy of seafood might be Scrod Bella Vista: A generous portion
of baked scrod topped with slices onion, green peppers and tomatoes,
surrounded by rich tomatoes sauce.

9. SANDWICHES: Sandwiches like entre should have a good descriptive copy


and should be readable type. If sandwiches are a specialty item, they can be
listed below the entre. However it is common practice to list only the most
popular and profitable sandwiches after the entre. Hot sandwiches on the
menu can be given more descriptive copy than the cold sandwiches if they
are more profitable items.
10.DESSERTS: Dessert6s can be listed in two ways. The first method is to list
desserts after entre on the menu in readable type and with descriptive copy.
The second method is to have a separate dessert menu that may include
after dinner drink as well. The separate dessert menu has the advantage of
drawing attention to the dessert selections by allowing more room for
descriptive copy.
11.TAKE AWAY SERVICE: Take away service need proper merchandising. The
best way to merchandise take away service is to do a separate take away
menu. When listing take away information, give proper descriptive copy in
readable type on the prices portion and packaging. Include a phone number if
delivery service is available. Some establishments print photographs of their
take away selections which is good merchandising tool. Advertise the
takeaway service on the back of the in- house menu.
12.SPECIALS: There can be two kinds of specials on a menu. The first special
may be the one for which the restaurant is well known. The second kind of
special may the one which is easy to make and is a high profit item. To
attract customers to specials, use pictures on the menu like many twenty four
hour establishments do or set the specials in a box or graphic panel to attract
your customers.

Common Menu Mistakes


Inadequate management commitment: Not treating the menu design decision
with the same due diligence as any major capital investment decision is setting
yourself up for failure. So is leaving the menu layout and design up to your printer
and not working with a graphic designer to accentuate the menu items you want to
feature.
Hard to read. Examples include poor readability because of font size, paper color
and font style; crowded menu pages with elements too numerous and font type too
small; and printing on dark paper with dark ink making readability difficult under
low-light conditions.
Overemphasizing prices. When you align prices in a column down the page,
guests can summarily discount items based on price alone.

Monotonous design. Using the same graphic design on all menu items so nothing
stands out says, blah.
Poor salesmanship. Not emphasizing the items the restaurant wants to sell
through graphics, fonts, color, or illustrations reduces your influence on what items
will move.
Poor use of space. This includes not using the front and back cover for
information about the restaurant, e.g., hours, services, history, address, etc. I have
more than 1,000 menus in my library and about one-fourth of them do not have any
identifying information. Over the years I have forgotten where some of them came
from and the menu does not contain any information. Since people take menus from
restaurants as souvenirs, it should contain what is referred to as institutional
information. To not include it would be like having custom matches without your
restaurants name on them.
Incongruent. This includes failing to design the menu to fit the dcor and
personality of the restaurant. Your menu is your primary communication tool and it
should be designed in a way that if a customer who had never heard of your
restaurant were handed a copy of your menu they would be able to visualize your
dcor, type of food, price range and whether you were casual or upscale dining.
Too big. The size of the menu needs to take into account the size of the table, the
place setting and the table appointments. Oversized menus can be awkward to hold
and handle while sipping a martini and trying to have a conversation with your
dinner companions.

Points to be considered while planning a menu:


Following are the points to be considered while planning a menu whether it for a
stand alone restaurant or the restaurant of a five star hotel:
1. Availability of ingredients.
2. Availability of equipments in the kitchen and the service area.
3. Skill level of the cooking and the service staff.
4. Storage space and facility available.

5. Ethnic composition of the target clientele.


6. Spending power of the target clientele.
7. Return on investment expected by the investor.
8. Age group of the target clientele.
9. Nutritional requirement of the target clientele.
10.Food habit of the target clientele.
11.Amount of time the prospective clientele have at their disposal to spend in
the restaurant.
12.Location of the restaurant, i.e. in a residential area or a market place etc.
Constraints of menu planning:
All the points discussed under the points to be considered while planning menu
for a restaurant ban be discussed under the constraints of menu planning.
Pricing of menu:
Price can be described as the amount a consumer is prepared to pay for the
good or the services. The term amount implies the amount of money. This is not
however the full story. Buttle (1986) argues that the price is the summation of all
sacrifices made by a consumer in order to experience the benefit of a product.
Here sacrifices includes not only money but also time and energy.
Key concepts:
Definition of price: Price is the total amount of sacrifices the consumer is
prepared to make to acquire the goods or service. The sacrifice could be either
money, energy or any other valuable commodity like time.
For example if there are two sandwich shops and one offer better quality and
more variety and is cheaper than the other but farther away, a consumer will
normally take into consideration not just the money they will have to pay for the
sandwich but laso the time and effort required to acquire the sandwich.
Consumer will often sacrifice value for convenience. Therefore the price to the
consumer is not merely the monetary sacrifice, they have to make. Sacrifices
other than money are categorized qualitative factors in the pricing decisions.
Although it is possible to give some money value to these factors ( primarily
using cost benefit analysis) it is invariably too complex. Therefore whilst these

factors are in the main not quantified, they are influential in terms of consumer
behavior and therefore in setting prices firms must bear these factors in mind.
The importance of pricing: Pricing is one of the most critical decisions
managers have to make. Pricing is vitally important for many reasons:
1. Price is normally the most important factors in the consumers decision to
purchase. This is particularly when there is little product differentiation.
2. Pricing is normally the only active revenue creating decision made within a
business. All other decisions tend to be based on cost.
3. The price setting decision id critical because it is often very difficult to
change. For instance in the hotel industry once the price is printed on the
menu it continues till the time the menu is in operation. Prices will change
only when the menu is changed.
4. Many new product failures are attributed to misjudged pricing decisions.
5. In price sensitive markets a small change in price can have dramatic effect on
demand.
6. Price directly affects the sales volume and sales revenue. It is important to
remember the impact this has on the financial position of the company
particularly when you remember that businesses with high fixed costs such
as hotels have very little room to manage costs.

