Министерство науки и высшего образования Российской Федерации
Федеральное государственное бюджетное
образовательное учреждение высшего образования
«Российский экономический университет имени Г.В. Плеханова»
Факультет «Международная школа бизнеса и мировой экономики»
«УТВЕРЖДАЮ»
декан факультета МШБ и МЭ
Н.В. Пономарева
__________________________
«____» _______________ 2021 г.
ЗАДАНИЕ И КАЛЕНДАРНЫЙ ПЛАН
по выполнению выпускной квалификационной работы
бакалавра по направлению
38.03.01 «Экономика»
профиль «Финансы и кредит (на английском языке)»
Студенки 4 курса, группы 32Д-Э04/17
Коржуевой Валерии Дмитриевны
Ф.И.О.
Тема работы: «Ценовая политика компании на высоконасыщенном рынке фаст-фуда на
примере ООО «Бургер Рус»
«Company pricing policy in a highly saturated fast-food market (on the example of Burger Rus
LLC)»
1. Срок сдачи студентом законченной работы: 23 июня 2021 г.
2. В разделах выпускной квалификационной работы изложить:
Во введении - актуальность работы, цель, задачи, объект, субъект, тезис, теоретический и
методологический базис исследования, структура ВКР
Срок выполнения: 06 апреля 2021 г.
Глава 1. Экономическая сущность цены и ценовой политики компании
Срок выполнения: 20 апреля 2021 г.
Глава 2. Анализ конкурентоспособности ценовой политики ООО «Бургер Рус»
относительно главных конкурентов на российском рынке
Срок выполнения: 11 мая 2021 г.
Глава 3. Перспективы развития ценовой политики ООО «Бургер Рус»
Срок выполнения: 01 июня 2021 г.
TABLE OF CONTENTS
INTRODUCTION ...................................................................................................... 3
CHAPTER 1. ECONOMIC ESSENCE OF COMPANY PRICING POLICY .... 5
1.1
Price as the basic economic category ............................................................... 5
1.2
Pricing strategies, their peculiarities and objectives .................................... 10
1.3
Different pricing strategies used in the fast food industry .......................... 18
1.4
Influence of pricing policy on company financial performance ................. 25
CHAPTER 2. ANALYSIS OF THE COMPETITIVENESS OF THE PRICING
POLICY OF THE BURGER RUS LLC ................................................................ 28
2.1 Competitive analysis of the effectiveness of the implemented pricing
strategies of three fast-food companies ................................................................... 28
2.2 Competitive analysis of pricing for substitute products in three fast-food
companies .................................................................................................................. 36
CHAPTER 3. PERSPECTIVES FOR THE DEVELOPMENT OF PRICING
POLICY OF BURGER RUS LLC .......................................................................... 48
3.1
Analysis of the price changes’ impact on the sales of Burger Rus LLC .... 48
3.2
Ways of improvement of pricing strategies of Burger Rus LLC ................ 52
CONCLUSION ......................................................................................................... 59
BIBLIOGRAPHY ..................................................................................................... 61
2
INTRODUCTION
As globalization continues, competition intensifies among multinational and
home-based companies. All are seeking a solid competitive position in order to prosper
as markets reach their full potential.
Even when a company produces the right product, promotes it correctly, and
initiates the proper channel of distribution, the effort fails if the product is not properly
priced. Setting and changing prices are key strategic decisions. Prices set values and
communicate in markets. Setting the right price for a product or service can be the key
to success or failure. An offering’s price must reflect the quality and value the
consumer perceives in the product. Of all the tasks facing a business, determining what
price to charge is one of the most difficult. It is further complicated when the company
sells its product to customers while competing in a highly saturated market.
The topicality. From a customer's point of view, value is the sole justification for
the price. Many times customers lack an understanding of the cost of materials and
other costs that go into the making of a product. But those customers can understand
what that product does for them in the way of providing value. It is on this basis that
customers make decisions about the purchase of a product. Effective pricing meets the
needs of consumers and facilitates the exchange process. It requires that companies
understand that not all buyers want to pay the same price for products, just as they do
not all want the same product, the same distribution outlets, or the same promotional
messages. Therefore, in order to effectively price products, markets must understand
buyers and price their products according to buyer needs. However, one cannot
overlook the fact that the price must be sufficient to support the plans of the
organization, including satisfying stockholders. Price charged remains the primary
source of revenue for most businesses.
The aim of the bachelor’s thesis is to reveal the impact of pricing policy on the
company’s development and find effective ways of its transformation.
In order for this goal to be achieved, it is essential to undertake the following
tasks:
3
• Understand the economic essence of price;
• Define the main pricing strategies, their peculiarities and objectives;
• Consider the features and use of pricing policy in the highly saturated fastfood market on the example of particular enterprises;
• Conduct financial, peer-to-peer, correlation, and price sensitivity analyses
to evaluate the effectiveness of the pricing strategies implementation;
• Make recommendations and prepositions aimed at improving the
efficiency of the pricing policy used by the analyzed company.
The object of this bachelor thesis is Burger Rus LLC. It is a master franchisee of
Burger King Corporation.
The subject of the research is the pricing policy of Burger Rus LLC.
In order to increase its profitability by improving financial performance,
Burger Rus LLC should make chicken products prices more attractive for its clients,
increase the number of product-bundle offers, and implement dynamic pricing.
Constant adjustment of prices according to the market situation and rivals’ actions
leads to improvements in the company’s profitability and financial health. Efficient
pricing is the key factor of the success of any business and therefore its significance
cannot be underestimated.
Theoretical and methodological basis of the research. As for the problem of the
pricing strategies’ effectiveness, it is considered in some detail in the educational and
scientific literature, among which are the works of such authors as Cateora, Kotler,
Pindyck, Mankiw, Burnett, and others. The information base of the financial analysis
was the financial statements of the analyzed company and its main rivals for the years
2012-2020. Confidential data concerning the prices and sales volume in the years 20182019 used during the analysis was provided by Burger Rus LLC.
Structure of the graduation assignment. The thesis consists of the introduction,
three chapters, conclusion, bibliography. It contains 11 tables, 11 figures, and 35
bibliographic sources.
4
CHAPTER 1.
ECONOMIC ESSENCE OF COMPANY PRICING POLICY
1.1
Price as the basic economic category
According to the Cambridge Dictionary1, price is the amount of money for which
something is sold. We shall precise that a price is the sum of all the values that
consumers exchange for the benefits of having or using products or services. According
to Mankiw price of something can be considered as the cost of what is given up in
order to get what is wanted.2 Usually, such a cost is associated with money, while a
product or a service is a desired object.
Price is a complex economic category that represents the monetary value of a
product or service. For Karl Marx, the value of a commodity consists of two
contradictory aspects: use-value and exchange-value. Use-value refers to a product’s
utility in satisfying needs and wants as afforded by its material properties. Exchangevalue is the “proportion in which values in use of one sort are exchanged for those of
another sort.” Both derive from the expenditure of labor power – use-value from the
qualitative aspect of work as transforming useless matter into useful objects; exchangevalue from the purely quantitative, commensurable side of work.3
After trade-offs, the role of prices is the second important theme of
microeconomics. There are several ways prices can be determined. In a centrally
planned economy, they are as a rule set by the government. In the market economy, on
the contrary, prices are defined by buyers and sellers. Thus, the market price is a single
price that usually prevails in a perfectly competitive market. But as markets may not
be perfectly competitive, prices can fluctuate over time.4 Regardless of the scale of the
market competitiveness, companies aim at setting prices that would maximize their
profits. Pricing is a powerful tool for achieving specific objectives such as increasing
returns on profit, attracting customers, reaching sales volumes, gaining market share,
Cambridge Dictionary | English Dictionary, Translations & Thesaurus – Cambridge University Press. – 2021. –
[Electronic source] URL: https://dictionary.cambridge.org/ (access date 10.03.2021)
2
Mankiw, N. G. Principles of Economics. – 8th ed. – Cengage Learning, 2018. P.32.
3
Marx K. Das Kapital (Capital): A Critique of Political Economy – Benediction Classics, 2019. P. 46.
4
Pindyck, R. S., Rubinfeld, D. L. Microeconomics, Global Edition – 9th ed. – Pearson, 2017. pp. 5, 8-9.
1
5
sending a brand message, or others. The following are the major determinants that
should be considered while pricing products.5
1) Demand-supply conditions. When customers buy more products at low
prices and less of them at high prices – the demand for these products is
elastic, and customers are considered to be very sensitive to the price
change of a product. Durable goods such as TVs, washing machines, and
freezers are more price elastic than necessities. People are more likely to
buy them when prices fall and less likely to buy them when prices rise. On
the contrary, when customers are ready to buy products regardless of the
price change, demand is considered to be price inelastic. For example,
demand for essential goods, such as many basic food items and first aid
products, is not as influenced by price changes as demand for many nonessential goods.
2) Cost of production. While making a pricing decision one shall consider
the cost of the product including the amount spent on developing, testing,
and packaging the product. The same goes for the costs associated with
promotion and distribution. Total costs include both fixed and variable
costs. Fixed costs are costs that a company must pay regardless of the level
of production or sales. These costs include such items as rent, lease fees
for equipment, advertising, and insurance costs. Variable costs are costs
that depend on the level of production and sales of a company. Raw
materials, labor, and VAT are examples of variable costs. The point at
which total costs are equal to total income is called the breakeven point.
To be profitable, the firm's revenue must exceed its total costs, else the
company incurs a loss.
3) Quality of the product. Product quality can be considered as one of the
major factors in determining the price of a product as high-quality
5
Haron, A. J. Factors Influencing Pricing Decisions // International Journal of Economics & Management Sciences, 2016,
Vol. 5, Issue 1. – pp. 1-4.
6
products are usually priced higher than low-quality substitutes. For some
products, it is very important that the buyer knows what is bought due to
the standardized nature of the products. This requires classifying the
product by quality so that different varieties of the product will have
different prices. Therefore, differences in the quality of products usually
lead to differences in prices.
4) Profit-margin desired. As profit maximization is one of the main goals of
any firm, a company would try to earn maximum profit by charging the
highest product price. This price however must include a reasonable or
targeted profit margin to not only ensure a profitable sale but also keep
customers loyal.
5) Competitors’ pricing. In today's competitive marketing world, no business
can ignore the pricing policies of its competitors. And as companies want
to have and maintain loyal customers, they will often match or control
their rivals’ prices. Some retailers can give their clients an additional
discount if the same item can be found elsewhere at a lower price.
Likewise, if one company offers free shipping, it is highly likely that other
companies would do so too.
6) Consumers’ buying capacity. The number of competing products and
available substitutes affects the elasticity of demand. Whether a person
considers a product to be a necessity or a luxury, and the percentage of a
person's budget allocated to various products and services also affects
price elasticity. Some products, such as cigarettes, tend to be relatively
price inelastic as most smokers continue to buy them despite the price
increase and the fact that other people find cigarettes unnecessary. At the
same time, service providers such as utility companies in markets in which
they have a monopoly face more inelastic demand as there are no
substitutes available.
7
7) Government’s policy of price-control. Federal and local regulations affect
pricing decisions. These regulations are designed to protect consumers,
encourage competition, and promote ethical and fair behavior by
businesses. For example, the establishment of fixed trade markups on food
is one of the types of restriction on price increases. This resolution defines
24 items of essential food products, retail prices for which are subject to
state regulation if within 30 consecutive calendar days the increase in
retail prices for the listed food products will be 30% or more.6 There is
also the Resolution of the Government of the Russian Federation "On
measures to streamline state regulation of prices" where there are three
lists of goods, works, and services prices of which in the domestic market
are subject to state regulation.7 There are also price floors and price
ceilings. They are government-imposed minimums and maximums on the
price of certain goods or services. It is usually done to protect buyers and
suppliers or manage scarce resources during difficult economic times.
