how expensive it is to change prices depends on the type of firm and the technology in use for example it may be necessary to reprint menus update price lists contact a distribution and sales network or manually re tag merchandise on the shelf even when there are few apparent menu costs changing prices may make customers apprehensive about buying at the new price this purchasing hesitancy can result in a subtle type of menu cost in terms of lost potential sales 
menu costs may be small in some industries but there is often sufficient friction and cost at scale to exert influence on the business decision of whether to reprice or not in a 1997 study store level data from five multi store supermarket chains was examined to directly measure menu costs the study found that menu costs per store averaged more than 35 of net profit margins this means that the profitability of items needed to drop more than 35 to justify updating the final price of the items the authors argued that menu costs may cause considerable nominal rigidity in other industries or markets essentially a ripple effect through suppliers and distributors thus amplifying their effects on the industry as a whole 5some menu costs are unavoidable because businesses must raise their prices at some point to keep up with inflation however a business can minimize menu costs by devising a pricing strategy that considers their unique value and branding compared to market competitors menu costs vary widely by region and industry this can be due to local regulations which may require a separate price tag on each item thus increasing menu costs alternatively there may be relatively few fixed contract suppliers so there are fewer limitations on price adjustment there are also variations on the speed of price limitations for example digitally managed and sold inventories have marginal menu costs and updates to pricing can be made globally with a few clicks in general high menu costs mean that prices are generally not updated until they must be for many goods the adjustment is usually up when input costs drop the marketers of a product tend to pocket the extra margin until competition forces them to reprice this is usually done through promotional discounting rather than true price adjustment menu costs faqsmenu cost theory reflects the effect of a price change on a commercial enterprise the classic example used to illustrate the theory is a restaurant that changes its prices must then bear the cost of printing new menus menu costs then are the costs to a firm of changing nominal prices in general every time a firm raises or cuts the prices it charges it faces a substantial financial outlay another aspect of menu costs is that prices must go up in line with inflation thus menu costs are unavoidable to some extent any costs that occur as a result of a firm changing its prices can be included as menu costs these costs could include printing menus updating computer systems re tagging items or hiring consultants to help with pricing strategy menu costs can also include consumer hesitancy to purchase at the new price yes menu costs result from the cost of changing prices purveyors must change their prices typically to keep up with inflation or they may reduce their prices to be more competitive in the market either way there will be associated costs for doing so menu costs usually are the result of inflation for example if the cost of food rent or wages goes up a restaurant will have to raise its prices to pay for the extra cost and to make the same profit when raising prices there are additional costs such as printing new menus updating the website etc this means the restaurant will incur extra costs simply because of inflation the key to reducing menu costs is to have a good pricing strategy businesses should analyze their market and determine how they differ from their local competitors this will show where their value lies where customers are concerned and can help them price their products effectively taking into account their competitor s products and prices these steps should prevent a business from having to change its prices too frequently or worse reduce them sticky prices exist when prices do not react or are slow to react to changes in demand production costs etc food in grocery stores tends to be sticky at least for a time for instance if the price of tomatoes plummets chef boyardee would more than likely not lower its prices even though the input costs decreased instead the food company would simply take the greater margin as profit in this example consumers notice no difference in price even though it should have been lowered according to the classic laws of supply and demand this works the other way around too olive garden is unlikely to hike up its pasta prices because the price of one ingredient goes up other examples of sticky prices are hair cuts health care and entertainment items such as books and movie tickets 