Some traditional methods of pricing:


CONVENTIONAL PRICING METHODS:

1. Cost basis methods:


Cost is perhaps the simplest of pricing techniques and is widely used. A
percentage applied to costs is added to the established cost figure to ascertain
the price. It can be expressed mathematically as follows:
P == C +f (C)
Where P == The price
C == The cost
f == Percentage of mark up

For example if C == Rs 20/- and the percentage mark up is 50%, the price
would be:
P == Rs20/- + 50% (20/-) == Rs 30/The percentage mark up will depend upon what this proportion of the formula
needs to cover in terms of costs not included specifically within costs in the
formula and the profit margin. The percentage mark up will normally depend
upon the past experience or an industry trade norms.
The major problem with this formula is deciding which cost figure to use. Should
it be the total costs, variable costs, direct costs or perhaps some other cost
basis.
There are three main variations to this cost basis method of pricing:
1. Full cost pricing
2. Direct cost pricing
3. Gross margin pricing
The basic method of cost- plus pricing is called full cost or total cost pricing. It
requires the identification of the total cost of a product or service to which is added
a mark up to provide a profit. If we refer back to the equation above
P= C + (f)C
In this case P= Price, C= total cost of the product or service, f= percentage net
profit.

Full cost pricing: Direct material + Direct labour + Direct expenses +


Overheads + net profit = Selling price.
So in the formula P = C + f (C), f is the allowance for only the net profit.
In this slightly amended equation C is now defined as total cost rather than simply
costs and includes both direct and indirect costs. The indirect costs would have
been allocated and absorbed into the product cost but the process of allocation and
absorption can be fairly arbitrary. It follows It follows that the accuracy of the
accumulation of the costs associated with particular product may be quite
questionable. With a markup percentage being based on these inaccurate figures it
is clear that it can lead to magnification of inaccuracy.
It is also likely that the indirect costs include fixed overheads that will be incurred
whether or not the product or service in question is sold. From a decision making

perspective these costs are classified as unavoidable and therefore irrelevant to the
pricing decisions.

Direct cost pricing: Direct material+ Direct labour + Direct expenses + mark
up = Selling priceSo in the formula P= C+ (f)C, f represents the allowance for
overhead and net profit.

Direct cost pricing as the name implies only takes into account the direct costs
involved in the product or the service. The percentage markup in this case is
assigned to cover an allowance for indirect costs or the overheads associated with
the product and provide for the net profit.

Gross margin pricing: Finally gross margin pricing can be used when data on

direct labour cost is not available or is not reliable. Here only the direct materials
are included in terms of cost. For example for a restaurant the food cost only. The
mark up added now has to provide sufficient margin to cover the labour, overhead
and profit. The definition of C is amended as follows:
P = C + (f)
P = Price as before
C= Direct material cost
F = percentage of profit and all material cost.
The main criticism cited against cost plus methods is that they tend not to take
account of the market, in particular and price elasticity of demand, the level and
nature of competition and the organizational marketing strategy. However there is
some evidence from research that cost plus methods are used as the first step in
determining the selling price. In these cases after determining a price through the
cost plus methods, market consideration would then be taken into account and if
necessary an amendment may then be made to the price. There is also a tendency
to increase the mark up in order to generate more profit. However this also leads to
increasing the selling price which would reduce demand and there by result in the
opposite objective than that intended, that is to decrease total profit.
The information to use when applying the cost plus methods will normally be
available from the accounting system. The actual process of determining price
tends to be mechanical and not overtly complex. Cost plus methods are even
adventitious because they provide sales target which if achieved guarantee profit.

2. Factor pricing:
Factor pricing is a variation of cost plus pricing. Instead of a percentage a
simple factor is applied to the cost to ascertain the selling price. The term
factor means more than 1. The factor could be as high as 30 for items such
as tea or coffee and as low as 2 for a slice of buttered toast. In restaurants it
is normal to apply different factors to different items to account of price
discrimination and competitions. There is enough work done on menu
profitability through pricing of menu.

Factor pricing has all the same advantages and disadvantages of cost plus
pricing. Like cost plus methods it is easy to understand. However it is based
on historic cost data and can lead to a tendency to increase prices to
achieve greater profit margin which at the same time can lead to a reduction
in profits due to decline in the volume of business.

3. Breakeven pricing:
Breakeven pricing applies the principle from cost/ volume/ profit. Breakeven
price is calculated to ensure that at that price the organization will not make
any profit or loss. Any price above the breakeven price will guarantee profit
assuming the demand remains the same.