Price floors impose a minimum price on certain goods and services. They
are usually put in place to protect vulnerable suppliers. A good example
of this is the farming industry; small farmers are very sensitive to changes
in the price of farm products due to thin margins. Price ceilings impose a
maximum price on certain goods and services. They are usually put in
place to protect vulnerable buyers or in industries where there are few
Постановление Правительства РФ от 15.07.2010 N 530 (ред. от 21.03.2016) "Об утверждении Правил
установления предельно допустимых розничных цен на отдельные виды социально значимых
продовольственных товаров первой необходимости, перечня отдельных видов социально значимых
продовольственных товаров первой необходимости, в отношении которых могут устанавливаться предельно
допустимые розничные цены, и перечня отдельных видов социально значимых продовольственных товаров, за
приобретение определенного количества которых хозяйствующему субъекту, осуществляющему торговую
деятельность, не допускается выплата вознаграждения" – Консультант-плюс. – 1997–2021 – Электрон. дан. –
[Электронный ресурс] Режим доступа: http://www.consultant.ru/ (дата доступа: 15.03.2021)
7
Постановление Правительства РФ от 07.03.1995 N 239 (ред. от 27.12.2019) "О мерах по упорядочению
государственного регулирования цен (тарифов)" – Консультант-плюс. – 1997–2021 – Электрон. дан. –
[Электронный ресурс] Режим доступа: http://www.consultant.ru/ (дата доступа: 15.03.2021)
6
8
suppliers. A good example of this is the oil industry, where buyers can be
victimized by price manipulation.8
To define marketing opportunities for a product and its most successful
positioning in the market, companies use a marketing mix. The traditional marketing
mix has comprised the four elements of product, price, promotion, and place. Pricing
is the only element of these 4 P’s that produces revenue. By contrast, other elements
are concerned essentially with items of expenditure.9 Besides, price is the most flexible
element as it can be adjusted rapidly comparing to the other elements of the marketing
mix. Another important feature of price is being a silent provider of information. In
other words, price helps the customer judge product advantages. It is crucial when the
product is new, and it might be difficult to measure its benefits objectively.
Finally, we shall mention the price elasticity of demand. When the price of a
good increases, the quantity demanded usually falls. Therefore, it is crucial to know
how great the percentage change of sales in response to a 1% change in price will be.
Price elasticity of demand is usually referred to as Ep and is calculated by the formula
(1).
𝐸𝑝 =
%∆𝑄
%∆𝑃
(1)
where % ∆Q means percentage change in quantity demanded and %∆P means
percentage change in price.
The price elasticity of demand is usually a negative number. When the price
elasticity is greater than 1, demand is said to be price elastic because the percentage
decline in quantity demanded is greater than the percentage increase in price. If the
price elasticity is less than 1, we say that the demand is price inelastic. In general, the
price elasticity of demand for a good depends on the availability of other substitute
goods. In such a case a price increase will cause the consumer to buy less of the good
8
9
Mankiw, N. G. Principles of Economics. – 8th ed. – Cengage Learning, 2018. P.135.
Palmer, A. Introduction to Marketing: Theory and Practice – 3rd ed. – Oxford University Press, 2021. pp. 20-23.
9
and more of the substitute. Demand will then be highly price elastic. When there are
no close substitutes, demand will tend to be price inelastic.10
To sum up, the price is the amount of money that the buyer gives to the seller in
exchange for a product or service. This way price is a component of an exchange or
transaction that occurs between two parties and refers to what must be given by one
party to get something offered by the other party. However, this view of price provides
a limited explanation of what price means for both participants in the transaction. In
fact, it means different things for both buyer and seller as they have different goals.
And while a company is willing to get maximum profit from producing and selling a
product by higher pricing, a customer would rather prefer to buy a highly valued
product at a lower price.
Moreover, there is no one right way to calculate the best price for a product.
Many various factors should be considered to find the most appropriate pricing
strategy. Many factors influence pricing decisions. But the most common are demandsupply conditions, product costs and their quality, profit-margin desired, competitors’
pricing, consumers’ buying capacity, and government and legal regulations.
1.2
Pricing strategies, their peculiarities and objectives
Generally, pricing policy refers to how a company sets the prices of its products
and services based on costs, value, demand, and competition. Pricing strategy, on the
other hand, refers to how a company uses pricing to achieve its strategic goals, such as
offering lower prices to increase sales volume or higher prices to decrease backlog.
Despite some degree of difference, pricing policy and strategy tend to overlap, and the
different policies and strategies are not necessarily mutually exclusive.
Companies tend to price their products in such a way that customers believe they
are receiving fair value. For consumers, price is the key metric in determining the
10
Pindyck, R. S., Rubinfeld, D. L. Microeconomics, Global Edition – 9th ed. – Pearson, 2017. – P. 33.
10
attractiveness of a good or service. Therefore, pricing is a strategic tool used to compare
product and perceived value across different organizations. There are the following
three pricing approaches.11
Firstly, pricing typically begins with consumers and their value perceptions. The
customer will ultimately determine whether a product is worth its price. Therefore,
customer value-based pricing will be considered first. Buying a product, customers
would like to purchase a good or service whose value would reflect its price. Therefore,
it is important to consider how much value customers put on the advantages they obtain
from the product and set a price that precisely measures this value. An example of a
company that uses such an approach is Audi AG. Even while competing in a highly
saturated automobile market, Audi is perceived as a luxury in its customers' minds.
Therefore, the prices of cars are as high as their well-known German quality. So,
consumers are ready to pay due to their perceptions of value.
And although the value expectations of buyers are crucial while determining
prices in customer value-based pricing, the seller's costs are the primary factor to be
considered in cost-based pricing. Costs set the floor for the amount that will be
charged. Cost-based pricing thus means determining prices based on the cost of the
good being manufactured, delivered, and sold. To account for efforts and risks, a fair
rate of return is applied to make a profit. For example, EasyJet, a British multinational
low-cost airline, is a company that is using such a pricing approach. The company is
charging its clients based on its costs that are maintained at the lowest level possible.
High aircraft utilization, short processing times, charging for extras such as priority
boarding, suitcases, and food, and keeping operating costs as low as possible are the
major characteristics of the EasyJet pricing strategy. All this helps the company to offer
low prices to customers but stay profitable.
Finally, pricing based on competition means determining premiums based on
the policies, risks, prices, and business offers of rivals. Consumers will base their
Liozu, S. M. The Pricing Journey: The Organizational Transformation Toward Pricing Excellence – 1st ed. – Stanford
Business Books, 2015
11
11
product value judgments in extremely competitive markets on the premiums that rivals
charge for comparable goods. The oil market is one of the best examples of a
competition-based pricing implementation. This is because oil prices are highly
affected by the governments and the OPEC decisions concerning the amount of oil
produced and stored. Therefore, oil prices cannot differentiate a lot from one company
to another. Lukoil, for example, uses this type of pricing. While considering pricing for
export, other market players’ pricing decisions shall be considered by the company as
all the firms are offering the same or almost the same product quality-wise. Therefore,
the only thing that customers would consider is price.
All in all, depending on the industry and company’s niche different pricing
approaches should be implemented. This way, a firm shall take a closer look at the rival
prices while manufacturing and selling a good or service that cannot have any
additional value. In this case, no significant price differentiation is possible due to the
product nature. On the contrary, when a product can have a value-added, customer
value-based pricing should be considered. The greater is this additional value the
higher a price can be. However, not all customers are seeking a special product. In such
a case, a firm can use a cost-based approach and therefore set prices as low as possible
to attract price-sensitive clients.
After deciding on one of the pricing approaches, a company can concentrate on
pricing strategies. To start with, there are two policies for pricing new products.12
The first of them is market-skimming pricing. It is a strategy for setting a high
price for a new product to skim maximum revenues layer by layer from the segments
willing to pay this high price. This way the company makes fewer but more profitable
sales. Choosing such a strategy the product quality and image must support the price
while the costs of producing this product in small volume should not cancel the
advantage of higher prices. Moreover, the company must be sure that buyers will want
12
Cateora, P. R., Gilly, M. C., Graham, J. L. International Marketing – 18th ed. – McGraw-Hill Irwin, 2019. pp. 526-527
12
the product at such a high price while there should be no competitors in the market and
their possible entry into the market should not be easy.
Market-penetration pricing, on the contrary, sets a low initial price to penetrate
the market quickly and deeply. This strategy helps to attract a large number of buyers
quickly and to gain a great market share. While implementing this pricing strategy a
company should make sure that the market is price-sensitive, and that production and
distribution costs will fall as sales volume increases. Another very important factor is
that low prices set by a company must keep competition out of the market. Moreover,
after getting rid of all the competitors a company may switch to the market-skimming
pricing strategy but keeping in mind that the product quality and image should always
reflect the price.
To sum up, when a new product enters a market having no to little product
differentiation, a penetration pricing strategy is used. On the contrary, skimming
pricing is applied when a new product is launched in the market with no competition.
Traditionally, the choice of strategy is based on the level of competitiveness, the
product's innovativeness, business dynamics, and organization characteristics.
Moving to the pricing strategies used for already existing goods, products are all
interrelated, and their prices are in conjunction with each other. Therefore, the strategy
for setting a product’s price often has to be changed when the product is part of a
product mix, which is the collection of products and services that a company chooses
to offer its market. Then a company looks for a set of prices that will maximize profits
on the total product mix, instead of on the individual product. Since the various
products in the mix have related demand and costs, but face different degrees of
competition, pricing is difficult. The following are the five major product mix pricing
strategies.13
1) Product line pricing. It considers the cost differences between products in
the line, customer evaluation of their features, and competitors’ prices. For
Claessens, M. Product Mix Pricing Strategies – Pricing the Product Mix, August 24, 2015 / Claessens M. // MarketingInsider [Electronic resource] URL: https://marketing-insider.eu/product-mix-pricing-strategies/ (access date: 21.03.2021)
13
13
example, Samsung offers different smartphones with different features at
different prices.
2) Optional-product pricing. It takes into account optional or accessory
products along with the main product. For example, a car buyer may
choose to order a GPS navigation system & Bluetooth wireless
communication.
3) Captive-product pricing. It involves products that must be used along with
the main product. On the contrary, in optional product pricing products
are bought with the main product. Examples of captive products are razor
blade cartridges because after purchasing the razor, consumers are
committed to buying replacement cartridges.
4) By-product pricing. It refers to products with little or no value produced
as a result of the main product. Producers will seek little or no profit other
than the cost to cover storage and delivery just to get rid of them. One of
the examples is when meat is processed for human consumption. The byproduct can be used as food for pets. So, the manufacturer can sell it in the
market to recover some of the expenses associated with transportation and
storage.
5) Product-bundle pricing. It combines several products at a reduced price.
For example, fast-food restaurants bundle a burger, fries, and a soft drink
at a reduced price. Also, telecommunications companies offer TV,
telephone, and high-speed internet connections as a bundle at a low
combined price. This way provider can promote the sales of products that
its clients are not likely to buy. However, the combined price must be low
enough to get consumers to buy the bundle instead of a selection of single
products.
Summing up, pricing is a critical element of the marketing mix and companies
must make strategic choices about how to price their products to achieve their business
goals.
14
However, regardless of the formal pricing policies, the market sets the effective
price for a product. In other words, the price has to be set at a point at which the
consumer will perceive the value received, and the price must be within reach of the
target market. Consequently, many products are sold in very small units in some
markets to bring the unit price within reach of the target market. Therefore, most
companies usually adjust their basic prices keeping in view various customer
differences and market-changing situations. There are the following seven price
adjustment strategies.14
1) Discount and allowance pricing. It reduces prices to reward customer
responses such as paying early or promoting the product. Discounts are
either cash discount for paying promptly, quantity discount for buying in
large volume, or functional discount for selling, storing, distribution, and
record keeping. Allowances include trade-in allowance for turning in an
old item when buying a new one and promotional allowance to reward
dealers for participating in advertising or sales support programs.
