Menu costs are the costs a firm incurs to change its prices. The name stems from the cost for a restaurant to print new menus. The cost of changing prices is one way to explain sticky prices, or the tendency for prices to stay at an established range when economic forces are pushing them up or down. Menu costs differ widely by industry. For example, ecommerce firms typically have low menu costs and may frequently experiment with prices.
ExamplesAdvertising and promotion of new prices.Communication and notification of new prices to customers and channel partners.The complexity of aligning costs across partners and channels.Packaging and signage. Legal notices and regulatory approvals.Supporting multiple prices for existing customers on a service plan.
NotesMenu costs don't include the risk that price increases will lead to reduced demand and customer attrition.Next: Pricing Strategy
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