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Franchise Pricing Strategy

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 3459 words Published: 12th Oct 2020

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Pinot’s Palette is one of the best franchises for those looking for a rewarding experience and financial independence. Pinot Palette opened up their first international location in Toronto, Canada in 2016. It is the consensus of the owners to now expand into other international countries. Pinot’s Palette first studio in Italy will be located in Rome, Italy within a 10-mile radius of their competitor, Vineyarts, one of Europe’s premier Art & Wine Studios.

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It is common for local, municipal, and country regulations to vary on the licenses and permits that will be needed to operate a Pinot’s Palette Studio. It is important to pay these fees to governmental authorities before starting business. Starting up an Italian business can be very attractive to business owners for many reasons such as friendlier tax rates and access to overseas customers. The most popular and common Italian corporation for a small to medium size business is the “SrL” which is a limited liability corporation that has virtually no restrictions on foreign shareholders.

The initial franchise fee is $27,500 for a or a Two Room Studio. There is an artist training fee ($500 per day) which varies plus its actual costs of lodging, food, and travel arrangements for an artist trainer who will conduct on-site initial artist training to all artists hired to perform classes. Pinot Palette requires payment for a Royalty Fee (6% of Sales) and a Marketing Obligation fee (2% of Sales). In addition, the franchise must spend an additional $1,500 per month on local advertising.

The funding will be used to finance the start-up costs associated with a new Pinot’s Palette franchise. The costs are dependent upon local conditions, but the basic costs are outlined in Table 1.

Table 1: Start-up Budget

Pinot’s Palette


Sources of Capital



Owners' Investment (name and percent ownership)



Owner 1 (20%)



Owner 2 (20%)



Owner 3 (20%)



Owner 4 (20%)



Owner 5 (20%)



Total Investment


 $         502,500


Bank Loans



Bank 1 (SBA loan)


 $         500,000

Bank 2 (conventional loan)



Total Bank Loans


 $         800,000


Startup Expenses



Buildings/Real Estate



Purchase (land)


 $         160,000

Construction (new building)






Total Buildings/Real Estate


 $         740,000


Leasehold Improvements



Item 1 (outdoor patio)


 $           20,000

Item 2 (landscape and parking)



Total Leasehold Improvements


 $           58,000


Capital Equipment List





 $           35,400










Total Capital Equipment


 $         166,400


Location and Admin Expenses



Rent & Related Costs


 $           10,000

Utility deposits



Legal and accounting fees



Prepaid insurance



Customer Service Center Fee (per year)



Electronic Mail Fee (per year)



Technology Fee (per year)



Artisit Training Fee (5 days)



Franchise Fee



Total Location and Admin Expenses


 $           51,200


Opening Inventory



Category 1 (Wine)


 $           15,500

Category 2 (Imported Beer)



Category 3 (Domestic Beer)



Category 4 (Liquor)



Category 5 (Non Alcoholic)



Total Inventory


 $           40,300


Advertising and Promotional Expenses





 $           30,000







Total Advertising/Promotional Expenses


 $           45,000


Summary Statement



Sources of Capital



Owners' and other investments


 $         502,500

Bank loans



Total Source of Funds


 $      1,302,500


Startup Expenses



Buildings/real estate


 $         740,000

Leasehold improvements



Capital equipment



Location/administration expenses



Opening inventory



Advertising/promotional expenses



Total Startup Expenses


 $      1,100,900

Projected Profit and Loss

According to export.gov, “Franchising is widespread throughout Italy and is dramatically growing. With a turnover of approximately $28.5 billion in 2018 (+2% compared to 2017), Italy is the fourth largest market for franchises in Europe, after France, Germany, and Spain. In 2018, the number of Italian franchises reached more than 53,800. In 2018, the Italian market experienced a growth rate of 3.4% in terms of active franchising networks.” ("Italy - Market Overview | export.gov", 2019).

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The franchise fee payments will be completed by Quarter 4 of the first year. Although the first two quarters of operations will not result in a profit, the losses are projected to be less than $4k for the first year. The second year of operations is expected to see a small profit based on the results of Quarter 4 in Year 1. The breakdown of projected revenue and expenses for year 1 is detailed in Table 2:

Table 2: Projected Profit & Loss – Year 1

Projected Profit & Loss – Year 1 

Quarter 1 

Quarter 2 

Quarter 3 

Quarter 4 

Public Painting Revenue 

 $         24,398

 $    26,280

 $    27,970

 $    31,420

Private Party Revenue 

 $           3,400

 $      5,200

 $      6,788

 $      8,230

Bar Revenue 

 $              370

 $         469

 $         490

 $         510

Total Revenue 

 $         28,168

 $    31,949

 $    35,248

 $    40,160




 $         14,000

 $    14,000

 $    14,000

 $    14,000


 $           1,500

 $      1,900

 $      2,180

 $      2,500


 $              560

 $         560

 $         560

 $         560


 $           3,000

 $      3,000

 $      3,000

 $      3,000


 $           3,000

 $      3,000

 $      3,000

 $      3,000

Franchise Fee Payment 

 $           7,000

 $      7,000

 $      7,000

 $      7,000

Other Admin 

 $              450

 $         450

 $         450

 $         450

Marketing Fees 

 $              486

 $         653

 $         782

 $         758

Royalty Fees 

 $           1,263

 $      1,991

 $      2,674

 $      3,400

Total Expenses 

 $         31,259

 $    32,554

 $    33,646

 $    34,668


 $         (3,091)

 $       (605)

 $      1,602

 $      5,492

**Note: The value of the US Dollar compared to the Euro will very daily**

International Pricing Strategy

When deciding which pricing strategy Pinot Palette should use, it is always important to analyze and consider the economic environmental factors such as inflation, unemployment, disposable income, GDP, and GDP per capita (PPP). Also, internationally there are different taxes and tariffs, and freight charges to consider.  Allie Decker states, “Pricing strategies take into account many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.” (Decker, 2019).

Examples of pricing strategies are cost-based, customer-value based, and competition based. Cost-based is most popular for the customer because the pricing is based on time and materials used to complete the project, however, it can be a disadvantage because your income is directly linked to time. Next is customer-value based pricing in which the pricing is based on the value of your service not necessarily on the time and materials being used. This can be tricky because the price is given upfront, so you have to be sure the pricing will mirror the actual amount of time involved. Lastly, competitive pricing is when the seller uses prices of competing products as a benchmark instead of considering own costs or the customer demand. Abdullahi Muhammed, a contributor for Forbes magazine states, “You want to offer clients the value they deserve but you also want to help your business grow and charge rates that let you fully enjoy doing it.” (Muhammed,2017).

The pricing strategy used for the Pinot Palette in Italy will be competitive pricing. Competitive pricing focuses on the existing market rate for a company’s product or service; using the competitors’ prices (Vineyarts) as a benchmark. The product mix offering will include both private and public paint offerings. The pricing will be based on the time/complexity of the painting, which will result in three standard price points: $45 for an hour session, $55 for two-hour painting session, and $65 for three-hour painting session. In addition to the painting, there will be a bar offering wine, beer, and soda for purchase during the painting session.

Channels of Distribution

The channels of distribution in Italy can differ slightly from those in the United States, but most will be the same. Most logistics companies will offer a range of shipping options for international delivery at various price points to meet customer needs.



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