Allowance is an extra payment designed to gain reseller participation in
special programs.
2) Segment pricing. It is used when a company sells a product at two or more
prices even though the difference is not based on cost. Under customersegment pricing, different customers pay different prices for the same
product or service. Museums and cinemas, for example, may charge a
lower admission for students and senior citizens. At the same time,
theaters vary their seat prices because of audience preferences for certain
locations. Using time-based pricing, a firm varies its price by the season,
the month, the day, and even the hour.
3) Psychological pricing. It occurs when sellers consider the psychology of
prices. The price is used to say something about the product. Consumers
14
Kotler, P., Armstrong, G. Principles of Marketing – 17th ed. – Pearson, 2017. pp. 335-343.
15
usually perceive higher-priced products as having higher quality.
Therefore, if the value of a product cannot be judged because of the lack
the information or skill, price becomes an important quality signal.
Another aspect of psychological pricing is reference prices that buyers
carry in their minds and refer to when looking at a given product. Even
small differences in price can signal product differences. A 9 or 0.99 at
the end of a price often signals a bargain. This way, reducing "$50.00" to
"$49.95" makes a bigger difference in sales than reducing "$55.00" to
"$54.95". Although actual price differences might be small, the impact of
such psychological tactics can be big.
4) Promotional pricing. It is when prices are temporarily priced below list
price or cost to increase demand. This can be done by many different
methods. Firstly, it is loss leader pricing. This occurs when supermarkets
and department stores often drop the price on well-known brands to
stimulate additional store traffic. Secondly, there is special event pricing
when sellers establish special pricing in certain seasons to draw in more
customers. Thirdly, some firms can offer customers low-interest financing
or longer payment terms. And finally, some companies can promote sales
by adding a free or low-cost warranty or service contract. Promotional
pricing can help move customers over humps in the buying decision
process.
5) Geographic pricing. It is used for customers in different parts of the
country or the world. Some companies may charge the same price plus
freight to all customers, regardless of location. Some select a city as a
“basing point” and charge the freight cost associated with that city to the
customer location, regardless of the city from which the goods are actually
shipped. Others set up several zones where customers within a given zone
pay a single total price.
16
6) Dynamic pricing. It is when prices are adjusted continually to meet the
characteristics and needs of the individual customer and situations. A
dynamic pricing system would automatically adjust the price downwards
if there was excess capacity and bring it up if demand was high. These
systems understand the relationship between supply and demand so they
can better avoid cutting prices unnecessarily low in which you are making
almost no margin or the inverse of setting them so high that you lose out
to all your competitors and end up with too much extra capacity to make
any money. For example, most hotel chains are now using dynamic
pricing software.
7) International pricing. It is when prices are set in a specific country based
on country-specific factors such as economic conditions, competitive
conditions, laws and regulations, infrastructure, company marketing
objectives, and others. For example, Boeing sells its jetliners at about the
same price everywhere, whether in the United States, Europe, or the third
world. At the same time, a pair of Levi’s selling for $30 in Canada might
go for $63 in Tokyo and $88 in Paris.
To summarize, when a firm considers changing prices, it must consider
customers’ and competitors’ reactions. Both falls and increases in prices have different
consequences for the market. Customers’ reactions to price changes are influenced by
the meaning customers see in this price change. At the same time, competitors’
response is derived from an established reaction policy or a fresh analysis of each
situation. There are many factors to consider in responding to a competitor’s price
changes. The company that faces a price change initiated by a competitor must try to
understand the competitor’s intent as well as the likely duration and impact of the
change. If a swift reaction is desirable, the firm should preplan its reactions to different
possible price actions by competitors. When facing a competitor’s price change, the
company might sit tight, reduce its price, raise perceived quality, improve quality, and
raise the price, or launch a fighter brand.
17
1.3
Different pricing strategies used in the fast food industry
As we have seen earlier there are a number of different pricing strategies that
can be applied under certain market conditions for particular good. Moreover, it is
evident that each industry has its peculiarities, and some pricing strategies can be
successfully used not everywhere. So, let us now turn out attention to the fast-food
industry and consider the pricing strategies that are used there.
The fast-food industry is one of the fastest developing. Being born in the United
States in the 1920s, it had a value of $647.7 billion in 2019. Moreover, the quick service
restaurants segment took 42.59% share of the total global fast-food market the same
year.15 Speaking about the Russian market, we could see the same trend in 2019. Fast
food restaurants accounted for a share of 51% of the total Russian restaurants’ market.16
The concept of fast, cheap, and nutritious food helps this industry in both gaining
greater market share year over year and attracting different segments of the population.
This industry, which has spread all around the world, has its origins in the United
States. In fast-food restaurants, customers choose their meals from a limited list of
offerings for fast consumption. The industry addresses people who want quick
inexpensive meals. Fast-food restaurants are characterized by informality, focus on
speed and friendly personnel. They come in a wide variety of forms and offer products
ranging from hamburgers, pizzas, and French fries to traditional foods such as Chinese
meals, Turkish kebabs, and Indian curries.17 While hamburger shops are dominated by
large companies, ethnic restaurants usually belong to small independent owners. Large
companies have entered the fast-food market in recent years and competition in the
industry has become fierce. This has resulted in aggressive pricing policies among the
main competitors and an increase in menu diversification. Companies started to
15
Fast Food Market by Type and End User: Global Opportunity Analysis and Industry Forecast, 2020–2027, April, 2020
// Allied Analytics LLP [Electronic resource] URL: https://www.researchandmarkets.com/reports/5118788/ (access date:
26.03.2021)
16
Щуренков, Н. Фастфуд отъел долю рынка // Коммерсантъ, 2020, №6. – С. 7.
17
Ejike, B. N., Obeagu, E. I. A Review on Fast Foods and Family Lifestyle // International Journal of Current Research
in Biology and Medicine, 2018, Vol. 3, Issue 4. – p. 27.
18
develop new products in order to increase sales and market shares. The main fast-food
chains expanded their business into new locations.18
Starting from the way fast-food companies enter markets, we may admit that all
of them are using market-penetration pricing. This is because the targeting audience of
such firms are people who choose to eat fast food and therefore, they are price sensitive.
As a result, managers set their products at a low cost to bring in a higher sales volume.
Although the restaurant sets low prices, it means that they will incur a lower profit
margin in order to bring in more business. Market-penetration pricing is widely used
in this industry as the level of completion is extremely high and such a pricing strategy
helps to attract a large number of customers quickly and to gain a market share.
Speaking of the pricing approach used in the fast-food industry, we can admit
that it is competition-based pricing. In the second chapter of this paper, we shall see
that McDonald’s, Burger King, and KFC set prices based on each other strategies,
costs, prices, and market offerings. Therefore, pricing on some of the products is alike.
However, the goal of the competition-based approach is not to match or beat
competitors’ prices, but rather to set prices according to the relative value created
versus competitors. And if a company creates greater value for customers, higher prices
are justified.
Moving to the pricing strategies that help to maximize profits on the total product
mix, we shall point out that only three out of five strategies are used in the fast-food
industry and are the following:
1) Product line pricing. This strategy refers to setting prices for all products
in a product line, including the lowest and the highest product prices, and
price differentials for all the other products. It considers the cost
differences between the products in this line, customer evaluation of their
features, and competitors’ prices. Speaking about the real examples, we
18
Global Fast Food Restaurants Industry - Market Research Report // IBIS World [Electronic resource] URL:
https://www.ibisworld.com/global/market-research-reports/global-fast-food-restaurants-industry/
(access
date:
26.03.2021)
19
may say that all three companies (McDonald’s, KFC, and Burger King)
use this policy for pricing their burgers. This way, the price depends on
the burger’s size and products included. All the above-mentioned
companies, for example, have cheap burgers in their menus like
Hamburger or Cheeseburger, premium burgers like Big Tasty, Chefburger
De Luxe or Whooper, and other burgers that are considered usual and have
modest prices. This strategy is used to attract more diversified customers
as everyone will be able to find a product this person can afford.
Moreover, the same strategy can be and is implemented for other product
lines, for example, ice cream, snacks, etc.
2) Optional-product pricing. This strategy considers optional or accessory
products along with the main product. A great example of this type of
pricing is when a customer is asked if he or she would like to add sauce to
the order or if some syrup should be added to coffee or tea. There are also
some additional toppings for ice creams as well as the possibility of adding
such extra products as cheese, bacon, or jalapeno into a burger. Such
options are created to make customers pay for additional ingredients to get
a feeling of having a special or unique product or just a better version of
it. All three companies are actively using this strategy.
3) Product-bundle pricing. This strategy is based on offering a package or set
of goods or services for a lower price than it would cost for a customer to
buy all of them separately. A typical example of such pricing is a
McDonald’s McCombo where a burger, fries, and a soft drink are bundled
together for a reduced price. KFC also has its well-known LunchBaskets
where strips and cake are added to the three above-mentioned products
and are sold as a bundle of five products. Burger King has its Combos’ of
any size starting from the original combination of three products and
ending with six items that include a burger, fries, onion rings, nuggets, a
soft drink, and a dessert. Therefore, we can point out that although all three
20
companies are implementing this pricing strategy, McDonald’s has the
smallest and Burger King the greatest variety of offers. In addition, Burger
Kind’s offers are the best compared to its competitors in terms of price
and number of items relationship.
Speaking about the price adjustment strategies used in the fast-food industry, we
must admit that only the following are implemented by the quick-service restaurant
chains.
1) Discount and allowance pricing. One of Burger King's advantages over its
rivals is that its clients get cashback while paying for orders with one of
the Sberbank cards.19 Moreover, customers can also cover up to 99% of
the order price with Spasibo bonuses. In addition to that, McDonald’s and
Burger King have special loyalty programs that are available to any person
who can download a special application. Such loyalty programs encourage
customers to buy more products to get a coupon reward or a discount.
Unfortunately, KFC is slightly lagging behind its competitors and has a
loyalty program available only in some cities which are Pskov, Vologda,
Cherepovets, Veliky Novgorod, Petrozavodsk, and Samara.20 These
bonuses can be later used as payment for some products. Coupons are
another great association with the fast-food industry. Indeed, as far as
customers are price-sensitive, discounts and coupons can be a great motive
to buy certain products. Burger King, McDonald’s, and KFC have
coupons that represent a bundle or a single product at a reduced price.
These coupons can be timed to a certain even, they may relate to achieving
sales targets or they might help to attract new customers.
Спасибо от Сбербанка // Официальный сайт Бургер Кинг [Электронный ресурс] Режим доступа:
https://burgerking.ru/partners/spasibo-ot-sberbanka (дата доступа: 15.03.2021)
20
Что такое сеть ресторанов KFC. Программа лояльности KFC, 10 декабря 2020 // Гуру скидки [Электронный
ресурс] Режим доступа: https://vsebonuskarti.ru/eda/chto-takoe-set-restoranov-kfc-programma-loyalnosti-kfc (дата
доступа: 17.03.2021)
19
21
2) Psychological pricing. It is used by all the mentioned above fast-food
companies. As an example, all the Burger King’s prices for burgers end
with nine. The same situation takes place in KFC’s price although some
meals that end not only with nine as in the previous example but also with
four and even five. Moving McDonald’s, one can see even a more
diversified price range with both round prices like 50 ₽ and 100 ₽ and the
ones that end with three and all the above-mentioned numbers. This way,
we must admit that Burger King has the strongest psychological pricing
strategy compared to its main competitors. This is because prices are
perceived to be smaller if the left-most digit changes to a lower level
compared to if the left-most digit remains unchanged. Another aspect of
psychological pricing is menu segmentation. There are cheap, medium,
and high prices dishes in each category of the companies’ menus. This is
because bigger-size meals with more ingredients in them are perceived as
being of better quality compared to basic offers. In this case, pricing
reflects the value of a product. For example, Hamburger costs around 50
₽ being one of the cheapest items on McDonald’s menu, while Big Mac
has a price of around 140 ₽.
