Question

You are an owner of a small independent chain of coffeehouses competing head-to-head with Starbucks. The retail price your customers pay for coffee is exactly the same as at Starbucks. The wholesale price you pay for roasted coffee beans has increased by 25 percent. You know that you cannot absorb this increase and that you must pass it on to your customers. However, you are concerned about the consequences of an open price increase.

1. Discuss three alternative price increase strategies that address these concerns.

2. Which would you choose, and why?

Answer 1

Three alternative price increase strategies would be-
1.Menu strategy- Menu have a huge impact on costs and pricing.I can set the new menu now, if I have to increase the price of a coffee in the market then I will subsequently decrease the cost of other food items .for example- I will first calculate the cost of each items in a cafe and then reduce the prices of some other items and adjust in the new pricing of coffee.
2.Price bundling method- I can start with the combo offers.Suppose I normally charge $3 for a large cappuccino and $5 for a sandwich, but making the combo offer and give them in $7 .Customers will take them as a bargain and it will help in your sales.But before this market study is required , we need to study that how much customers are willing to pay for such items.
3.Customer membership discounts- To maintain the sales rate of my coffee shop, I will start with some exciting offers like providing them the membership card discounts or offer like "happy hours" ,so that even if there is a slight change in the prices ,they would still like to be loyal and happy customers.

I will go with the combo offers.Because this is the best way to maintain the sales rate without losing any of your customers.Rather this would increase my sales because everyone wants to get something extra, So if once I know how create this combo offers ,I will be at win -win situation.