Pricing strategy is one of the most difficult business decisions. Allen argues that “while there is no one single right way to determine your pricing strategy, fortunately there are some guidelines that will help you with your decision” (para. 1). There are numerous benefits to the company which has a determined and well-planned pricing strategy. Cohn notes that “knowing the exact right price you should charge means the difference between financial losses, mediocre sales, or huge increases in revenue” (para. 3). Pricing strategy chosen for the product is directed towards groups of people. These groups include families with children of school years and the groups of young people who wish to spend time together. Another segment is also the groups of adults who gather together for a drink and nostalgic memories from their childhood. The overall tendency which is the foundation for the pricing strategy proposed for Cosmic is a combination of standard prices for drinks and the special offers catering for the special needs of both B2C and B2B segments of the market.
In order to cater for these categories of clientele, Candy Shop (Cosmic) needs to ensure its pricing strategy is aligned with its goals for maximum client turnover. The fountain is not a place to stay for a long time; therefore, the strategy needs to take into consideration the fact that the key product is a drink or a candy, and both of these products are usually consumed rather quickly. Offering high prices would not keep turnover rates high and cause repeat business and return of the clients (Miller and Pavesic, Meehan et al.). For Cosmic, customer loyalty is one of the key factors as the Candy Shop promotes itself as a part of the local culture and recreation activities. For this reason, the key pricing objectives include the following:
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- Pricing for both sodas and drinks ensures high customer turnover;
- Pricing strategy is oriented towards both the B2C and B2B segments of the market;
- Proposed pricing tactics entails environmentally friendly policies and social responsibilities as the products are related to children and students;
- Market growth and position are the overall objectives of the pricing strategy;
- High sales volumes will create foundation for opening other shops in Portland and the United States in general (Striving).
Pricing strategy is based on offering relatively cheap prices for a number of differentiated products which include a wide range of sodas and candies for the customers. Taking into account the school children (“allowance kiddos” segment) spending of $11 per week on average, the soda as well as candies prices should not exceed $2-3 value.
However, at the same time, the uniqueness of the place and its recreational concept adds value to the prices for the products (Gregson). Cosmic sodas and candies are not just sodas and candies sold at every shop in the United States and in Portland in particular. They have added value which lies in its recreational concept. Therefore, unlike the vast number of competitors on the soda and candy market in Portland and in United States in general, Cosmic sodas and candies are value-added products offering more than just taste.
Such characteristics as product quality and uniqueness are usually seen by most consumers as incomparable to other products (Mills). Due to the fact that the products offered by Cosmic are unique and not available elsewhere, they become different from the soda market by their quality and unique selling points (recreation concept, brand image, and other attributes).
Smith argues that “one of the oldest pricing structures is two-part pricing, where the purchase of one part of the offer enables the purchase of the second part of the offer” (xxi). In the case with Cosmic, the menu items have to be united in such a way that the purchase of soda will enable the purchase of candy and vice versa.
Therefore, despite the prices offered for a standard range of products which, as mentioned before, should not exceed the $2-3 value, there should be some special drinks like soda cocktails with higher prices. Such drinks will cater for another segment of the market – the “Generation Y-ers” who can spend higher amount of money for a special experience and are the segment which seeks for recreation and fun much more than other three market segments (Allowance Kiddos, Clean Fun Families, and Nostalgians).
Generation Y-ers are usually not very price sensitive out of segments and can afford higher prices for a drink ranging up to $5 per soda cocktail. Conversely, price sensitiveness of Allowance Kiddos is the highest as they choose candies mostly based on low price due to their low level of budget available. Clean Fun Families and Nostalgians are not very short of money, but they still prefer the drinks to be inexpensive and up to the level of $2-3 value.
Competitors offering the same level of prices and prices lower than $2 value are lacking a place to socialize and a whole entertainment and recreation concept. For this reason, the pricing for the products at the proposed level is preferred. Nonetheless, profit margin for such drinks is relatively high not due to individual margins but the overall effect from the customer turnover. Big amounts of customers bring more profits to Cosmic than higher prices for the soda drinks and candies.
Another segment which has not yet been mentioned is B2B segment which entails franchisees and bottled soda markets. Both these segments are usually working with big sales volumes and big parties of products. For this reason, special offers lowering the prices by 15-20% will ensure their revenue level stability. This will also level the pricing for sodas and put them in one price range with competition. B2B segment does not need entertainment and image offered by Cosmic, it usually needs the quality product with a name on it which is popular among its clientele.
Price elasticity is the highest for the school kids as mentioned before. Knowing that they are most likely to buy candies and acknowledging their levels of budget, Cosmic can offer special sale promos for them. By ensuring that these promos support their availability (as school kids usually have specific schedule for visits), such strategy will only help increase the revenue from this segment and will not change the situation with other categories of clients. For Clean Fun Families, special promos will only work for generating repeat business on weekends and special occasions. These promos have to entail an entertainment concept such as bands playing music or cartoon character invitation to play with the children etc. Unlike the Allowance Kiddos, promos for this segment are not based on pricing levels solely. For Generation Y-ers, the best pricing policy is keeping prices for special drinks high and ensuring that these drinks correspond to the changing lifestyle and demand of this segment of the market. Generation Y-ers are not severely concerned by prices for products and, therefore, are price inelastic.
Nostalgians behave the same as the B2B segment of the market. They are generally interested in a product, however, not the price but the product image and popularity is the key consideration for them. They can find any type of soda they want in a supermarket. For this reason, Cosmic has to ensure that the menu of sodas has very special offers which became popular long time ago and are still available for the clients. Both the Nostalgians and the B2B are relatively inelastic segment in terms of pricing.
Therefore, the overall strategy covers the high customer turnover rates, addresses the needs of all market segments, and focuses on building a foundation for the future development of Cosmic all over the United States. Such strategy is stable and is likely to bring expected results.