3) Promotional pricing. This method is closely connected to the coupons
mentioned above. We shall precise that there can be two types of them.
Firstly, some coupons can be used by clients anytime. The second type of
coupons is usually timed to a certain event. Such an event can be external
or internal. Holidays, sports competitions, or other events that happen
regardless of the restaurants' participation can be considered as internal.
On the contrary, such an event as McFest at McDonald’s can be
considered internal as its holding depends on the company decision.
During McFest each week a certain product is offered to customers at a
22
reduced price.21 Such promotions stimulate additional traffic and increase
the company’s sales. Other fast-food companies also use promotional
pricing. Examples of them are KiberPonedelnik at Burger King22 and
Crazy Wednesdays at KFC23.
4) Geographic pricing. This strategy is based on adjustments of prices for
different parts of the country. As Russia is a unique and the largest country
in the world with 12 time zones, transportation costs cannot be the same
for any region. Moreover, with different levels of wealth, the same price
might be considered as low, too high, and normal in different regions.
Therefore, all from the above-mentioned companies have slight
differences in pricing of the same products in different cities. On the 17th
of March 2021, the official websites of the three fast-food chains were
analyzed. From this analysis we found out that for example, McDonald’s
Triple Cheeseburger costs 169 ₽ in Moscow and 175 ₽ in Barnaul, prices
for Big Tasty are 249 ₽ and 259 ₽ respectively. For Burger King prices for
Shrimp King are the same no matter the location. However, Whooper
Junior is worth 109 ₽ in Moscow and 129 ₽ in Murmansk. KFC uses the
same strategy as Longer and Chefburger De Luxe would cost 55 ₽ and 144
₽ in Moscow but 59 ₽ and 159 ₽ in Irkutsk.
All in all, we can admit that in the fast-food industry companies have tough
competition and approximately the same pricing ranges for the same products. This is
why they have to come up with unique ideas for attracting customers, for example,
creating special promotions, coupons, and loyalty programs. This additional work can
be the only differentiator between the companies in this industry. In the table below we
МАКФЕСТ // Официальный сайт Макдоналдс [Электронный ресурс] Режим доступа:
https://mcdonalds.ru/mcfest (дата доступа: 20.03.2021)
22
Бургер Кинг примет участие в киберпонедельнике, 25 января 2018 // Официальный сайт Бургер Кинг
[Электронный ресурс] Режим доступа: https://burgerking.ru/news/article/83/burger-king-primet-uchastie-vkiberponedelnike-29-yanvarya (дата доступа: 17.03.2021)
23
Сумасшедшие среды в KFC! // Официальный сайт KFC [Электронный ресурс] Режим доступа:
https://www.kfc.ru/crazydays (дата доступа: 17.03.2021)
21
23
pointed out the main differences in the pricing policies of the three analyzed
companies.
Table 1
Distinctive features of pricing strategies24
McDonald’s
Burger King
Major Pricing
KFC
competition-based pricing
Strategy
New Product
Pricing
market-penetration pricing
Strategy
Product Mix
❖
Pricing
in product-bundle
Strategies
pricing
❖
More options
Unique
❖
Longer duration
❖
Loyalty
Price
cashback program
and frequent holding program
Adjustment
❖
of
Strategies
psychological
Strongest
is
not
promotional available all over
pricing activities
Russia
pricing
As is shown in Table 1, all rivals are using competition-based pricing as the
major policy and market-penetration as a new product pricing strategy. However, KFC
does not develop a strong loyalty program for its customers. Instead, they have some
unsystematic bonus cards for a smallish number of clients in some cities. At the same
time, it could be claimed that although McDonald’s the strongest in promotional
pricing, Burger King has more options in product-bundle pricing and is the strongest
in psychological pricing. In addition, Burger King offers a unique cashback program
and therefore can be considered as the leader in pricing strategies implementation.
24
Composed by author.
24
1.4
Influence of pricing policy on company financial performance
A price is a powerful tool in achieving a company’s strategic goals. Indeed, the
price remains the most important element in determining market share and profitability
as a small percentage improvement in price can generate a large percentage increase in
profitability. Therefore, we shall consider the following financial indicators that reflect
the effectiveness of implemented pricing policy.25
We shall start with the revenue which is the total amount of income generated
from the sales of goods or services. Therefore, a decrease or increase in revenues refers
to the actual fall or rise in sales of a company. However, costs directly related to
producing goods being sold should be also considered while speaking about the
company’s efficiency. This way, gross profit, which is the difference between sales
revenues and the costs gives a better understanding of the firm’s profitability.
But except for the costs of goods sold, there are other costs not associated with
the direct manufacturing process. These expenses are not included in the cost of sales
and occur during the ordinary course of running the business. They include
administrative expenses and overhead, salaries, marketing costs, research and
development expenses. Another type of expense, depreciation and amortization,
represents an estimate of the costs that arise from wear and tear or obsolescence of the
firm’s assets. A firm may also have other sources of income or expenses that arise from
activities that are not the central part of the business. Income from the company’s
financial investments is one example of other income.
After we have adjusted gross profit for the mentioned above sources of income
and expenses, we get the firm’s earnings before interest and taxes, or EBIT. From
EBIT, we deduct the interest expense and corporate taxes to determine the firm’s net
income. Net income represents the total earnings of the firm’s equity holders.
Therefore, while analyzing a company’s profitability, one should consider net income
25
Berk, J., DeMarzo, P. Corporate Finance, Global Edition – 5th ed. – Pearson, 2019. – pp. 28-30, 35-36.
25
as this indicator shows how efficient is the business while considering both main and
other sources of income and expenses.
Analyzing the difference between revenues and all the above-mentioned
indicators is also of paramount importance while evaluating the profitability of a
company. Therefore, we shall calculate three different ratios. Firstly, we shall consider
gross profit margin. It reflects the ability to sell a product for more than the cost of
producing it and therefore, the greater the margin, the better. This ratio shows the
percent of the revenue left after paying the direct costs associated with the
manufacturing process and is calculated by the formula (2).
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 =
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
∗ 100%
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
(2)
Next, we shall consider the net profit margin. It shows the percentage of sales
that have turned into profits or how much profit the business has generated for each
ruble of sales after deducting taxes. However, while differences in net profit margins
can be due to differences in efficiency, they can also result from differences in leverage,
which determines the amount of interest expense, as well as differences in accounting
assumptions. So, this ratio is calculated by the formula (3).
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑚𝑎𝑟𝑔𝑖𝑛 =
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
∗ 100%
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
(3)
All the above-mentioned indicators and ratios are used to define the company’s
profitability. Therefore, while considering past data we can see either positive or
negative trends in the business performance and can analyze how it changed over time.
Comparing one firm with its rivals, we can evaluate the company’s positioning on the
market as well as the level of its competitiveness.
To sum up, we examined price as the basic economic category. We looked
closely at the price definition, its key features, and major determinants. We also talked
about the place of the price within the marketing mix and the importance of the price
elasticity of demand. As a result, we saw that pricing is critical for successfully
operating and thus, companies should consider their pricing policies as well as the ones
26
of their main competitors. This is especially crucial in case a company wants to achieve
specific strategic goals with the help of such a powerful tool as pricing.
Next, we took a closer look at the pricing strategies themselves. We talked about
the main three pricing approaches, two policies for pricing new products, the five major
product mix pricing strategies, and seven price adjustment strategies. Moreover, we
gave examples for the above-mentioned policies and later saw which of them and how
are implemented in the fast-food industry.
Finally, we talked about the financials that might show how efficient a company
is at implementing pricing strategies. In this part, we talked about the financial
indicators as well as ratios that describe the company’s profitability.
Further, we shall take a closer look at both financials and policies implemented
by Burger King and its main rivals in the Russian market. We shall analyze the degree
of the company’s competitiveness as well as sources and way of its development and
improvement.
27
CHAPTER 2.
ANALYSIS OF THE COMPETITIVENESS OF THE
PRICING POLICY OF THE BURGER RUS LLC
2.1
Competitive analysis of the effectiveness of the implemented pricing
strategies of three fast-food companies
Before we proceed with the competitive analysis of the effectiveness of the
implemented pricing strategies, we shall give a brief outline concerning Burger King’s
history. Next, we shall speak about the current positioning of this fast-food chain in
both international and Russian markets and define its market share. Then we shall
consider ratios and financial indicators that show the company’s profitability and
compare them with the rivals’ results. We also would like to see how all of them were
changing over time and why.
To start with, Burger King Corporation is an American corporation that owns
the global chain of fast-food restaurants with the same name – Burger King. The history
of the company began back in 1954 with the Insta-Burger King restaurant chain in
Jacksonville, Florida. That year the Insta-Burger King faced financial difficulties, so
two local franchisees David Edgerton and James McLamore acquired the company and
renamed it, Burger King. McLamore and Edgerton sold their first franchises in 1959,
and Burger King soon became a national chain. In 1963, the company expanded outside
the United States, opening a store in Puerto Rico. Lagging behind McDonald's in sales
and profitability, Burger King had undergone many changes in ownership and
corporate governance. Moreover, in 1957 a big-sized burger called Whopper was
introduced and later became Burger King’s signature product. At that time McDonald’s
was still selling only small hamburgers. Later in 1975, Burger King introduced DriveThru windows that are also called King Auto. This allowed drivers to place and pick
an order without leaving a car. Other changes in the menu such as adding chicken
products, a breakfast menu, and toys for children’s lunches were introduced later.26
26
McLamore, J. The Burger King: A Whopper of a Story on Life and Leadership – Mango, 2020.
28
More than 60 years after its creation, Burger King Corporation is operating
worldwide. Speaking about the Corporation’s growth and development, we should
point out that in 2020 Burger King operated and franchised 18 625 restaurants
worldwide, the majority of which were franchised. Only 52 units remain in the
company's operation, as more and more stores have been replaced by franchises over
the past years. And although Burger King has cut the number of restaurants it operates,
there was a consistent grown in the total number of restaurants from 2009 to 2019, with
a sharp decrease in 2020 connected to the COVID-19 pandemic. The global expansion
of the company has resulted in Burger King being one of the most valuable fast-food
brands in the world. Moreover, in 2020 the brand value was over six million US dollars.
Burger King's revenues have also increased over the past four years, after declining
gradually in previous years. However, because of the coronavirus's impact on the
restaurant chain's operations, Burger King's revenue declined in 2020 compared to the
previous year. Despite slightly decreasing locations and fluctuating revenues, Burger
King's American Customer Satisfaction Index rating remained stable. The restaurant
chain scored 76 out of 100 points in 2019 and 2020 in terms of overall customer
satisfaction. In comparison, its rival McDonald's scored only 69 and 70 points these
years.27
The first Burger King restaurant in Russia appeared in 2010. The fast-food chain
operates in Russia through a master franchisee - Burger Rus LLC. It is 100% owned
by Cyprus Burger King Russia Ltd. In 2018, Cyprus Xomeric Holdings Ltd. became
the biggest shareholder in Burger King Russia with a 35% stake. VTB Capital has
purchased a 20% interest, while Gladerom Investment Ltd has a further 30% stake.
Burger King Europe, the European affiliate of the American group, has a stake of 15%.
Burger King has more than 700 restaurants all over Russia now. However, speaking
about the number of locations and revenue, we shall compare the company to its main
27
Number of Burger King restaurants worldwide 2009–2020, April 22, 2021 / Lock S. // Statista [Electronic resource]
URL:
https://www.statista.com/statistics/222981/number-of-burger-king-restaurants-worldwide/
(access
date:
22.04.2021)
29
competitors that are McDonald’s and KFC. From the Figure below, we can see
historical data concerning both elements for all the mentioned competitor fast-food
chains.
69 263 ₽
66 272 ₽
Revenue, mln rub
60 000 ₽
842
50 000 ₽
603
582
30 000 ₽
715
660
58 410 ₽
744
43 682 ₽ 693
37 619 ₽
40 000 ₽
436
1000
969
529
28 399 ₽ 446
57 956 ₽
800
800
760
35 183 ₽
523
600
400
20 559 ₽ 343
20 000 ₽
22 318 ₽
18 498 ₽
18 163 ₽
10 000 ₽
17 528 ₽
200
13 252 ₽
- ₽
0
2016
Burger King
Number of restaraunts
66 815 ₽
70 000 ₽
KFC
2017
2018
McDonald's
2019
Burger King
2020
KFC
McDonald's
Figure 1. McDonald’s, KFC, and Burger King in the Russian market in years 2016202028
Speaking about the number of restaurants, Burger King and KFC had the greatest
and constant growth within the analyzed period. Moreover, both increased the number
of sales points by 133% and 122%. McDonald’s was also constantly opening new
restaurants, but the growth was modest. As a result, by increasing its sales points only
by 31% within the analyzed five years, McDonald’s takes the last place in the number
of restaurants, while KFC being the leader in this indicator since 2018.
However, as we consider revenues, we can see that growth in the sales points
does not always have a positive impact on the volume of sales. Starting from
McDonald’s, which has been operating on the Russian market since 1990, it had the
Figure is composed by the author based on the РБК исследования рынков Российский рынок фаст-фуда: текущая
ситуация и основные игроки – 2020 – РБК Москва, 2020; Федеральная служба государственной статистики:
Официальный сайт // Федеральная служба государственной статистики. – 1995–2021 [Электронный ресурс]
Электрон. дан. – Режим доступа: https://www.gks.ru/ (дата доступа: 15.04.2021); Ресурс БФО // ФНС России. –
2005–2021 [Электронный ресурс] Электрон. дан. – Режим доступа: https://bo.nalog.ru/ (дата доступа: 15.04.2021);
Предоставление сведений из ЕГРЮЛ/ЕГРИП в электронном виде // ФНС России – 2005–2021 [Электронный
ресурс] Электрон. дан. – Режим доступа: https://egrul.nalog.ru/index.html (дата доступа: 15.04.2021).
28
30
greatest revenues in all the analyzed period, although its sales were declining from year
to year. The only increase in revenue took place in 2018 but did not exceed a 5% rise.
Moving to KFC, which is taking first place in the number of restaurants, it has the
smallest volume of sales compared to its main rivals. Moreover, the company’s trend
was inconsistent. There was a growth of 2% in 2017 that was followed by a significant
fall of more than 40% in 2018 and then a rise of 39.5% in 2019. KFC had a 5% decrease
in sales in 2020, thus, the company had an over fall of 3% in its revenue comparing
2020 to 2016. McDonald’s had a 13% decline for the same, while Burger King had a
rise of 71%. Although the revenues of the last dropped by almost 20% in 2020, they
were constantly growing all the previous years.
All in all, we can see that in 2020 Burger King was the second greatest fast-food
company in the Russian market in terms of sales and number of restaurants. Moreover,
it had the most rapid growth indicators compared to its main rivals.
Next, we shall consider the three companies’ sales and cost of goods sold
(COGS) for a longer period represented in the Figure below. We see that the growth in
the company’s revenue corresponds to its fall in COGS and vice versa. So, these two
indicators are mirror images of each other.
80 000 000
60 000 000
40 000 000
20 000 000
0
2013
2014
2015
2016
2017
2018
2019
2020
-20 000 000
-40 000 000
-60 000 000
KFC, revenue
Burger King, revenue
McDonald's, revenue
KFC, COGS
Burger King, COGS
McDonald's, COGS
Figure 2. Revenue and COGS of the three fast-food chains in 2013-2020, th. rub
Source: Figure is prepared by the author based on the Federal State Statistics Service’s data.
31
To see how efficient the companies were, we shall consider Gross Profit and
Gross Profit Margin. Both show how much of the revenues is left after paying the direct
costs associated with the manufacturing process. The only difference is that Gross
Profit is the actual amount of money, while Gross Profit Margin is the percentage that
Gross Profits takes from the total amount of the company’s Revenue. Therefore, higher
indicators will mean that a company is more efficient at lowering its costs while
maintaining higher sales volumes.
In Figure 3 that is represented below, we can see that Gross profit was fluctuating
for all three companies during the analyzed period. Starting from the leader –
McDonald’s – we shall admit that this company had the poorest maintenance of COGS.
We can say so because for this fast-food chain Gross Profit was declining during the
analyzed period. The only exceptions were the years 2016 and 2020 when the indicator
increased by 10.6% and 25.3%. However, if we compare 2020 to 2013, we shall admit
that Gross Profit at McDonald’s decreased by 11%. KFC also had a decline of 5%
during the analyzed eight years, but in this case, there were significant rises and equally
significant declines. This quick-service chain was growing by 23-43% each year until
a huge fall of more than 70% in 2018 that was followed by a 25% rise and almost a
19% decline in the next two years. Moving to Burger King, it was the only fast-food
chain that managed to increase its Gross Profit by 15% in 2020 compared to 2013.
Moreover, unless a decline of 22% in 2016 and a huge fall of 76% in 2020, the
company’s indicator was rising by 36-83% each year except for 2019 when the growth
was only 3%.
To sum up, we can admit that McDonald’s has the greatest Gross Profit but the
lowest growth rate, while Burger King shows the highest increase in the indicator
having the smallest value. KFC takes second place in both Gross Profit value and its
trend.
32
10 000 000
8 000 000
6 000 000
4 000 000
2 000 000
0
2013
2014
2015
2016
KFC
2017
Burger King
2018
2019
2020
McDonald's
Figure 3. Gross Profit of the three fast-food chains in 2013-2020, th. rub
Source: Figure is prepared by the author based on the Federal State Statistics Service’s data.
However, speaking about the company’s efficiency we cannot consider only the
value of its Gross Sales. Indeed, McDonald’s, which has its Revenue 65-230% greater
than its main competitors, should have a relatively higher the Gross Profit. So, we shall
compare Gross Profit Margin of the three analyzed firms represented in the Figure
below. In fact, KFC had the greatest Gross Profit Margin of 51% in 2013 that was
constantly declining in the following years and first reached 48% in 2017 and then
17.7% in 2020. McDonald’s had the same trend as its indicator decreased from 21% to
13% comparing 2013 to 2019. However, Gross Profit Margin increased last year and
achieved the level of 16%. However, this indicator is still 5% less than the value in
2013. Burger King also had a negative trend in the Gross Profit Margin unless several
rises in 2015 and years 2017-2018. Overall, the indicator decreased by 21% comparing
2020 to 2013. Therefore, we may admit that growth and greater values of the Gross
Profit Margin are signs of a more efficient operation of a firm. At the same time smaller
or/and declining indicator means that the company starts having financial troubles. We
may also suppose that such a fall may indicate an extension of the product line with
meals of low margin.
33
50,00%
40,00%
30,00%
20,00%
10,00%
0,00%
2013
2014
2015
2016
2017
McDonald's
KFC
2018
2019
2020
Burger King
Figure 4. Gross Profit Margin of the three fast-food chains in 2013-2020, %
Source: Figure is prepared by the author based on the Federal State Statistics Service’s data.
Finally, we shall consider Net Income that represents the total financial result of
a company. Unfortunately, several companies had Loss in some periods, therefore, we
shall refer to the indicator as either Income or Loss, depending on whether a firm was
generating any profit or was loss-making. We shall also consider Net Profit Margin
that shows how much Revenue collected by the company translates into Profit.
So, from the Figure below we can see that McDonald’s was the only fast-food
chain that got profit during the analyzed years. Therefore, we must admit that the
performance of McDonald’s was the strongest despite fluctuations in the total profit
and margin values. Moreover, the Net Income graph resembles Gross Profit one but
with more significant rises and falls. KFC had significantly lower Net Profits and was
even loss-making in the years 2015, 2018, and 2020. On the contrary, Burger King had
Net Income only in the years 2016-2018 and Net Loss in other periods. Net Profit
Margins for these companies were fluctuating between -10% and 3%. KFC had its
highest values in the years 2016-2017 when the company managed to achieve 8.6%
and 7.5%. At the same time, Burger King set an anti-record of -15% in 2020. However,
we see that companies’ falls and rises in the indicator were not proportional and
homogeneous. Therefore, market conditions shall not be considered as a primary
34
reason for these changes. All in all, we see that McDonald’s had the strongest financial
health, while Burger King – the worst.
6 000 000 ₽
15,00%
4 000 000 ₽
10,00%
2 000 000 ₽
5,00%
0₽
0,00%
2013
2014
2015
2016
2017
2018
2019
2020
-2 000 000 ₽
-5,00%
-4 000 000 ₽
-10,00%
-6 000 000 ₽
-15,00%
KFC, net income
Burger King, net income
McDonald's, net income
McDonald's, net profit margin
KFC, net profit margin
Burger King, net profit margin
Figure 5. Net Income/Loss and Net Profit Margin of the three fast-food chains in
2013-2020
Source: Figure is prepared by the author based on the Federal State Statistics Service’s data.
To sum up, we must admit that Burger King has the greatest growth rate
compared to McDonald’s and KFC. This is because the analyzed quick-service chain
is relatively new and is still penetrating the Russian market by opening new restaurants.
Therefore, the company is investing a great part of its funds into business development.
As a result, to receive Net Income instead of Net Loss, Burger King should increase its
Gross profit Margin. This is especially relevant for the company as it cannot decrease
its expenditures connected with business expenditure and therefore, the company
should concentrate on increasing margins by applying the right pricing policy.
35
2.2
Competitive analysis of pricing for substitute products in three fastfood companies
Moving to the analysis of the substitute products, we shall divide them into
several parts. Firstly, we shall analyze similar products that can be found in the menu
of all the three competitors. It is worth mentioning that KFC’s main feature is selling
products with chicken. Therefore, we shall consider meals with beef and fish only at
Burger King and McDonald’s. Ultimately, we shall look at the main dishes, snacks,
beverages, and dessert pricing. All the data presented below was taken from the quick
service restaurants’ menus during a personal visit. The shopping center "Okhotny
Ryad", which is located in the heart of Moscow and where all the three abovementioned fast-food chains operate, was chosen for the data collection.
Main dishes.
Burgers and rolls can be considered as the main dishes in the fast-food industry.
Most of the clients come to such restaurants for burgers. Rolls in turn are great
substitutes to them that are of higher demand in case a person is in a hurry and has no
time to sit and eat carefully. Therefore, we shall take a closer look at their prices first.
To start with, KFC specialty is using only chicken in their menu, so for this fastfood chain, we shall analyze prices on burgers with anything but chicken patty.
Secondly, there are beef, chicken, and fish burgers in the menus of Burger King and
McDonald’s. As of 11th March 2021, there are 13 beef and three chicken burgers at
McDonald’s and 31 beef and ten chicken burgers at the Burger King’s menu. Both
restaurant chains have only two fish burgers, but since these burgers have different
ingredients, they cannot be compared. So, in the following table, we can see the prices
of beef burgers that represent the greatest parts of McDonald’s and Burger King menus.
As mentioned above Burger King is implementing psychological pricing. The
company’s prices end with 0.99. On the contrary, McDonald’s does not follow the
same approach. Moreover, we can point out that as there are several different numerics
at the end such as zero, five, seven, and nine. Therefore, using such an approach cannot
36
be considered efficient. From the table above we can see that there are only two burgers
on McDonald’s menu (Hamburger and Big Mac) whose prices are lower compared to
Burger King’s substitutes. In both cases, Burger King’s prices are 6% higher, which in
the case of Hamburger is less than three rubles and therefore cannot be seen as
significant. There is also a Cheeseburger that has a price difference of 0.01 rubles.
While paying no attention to the three cases described above, we see that beef burgers
at Burger King have on average 14,5% lower prices compared to McDonald’s’
substitutes. All in all, from this analysis, Burger King is more efficient in setting prices
for its beef burgers.
Table 2
Prices on similar beef burgers at two fast food chains, rub29
McDonald’s
Burger King
Hamburger
52,99
50
Hamburger
Cheeseburger
54,99
55
Cheeseburger
Double Cheeseburger
109,99 125
Double Cheeseburger
Big King
144,99 137
Big Mac
Whopper with cheese
229,99 257
Big Tasty
Double Whopper with cheese
309,99 339
Double Big Tasty
Cheesy Joe
219,99 295 Big Tasty three cheeses
Whopper Junior cheese bacon 149,99 179
Royal Bacon
Moving to the chicken burgers, we can say that Burger King is not as competitive
in this category as in previous. Only one out of four analyzed burgers represented in
the table below has its price lower comparing with McDonald’s and KFC’s substitutes.
This is Chickenburger and is 9% and 27.5% cheaper than the McDonald’s and KFC
analogs. Caesar King is less than a ruble more expensive than Chefburger Junior and
therefore we cannot consider such a small price differentiation as competitive. Moving
to the rest two burgers that are Chicken King and Grill Chicken Barbecue, they have a
29
Composed by author.
37
significant gap in the price compared to the rivals’ substitutes. This way, Chicken King
is 38% and 12.4% more expensive compared to McChicken and Cheeseburger De
Luxe, while Grill Chicken Barbecue costs 72% and 61% more than Chicken Premier
Country and Chefburger De Luxe. To sum up, we see that Burger King is more
competitive in the cheap chicken burger segment while the company’s prices in
premium chicken burgers are less attractive for price-sensitive customers.
Table 3
Prices on similar chicken burgers at three fast food chains, rub 30
McDonald’s
Burger King
Chickenburger 49,99
KFC
Chickenburger 55
Cheeseburger with onion 69
̶
Caesar King 99,99
Chefburger Junior 99
Chicken King 144,99
McChicken 105
Grill Chicken BBQ 239,99
Chicken
Cheeseburger De Luxe 129
Premier Chefburger De Luxe 149
Country 139
Rolls will be the last among the main dishes in this analysis. As in the case with
burgers, rolls can have beef, chicken, fish patty inside, or even shrimps. During the lent
to support fasting people, Burger King is offering special rolls with potatoes inside.
However, other quick-service restaurant chains do not add any specific products
connected to this religious custom in their menus. Comparing offers of the two
restaurant chains represented in the table above, a bias situation can be seen.
Table 4
Prices on similar rolls at two fast food chains, rub 31
McDonald’s
Burger King
30
31
Whopper Roll
189,99
189
Big Tasty Roll
Caesar Roll
189,99
177
Caesar Roll
Shrimp Roll
209,99
219
Shrimp Roll
Composed by author.
Composed by author.
38
While Whopper Roll is less than a ruble more expensive than Big Tasty Roll,
Burger King’s Caesar Roll has a 7.3% higher price compared to its McDonald’s
substitute. On the contrary, Shrimp Rolls is more than 4% cheaper in Burger King. To
sum up, Burger King has lower prices on the premium roll while others are close to its
competitor. We shall also mention that Burger King has seven different rolls on the
menu against three in McDonald’s which can be considered as a competitive advantage
due to the highly diversified menu.
Snacks.
Fries, nuggets, wings, and cheese snacks usually accompany burgers and rolls.
These are additional dishes that usually have a great impact on the company’s revenue
due to their high marginality. Starters can be a part of a combo or a bundle, but at the
same time it can be a separate independent dish. Below, we shall consider only those
snacks that can be found in the menus of all the three analyzed fast-food chains.
To start with, we would like to point out that snacks despite main dishes are sold
in a set rather than as a single piece. However, while analyzing their pricing, we shall
consider not only the prices of sets but the price per one piece as well. Such price can
be found by dividing the total price by the number of units or pieces a set consists of.
We shall start with the nuggets pricing represented in the table below.
Table 5
Prices on nuggets sets at three fast food chains, rub 32
32
Burger King
McDonald’s
KFC
Nuggets 4 pieces
49,99
49
̶
Nuggets 5 pieces
59,99
̶
̶
Nuggets 6 pieces
̶
69
69
Nuggets 9 pieces
99,99
99
99
Nuggets 15 pieces
149,99
̶
̶
Nuggets 18 pieces
̶
195
̶
Nuggets 20 pieces
̶
̶
209
Composed by author.
39
According to this table, Burger King’s prices are not competitive in two cases
which are sets of four and nine nuggets. However, the price difference is less than a
ruble in these cases, so, we cannot consider it as significant. In all the other cases prices
on Burger King’s nuggets are lower compared to rival substitutes. This is especially
evident while looking at the graph below where the price of one nugget in a set is
represented. So, Burger King’s prices are significantly lower than KFC and
McDonald’s as they are represented closer to the x-axis.
PRICE PER ONE NUGGET
13,0 ₽
12,5 ₽
12,0 ₽
11,5 ₽
Burger King
11,0 ₽
McDonald's
10,5 ₽
KFC
10,0 ₽
9,5 ₽
4
6
8
10
12
14
16
NUMBER OF NUGGETS IN THE SET
18
20
Figure 6. Prices on nuggets sets at three fast food chains
Source: Figure is prepared by the author.
Speaking about another chicken snack, we will analyze wings pricing.
According to the information represented in the table below, we can claim that Burger
King has the lowest prices on chicken wings. The only exception is the five pieces set
pricing that is 10.99 rubles more expensive compared to its McDonald’s substitute. The
price difference in three pieces set is less than a ruble, so, we cannot consider it
significant. It is also worth mentioning that Burger King offers four different sets while
its rivals have only three possible options each.
40
Table 6
Prices on chicken wings sets at three fast food chains, rub 33
Burger King
McDonald’s
KFC
Wings 3 pieces
124,99
124
134
Wings 5 pieces
189,99
179
̶
Wings 6 pieces
̶
̶
199
Wings 7 pieces
̶
249
̶
Wings 8 pieces
249,99
̶
̶
Wings 9 pieces
̶
̶
274
Wings 15 pieces
369,99
̶
̶
Proceeding to the per-piece pricing, we can see this information in the figure
below. So, as we mentioned before Burger King is not competitive only in one case
with five pieces set. In all the other cases its prices are much lower than the
competitors’ as they are closer to the x-axis. Therefore, we shall admit that Burger
King’s pricing is more competitive than its rivals.
PRICE PER ONE WING
₽45,00
₽41,00
₽37,00
Burger King
₽33,00
McDonald's
₽29,00
KFC
₽25,00
₽21,00
3
5
7
9
11
NUMBER OF WINGS IN THE SET
13
15
Figure 7. Prices on chicken wings sets at three fast food chains
Source: Figure is prepared by the author.
33
Composed by author.
41
Moving to the last chicken snack, we shall consider pricing on stripes. Here we
can see that Burger King's prices are much higher than the ones of its main competitors
in all the sets. So, speaking about the reasons for such high pricing, we can suppose
that this might be because both Burger King and KFC are using whole chicken muscle
while McDonald's prefers to use chopped meat and then form it into stripes. By doing
so, McDonald's decreases its cost significantly and therefore can set lower pricing.
However, while Burger King uses frozen stripes, KFC buys marinated products and
fries them in butter in every single restaurant. This way, we may admit that KFC uses
a customer value-based pricing approach, while McDonald's concentrates on the costbased method for its prices. Burger King implements a competition-based approach, as
it tries to give its customers valuable products while setting competitive prices.
Table 7
Prices on stripes sets at three fast food chains, rub 34
Burger King
McDonald’s
KFC
Stripes 2 pieces
99,99
̶
̶
Stripes 3 pieces
̶
85
119
Stripes 5 pieces
199,99
139
̶
Stripes 6 pieces
̶
̶
214
Stripes 7 pieces
̶
189
̶
Stripes 8 pieces
279,99
̶
̶
Stripes 9 pieces
̶
̶
274
Next, we shall analyze pricing on cheese snacks. From the table represented
below, we can conclude that Burger King has the lowest prices compared to its main
rivals. The company’s prices are on average 25% smaller than at KFC and are more
than twice as small as at McDonald’s. Speaking about the last, it has only one cheese
snacks set while both Burger King and KFC offer three possibilities for their clients.
34
Composed by author.
42
Table 8
Prices on cheese snacks sets at three fast food chains, rub 35
Burger King
McDonald’s
KFC
Cheese snacks 3 pieces
44,99
100
69
Cheese snacks 5 pieces
69,99
̶
89
Cheese snacks 7 pieces
89,99
̶
109
And the last but not the least snack we shall consider is Fries. French fries have
been always accompanying burgers and can be claimed to be the first snack.
Nowadays, we have rustic potatoes in addition to classical French fries. So, while
analyzing the pricing of both, we can see that Burger King has the highest prices for
all the dishes of all sizes. Moreover, an average potato snack at Burger King is 40%
more expensive than its rivals' substitute. Speaking about the number of sizes available
in the fast-food chains, it should be mentioned that KFC and Burger King have five
various potato options, while McDonald’s has only four.
Table 9
Prices on potato snacks at three fast food chains, rub 36
Burger King
McDonald’s
KFC
French fries (small size)
80
48
50
French fries (medium size)
90
69
69
French fries (big size)
110
82
99
Rustic potatoes (small size)
95
̶
50
Rustic potatoes (medium size)
105
78
79
35
36
Composed by author.
Composed by author.
43
Beverages.
A burger, French fries, and a soft drink. These products stood at the origins of
the fast food. And as we have already mentioned the first two, we shall now look at the
beverages pricing.
Firstly, we shall point out that there are cold beverages or soft drinks, hot
beverages that include tea and coffee, and milkshakes. And as all the three analyzed
companies have different options for drinks’ volumes, we can consider pricing on only
one or two volumes of each beverage that is present in each company’s menu.
Table 10
Prices on beverages at three fast food chains, rub 37
Burger King
McDonald’s
KFC
Tea 0,3 l.
79,99
70
69
Coffee 0,2 l.
44,99
55
49
Coffee 0,3 l.
99,99
80
79
Cappuccino 0,2 l.
49,99
59
49
Cappuccino 0,3 l.
109,99
99
99
Latte 0,2 l.
54,99
̶
49
Latte 0,3 l.
109,99
99
99
Milkshake 0,25 l.
99,99
̶
74
Milkshake 0,4 l.
129,99
99
99
Soft drink 0,5 l.
89,99
75
75
Soft drink 0,8 l.
109,99
̶
105
From the table above we can see that prices in Burger King are on average 14%
higher than at McDonald’s or KFC. However, if we speak about small coffee, Burger
King has 8% and 18% lower prices than the same product at KFC and McDonald’s
respectively. Moreover, we can observe a smallish difference of less than a ruble in
Burger King and KFC pricing of small cappuccino and soft drink with 0.8 liters
37
Composed by author.
44
volume. Thus, such a difference cannot be considered significant. At the same time,
McDonald’s’ small cappuccino is 18% more expensive than the same product at Burger
King. Medium size cappuccino and both lattes are priced on average 11% higher at
Burger King than at its competitors’ restaurants. At the same time, milkshakes and
medium-sized soft drinks cost around 30% more in this fast-food chain than its rivals’
analogs. And as in the majority of the cases Burger King’s prices are the highest
compared to rivals, the company cannot be considered competitive enough.
Desserts.
Ice creams, pies and bakery products are great addition to a hot drink or a great
idea to finish a meal with. Therefore, McDonald’s has a special sub-brand devoted to
coffee and bakery product which is called McCafé. It is a separate section in lots of
McDonald's restaurants where customers can get specific types of coffee with
additional toppings or flavors as well as a greater choice of pies and bakery products
compared to usual McDonald’s restaurants.
Speaking about Burger King and KFC, none of them have such a sub-brand as
McCafé. However, considering the dessert prices presented in the table below, there
are not only bakery products but also ice creams and pies.
Table 11
Prices on desserts at three fast food chains, rub 38
38
Burger King
McDonald’s
KFC
Brownie with ice cream
144,99
̶
109
Donut
89,99
95
74
Cherry pie
59,99
50
50
Soft Serve Cone
29,99
33
29
Soft Serve Cup
89,99
73
70
Mcflurry type ice cream
109,99
104 or 115
99 or 109
Composed by author.
45
So, speaking about the brownie pricing, we can see that the one at Burger King
is 25% more expensive than its KFC analogue. However, Burger King's donut and soft
serve cone are 18% and 3% more expensive than its KFC’s substitutes, but 5.5% and
10% cheaper than its McDonald’s analog. However, when it comes to a cherry pie, we
can see that all restaurants have approximately the same pricing and a price
differentiation of less than one ruble cannot be considered significant. Analyzing
Burger King’s soft-serve cup, it is on average 20% more expensive than its rivals’
analogs. And last but not the least is Mcflurry type of ice cream. As both McDonald's
and KFC use different prices for different toppings for this type of product while
Burger King sets single price for any flavors, we shall consider top prices in each
restaurant chain. Therefore, we can see that McDonald’s has the most expensive
pricing that is 5% higher than at its main rivals’ restaurants. Burger King and KFC
have a small price differentiation and can be judged equally competitive.
Drawing a small conclusion, it can be pointed out that Burger King has the most
diversified menu with lots of different options of products and their sizes. It is also
worth mentioning that the company is using not round numbers while pricing products.
Such psychological pricing has a great impact on price-sensitive customers making
them feel buying such a product is a great fortune. Therefore, this pricing policy is a
great strategic decision in the quick-service restaurant industry.
The overall pricing strategy implemented by Burger King can be found
competitive. However, that does not mean that there is no space for improvement.
Starting from the advantages, it could be seen that Burger King has lower prices for
beef burgers, low-cost chicken burgers, rolls, nuggets, wings, cheese snacks, and some
beverages and desserts while comparing them to substitutes from McDonald’s and
KFC. At the same time, premium chicken burgers, chicken roll, stripes, potato snacks,
and some beverages and desserts cost much more compared to rivals’ products.
To sum up, we looked into the financial indicators of the three greatest fast-food
chains on the Russian market that are McDonald’s, KFC, and Burger King. The last
takes the second greatest market share in both the number of restaurants and revenue.
46
Moreover, Burger King had the fastest growth rate in the last eight years due to its high
level of investments in the development. Therefore, the company is straggling with
getting Net Income instead of Loss. As a result, we believe that Burger King should
concentrate on increasing its margins through implementation of an appropriate pricing
policy.
In the next chapter we would like to see if there is a correlation between the price
and sales volumes. Analyzing this, we would like to see whether the company can
influence its clients using suitable pricing strategies at the right times. As a result of
this and above-mentioned analyses, we shall propose our recommendations that might
help Burger Rus to improve its financial performance.
47
CHAPTER 3.
PERSPECTIVES FOR THE DEVELOPMENT OF PRICING
POLICY OF BURGER RUS LLC
3.1
Analysis of the price changes’ impact on the sales of Burger Rus
LLC
Firstly, we shall analyze the price elasticity of demand. For this, we shall
consider the sales volume of five different products and their price fluctuations. Data
for the years 2018 and 2019 were taken into account as sales volumes in 2020 were
highly dependent on government regulations, moreover, the economic situation was
not stable.
Speaking about the correlation between the price and sales volumes, we assume
that the lower prices would increase sales. Therefore, we must observe a negative
correlation, and the price elasticity of demand would be close to -1.
This analysis was divided into several parts. Firstly, we have chosen five
products from Burger King’s menu. They include one premium and two mediumpriced burgers with both chicken and beef patty. These burgers are Whopper, Grill
chicken BBQ, and Big King extra. We also picked two snacks of medium size that are
French Fries and Nuggets. Therefore, we shall consider price elasticity on the medium
and highly-priced menu items to be sure we have a negative correlation between prices
and sales volumes for any products. Next, we were given the corresponding data for
the given period. This data included information about the average price of the menu
item in all the restaurants within one day and the sales volume of this product.
However, we would not be totally satisfied with this data as customers tend to buy
more during the weekend regardless of the price changes. As a result, we broke down
this information into daily, weekly, and monthly changes. To fulfill the last two
analyses, sales were summed up on weekly or monthly bases, and average prices for a
week or a month were considered. This way, we got free different correlations for each
of the five analyzed products. So, the final results of the price elasticity of demand are
represented in the Figure below.
48
Big King extra
-1,0
-0,8
-0,6
King Nuggets (medium
size)
-0,4
Whopper
-0,2
0,0
French Fries (medium
size)
Grill chicken BBQ
daily changes
weekly changes
monthly changes
Figure 8. Price elasticity of five products in the years 2018-2019
Source: Figure is prepared by the author based on the confidential data of the Burger Rus LLC.
All in all, we see that the price elasticity of demand is lower than -0.6 in most
cases. Moreover, as it was mentioned above, while considering data on the weekly
basis, we varnish the fact that people tend to buy more products during the weekend.
At the same time, considering data on the monthly basis is too vague and not precise.
As a result, we shall analyze the price elasticity of demand calculated based on weekly
changes. So, in all the cases we may observe the correlation between -0.87 and -0.75
except Whopper with a price elasticity of demand of -0.66. Therefore, we proved that
price-sensitive customers tend to buy cheaper products in greater volumes.
Speaking about the significance of this correlation, we shall analyze the
Whopper price and sales volume fluctuations as this product showed the greatest price
elasticity of demand. So, from the graph below, we can see that unless the last quarter
of 2019, price and sales graphs were almost perfectly mirrored. We shall also mention
that sales during summer 2018 were influenced by the FIFA World Cup that took place
in Russia. However, later this factor will be eliminated to get unbiased results.
49
160 ₽
140 ₽
120 ₽
100 ₽
80 ₽
60 ₽
40 ₽
20 ₽
0₽
1200000
1000000
800000
600000
400000
200000
Whopper, price
08.12.2019
08.11.2019
08.10.2019
08.09.2019
08.08.2019
08.07.2019
08.06.2019
08.05.2019
08.04.2019
08.02.2019
08.03.2019
08.01.2019
08.12.2018
08.11.2018
08.10.2018
08.09.2018
08.08.2018
08.07.2018
08.06.2018
08.05.2018
08.04.2018
08.02.2018
08.03.2018
08.01.2018
0
Whopper, sales
Figure 9. Whopper price and sales volume fluctuations in 2018-2019
Source: Figure is prepared by the author based on the confidential data of the Burger Rus LLC.
Speaking about the numbers, the greatest fall in price was 20.3% and resulted in
a 39.3% increase in sales and took place on the week 26.03.2018. At the same time,
the greatest rise in price was 27.3% and caused a 40.5% decline in sales on the week
of 12.03.2018. In general, a 1% change in price caused a 5.58% change in sales volume.
Speaking about the other four analyzed products, a 1% decrease in their prices on
average increase the sales by 7.35% and 7.88% for Grill chicken BBQ and King
Nuggets. For French fries and Big King extra, these fluctuations were even higher and
amounted to 16.08% and 34.96% respectively.
Moving to the last part of the analysis, we shall look at the combos’ sales share
in the overall volume. As it was mentioned above there is a number of different
coupons, special discounts, and offerings when product prices are decreased. The
primary purpose of such price reductions is to increase sales. Therefore, we would like
to see how often Burger King uses this strategy. Whopper, Caesar Roll, and mediumsized Cappuccino were chosen for this analysis. These meals are medium-priced and
are usually included in the discount, allowance, and promotional pricing. Sales volume
of the products at a reduced or combo and usual prices are shown in the Figure below.
50
4 000 000
3 500 000
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
500 000
Whopper
Whopper in a combo
Cappuccino (medium size)
Cappuccino (medium size) in a combo
Caesar Roll
Caesar Roll in a combo
Dec-19
Nov-19
Oct-19
Sep-19
Aug-19
Jul-19
Jun-19
May-19
Apr-19
Mar-19
Feb-19
Jan-19
Dec-18
Nov-18
Oct-18
Sep-18
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Feb-18
Jan-18
0
Figure 10. Three products’ sales volumes in 2018-2019
Source: Figure is prepared by the author based on the confidential data of the Burger Rus LLC.
We see that Whopper lines are the closest to each other. Indeed, the sales volume
of this product being sold in combos is on average more than 80%. At the same time
for Caesar Roll, this is only around 55%. Cappuccino has the smallest share of reduced
pricing items sold. Its share is around 31%. Therefore, we may conclude that more than
80% of sales of Whopper comes from the discount, allowance, and promotional
pricing, while for Caesar Roll these types of pricing bring only half of its sales volume.
For medium-sized Cappuccino, this policy brings less than a third of its total sales. As
a result, we may admit that the impact of discount, allowance and promotional pricing
will vary for different products but will still have a significant impact on the company’s
Revenues and via it on Net Income.
51
3.2
Ways of improvement of pricing strategies of Burger Rus LLC
Burger King is a company that claims to specialize in beef burgers. And as we
have seen above, this type of burgers is the most competitive compared to rival
substitutes. Here and further by competitive, we shall mean products that have lower
prices. As we proved earlier customers in this industry tend to buy cheaper products.
Other meals that according to our opinion have competitive pricing are low-cost
chicken burgers, rolls, nuggets, wings, cheese snacks, some beverages and desserts.
Speaking about the products that are the least advantageous from the customers’
perspective, we may say that they are premium chicken burgers, chicken roll, stripes,
potato snacks, some beverages and desserts. We collected the results of our analyses
and represented them on the graph below.
100%
80%
60%
40%
20%
0%
cheese
snacks
beef
burgers
nuggets
rolls
Burger King
wings
chicken
burgers
McDonald's
stripes
desserts beverages potato
snacks
KFC
Figure 11. Effectiveness of the current pricing in the three fast-food chains
Source: Figure is prepared by the author.
From the Figure, we can see the effectiveness of the current pricing of Burger
King, McDonald’s, and KFC. We decided to measure this effectiveness as a
percentage. Therefore, 100% means that all the considered meals had lower prices than
the rivals’ analogs, and 0% means that all the menu items were overpriced. We
represented meals on the x-axis from left to right from the most to the least competitive.
Drawing a line via all the points, we get the scale of the overall competitive ability of
52
the Burger King’s menu. Moreover, points that are located above this graph represent
categories of products that look more advantageous from the customers’ perspective,
while those that are below the graph can be considered as least advantageous. All in
all, a higher position on the y-axis shows more attractive products.
So, we can see that only half of Burger King’s menu can be considered as
competitive. Therefore, we must take a closer look at the nuggets, stripes, desserts,
beverages, and potato snacks. Starting from the last two menu items, we shall point out
that higher pricing on these goods can be explained by so-called combos. A combo is
a bundle of a burger, potato snack, and beverage at a reduced price. Some of such offers
are time-limited, others can be found in the menu as well as normal products. By buying
such a combo, a customer would pay 20% less if buying the same products separately.
Therefore, such a bundle is more attractive for clients that would like to have a
nutritious meal. Moreover, this situation can be considered a win-win because Burger
King encourages its clients to buy more and by this, increases both turnover and sales.
So, even though Burger King’s potato snacks and beverages pricing are not as
favorable for customers as at McDonald’s or KFC, it is still working for the benefit of
the company.
We have the same attitude towards desserts pricing, as they are usually
considered by clients as supplementary products. Moreover, Burger King’s pricing is
stronger than McDonald’s’. And we would like to concentrate on the cases where the
pricing of the analyzed quick service restaurants chain is weaker than both of its main
rivals.
Finalizing our recommendations, we move to the chicken products. Nuggets,
chicken burgers, stripes, and wings are priced not competitive enough. We believe that
increasing the number of different options for chicken burgers and lowering their
pricing would be very beneficial for the company. In other words, expanding the
product line of this type of burger while maintaining their prices at the same or lower
level than the company’s competitors would give a great boost to Burger King’s sales.
Moreover, as we have seen earlier, a 1% decrease in prices of Grill Chicken BBQ or
53
King Nuggets will be followed by a corresponding increase in sales by 7.35% and
7.88%. And as we saw from the financials, Burger King’s net profit was significantly
lagging behind its closest rival in 2020. So, we consider strengthening the chicken
product line might give our company additional trigger to fight KFC which specializes
in chicken products. Therefore, by keeping the main core on beef burgers while
developing chicken part of the menu, Burger King may take the second place of the
most profitable Russian fast-food chains.
To sum up, we would like to keep current pricing for desserts, potato snacks, and
beverages. It is also crucial to continue offering a great number of different combos
and coupons that make up to 80% of the total sales for a certain category of products.
At the same time, we suggest Burger King to expand its chicken burgers product line
while maintaining its and other chicken prices at the same or lower level.
Moving to the implemented pricing strategies, we may admit that the current
policy is well used and meets the strategic goals of Burger Rus. We see that the menu
architecture is well-balanced. In other words, there is a wide choice of low-, medium
and high-priced products in each category of the menu. Therefore, we recommend
continuing to develop the product line and optional-product pricing. We also believe
that product-bundle pricing can be improved. In the past few months, Burger King has
decreased the number of different combos and other product-bundles. Moreover, there
used to be a greater choice of products that were available for bundling. We consider
product-bundle pricing one of the most important and therefore believe that Burger Rus
should increase the number of offers in this menu category.
Speaking about the price adjustment strategies, we must admit that Burger Rus
should implement this type of policy better. Starting from the promotional pricing,
Burger King has a wide range of coupons but no special event. We suggest the
company create such an event that could become an analog to the yearly held McFest
at McDonald’s. It would stimulate and increase Burger Rus’ sales as well as increase
customers’ loyalty. Moving to the discount and allowance pricing, Burger King offers
its clients’ loyalty program and mobile application with the greatest number of features
54
compared to its main rivals. Moreover, while writing this paper, we found out that
Burger King’s customers can pay for their order price not only with Sberbank but also
with VTB bonuses.39 This way, the analyzed fast-food restaurant chain has a great
advantage over its competitors. To keep this advantage, Burger King should continue
developing various partnerships with Russian leading banks. Moreover, if the Russian
government changes its attitude towards cryptocurrencies, it would be beneficial to
accept them as means of payment. So far, this is not possible and is prohibited by law.40
As for the psychological pricing, Burger King should make sure all its prices in all the
restaurants end with nine. This is because prices are perceived to be smaller if the leftmost digit changes to a lower level compared to if the left-most digit remains
unchanged. Also, we believe that the implement Geographic pricing should not be
changed. At the moment this strategy is based on adjustments of prices for different
parts of the country. So only in case transportation, any other costs, and/ or social
indicator change in a region, Burger King should adjust its pricing policy respectively
to these changes.
Moving to the trends of the company’s further development, we shall speak
about its goals and objectives. The main goal of the Corporation is to be the most
profitable fast-food restaurant business, through a powerful franchise system and great
staff, serving the best burgers in the world. The mission statement is to deliver highquality services and offer the highest quality goods that are affordable to all customers
around the world. Franchisees are following these goals as well. Moreover, when we
talk about Burger Rus LLC, its mission is to be the most favorite restaurant chain in
Russia. To accomplish this goal, the organization has a strategy to become the best
restaurant chain in service, quality, and hospitality.
Клиенты ВТБ смогут оплатить заказы в Бургер Кинг бонусами, 17 марта 2021 // Пресс-служба ПАО Банк ВТБ
[Электронный ресурс] Режим доступа: https://www.vtb.ru/o-banke/press-centr/novosti-i-press-relizy/2021/03/202103-17-klienty-vtb-smogut-oplatit-zakazy-v-burger-king-bonusami/#! (дата доступа: 07.05.2021)
40
Федеральный закон "О цифровых финансовых активах, цифровой валюте и о внесении изменений в отдельные
законодательные акты Российской Федерации" от 31.07.2020 N 259-ФЗ [Электронный ресурс] / Консультантплюс. – 1997–2021 – Электрон. дан. – Режим доступа: http://www.consultant.ru/ (дата доступа: 07.05.2021)
39
55
Moving on to the actual steps taken by the corporation to accomplish its
objectives, we must admit that the dedication to the food served is what distinguishes
the business and is at the core of the promise made by the brand. Detailed nutrition
information is given to the guests so that they can make better decisions about their
meals. In addition, Burger King's product innovation teams are continuously working
to explore innovative options that include a range of great food tastings while satisfying
guests' changing lifestyle needs. As an exceptional employer, the company maintains
that its workers are committed and engaged. In fact, teams are constantly researching
and developing ways to make improvements that would have a beneficial effect on the
workplace without sacrificing organizational quality. Burger King Worldwide has a
deep-rooted corporate governance and compliance program. The aim is to constantly
improve processes and practices to ensure consistency with the legislation, as well as
integrity and responsibility. The basic ethics and governance concepts of the Burger
King Corporation begin at the top. The Board sets the tone by cultivating an ethical
community that recognizes and supports both employees and stakeholders and
promotes conformity with all regulations and business policy. As a condition of doing
business within the Burger King system, any licensed supplier shall comply with the
Code of Business Ethics and Conduct for Vendors. Through thousands of restaurants
and millions of guests around the world, the corporation recognizes that even minor
improvements will have a significant impact. While developing best practices and
educating and interacting with staff and corporate partners, Burger King will continue
to take action to make positive contributions to neighborhoods across the globe.
As we have seen before, price-sensitive clients consider price as one of the most
important signs. While developing a loyal customer base, Burger King should ensure
lower and by this competitive pricing. We already suggested some changes in the
current menu prices, now we would like to move to other ways of more effective
pricing.
As the major pricing strategy implemented in the fast-food industry is
competitive-based pricing, Burger King should always control changes in prices of its
56
main rivals. Therefore, it is of paramount importance for the company to follow any
changes in its main competitors’ prices and adjust its own policy to stay competitive.
We believe that one of the best ways to watch closely for this type of news is to track
information on the official websites of the rivals as well as social media. Moreover, we
may suggest using Artificial Intelligence (AI) for this purpose due to the great number
of data that should be processed to get some valuable information. According to John
Doe41, several companies already have AI that can read texts and answer questions
based on these texts. These advances are all impressive and could all be put to use in
applications that help humans handle more and more information. So, we can develop
such an AI and/or learn it to look through enormous data on a daily basis while
searching for a particular type of information. That shall be more effective than using
human beings but at the same more costly. Therefore, we shall consider the costs of
such an implementation and the possible return on investment.
Using this technology, we move to our final recommendation that is the
introduction of dynamic pricing. The main goal of dynamic pricing is to adjust prices
continually to meet the characteristics and needs of the individual customer and
situations. Here AI can be a great tool while analyzing competitors’ actions, news
within the fast-food industry, country, and overall information that can be considered
relevant and can influence either competition or clients’ behavior. Creating a dynamic
pricing system would automatically adjust the price downwards if there is excess
capacity and bring it up if demand is high. These criteria of price change can be
changed depending on the company’s goal and current financial situation. This way,
we can teach the system to understand the relationship between supply and demand. It
would help to avoid cutting prices unnecessarily low in which the company is making
almost no margin or the inverse of setting them so high that Burger Rus loses out to all
its competitors and end up with too much extra capacity to make any money.
Doe, J. Algorithms can beat humans at reading comprehension, but they still don’t understand language, December 5,
2018 // Mind AI [Electronic resource] URL: https://medium.com/mind-ai/algorithms-can-beat-humans-at-readingcomprehension-but-they-still-dont-understand-language-1735bd12201a (access date: 07.05.2021)
41
57
To sum up, we believe that Burger Rus has some competitive advantages, but
there is still room for development and improvement. We suggest Burger King expand
its chicken burgers product line while maintaining its and other chicken prices at the
same or lower level. We also believe that product-bundle pricing can be improved by
increasing the number of offers in this menu category. Moving to the possible
implementations, we would like to point out that dynamic pricing can be a great tool
while adjusting prices following demand and supply and direct and indirect costs and
social indicators change within different regions of the Russian Federation. Pricing
adjustment can provide Burger Rus an ideal solution during different economic
situations and stabilize the company’s profit.
58
CONCLUSION
In accordance with the goal and objectives of the thesis research, an analysis of
the economic essence of price, main pricing strategies, their peculiarities, objectives,
features, and use in the highly saturated fast-food market made it possible to draw the
subsequent conclusions. The profitability and financial health of the analyzed
company, its ability to function well, and therefore the stability of future development
are largely determined by the effective implementation of pricing strategies which is
the key factor to success or failure.
It is necessary to know that pricing is critical for successfully operating and thus,
companies should consider their pricing policies as well as the ones of their main
competitors. This is especially crucial in case a company wants to achieve specific
strategic goals with the help of such a powerful tool as pricing.
Price remains the most important element in determining market share and
profitability as a small percentage improvement in price can generate a large
percentage increase in profitability. Therefore, the financial health of a company is a
reflection of the effectiveness of implemented pricing strategies.
In this thesis the degree and level of the pricing strategies use and
implementation was studied on the example of the Burger Rus LLC, which is a master
franchisee of Burger King Corporation and operates under the Burger King brand on
the Russian market since 2010.
The analysis of the financial performance of the company and its main
competitors showed that the current situation is not beneficial for Burger Rus.
McDonald’s is the strongest player in the quick-service market while Burger King and
KFC have financial problems. The last two companies generated no profit in 2020.
Moreover, Burger Rus was loss-making in 2019 as well. Despite this, the company
takes the second greatest market share in both the number of restaurants and revenue.
In addition, Burger King had the fastest growth rate in the last eight years due to its
high level of investments in the development. Moreover, the overall pricing strategy
59
implemented by Burger King can be found competitive. However, that does not mean
that there is no space for improvement.
Based on the results received during the analysis and evaluation of the company
the following recommendations were given: the company should make chicken
products prices more attractive for its clients, increase the number of product-bundle
offers, and implement dynamic pricing.
Overall, the company is taking a significant market share and had a positive
trend in the Revenue increase except for 2020. However, in order to increase its
profitability by improving financial performance, the effective use of current pricing
strategies and implementation of dynamic pricing needs to be ensured.
60
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