Price increase can spell the success or failure of any given business. It is one procedure that should be taken with caution. Nanaimo is faced with the challenge of price increase with the competition being one of the factors that need to be considered. Starbucks and Serious Coffee have been our main competitors. An uncalculated price increase can result in loss of customers.
With the 25% increase in cost, there are many options that will have to be considered when undertaking price adjustments. One of the strategies that will be considered in determining the price increase is using cost based strategy. This is where we will get the total cost of preparing our coffee. This will include the price of roasted coffee beans, which is the cause of the dilemma that we are facing right now. There will be the need to add some margin to the total production cost. This will mean that we just increase the price of coffee in our business. There are several factors that will affect this decision. These factors can be categorized into either internal or external. One internal factor is that of return on investment. The increase in price will affect the customers. There might be experienced a decrease in customer levels. Another factor is that of cash flow. This is an internal factor that needs to be considered when making up decisions on price increase in Nanaimo. External factors that should be considered include competitors. If we increase our prices too high, our competitors will work their way out to ensure that they capitalize on this.
Another strategy that will have to be considered is that of competition based pricing. There are two strategies that will have to be considered. There are two strategies here. The first strategy is the use of the leader. In our case, the use of the pricing of Starbucks will be considered. This is the follow-the-leader pricing strategy. Another method is pegged pricing. This fixes prices according to the industry.
Another pricing strategy that will be considered is that of loss leader strategy. This is where some item is sold at a loss so that other items will be sold at a profit. In our case, the other items that are sold together with coffee can be sold at a loss. What this means is that the price of coffee will be increased, and the other items will be sold at unbeatable prices. This will enable coffee to be sold at a profit. This is only applicable if the other items will not bring a big difference in the overall profitability. It will also be applicable for some time. This will also be applicable if the cost of producing these items will not be affected. This strategy will determine the cost of production. In considering this strategy, the cost of producing the supplement items that are taken with coffee should be the same.
When considering the three strategies, their impact on the variable and fixed costs will be a major issue. There is a need to ensure that fixed costs and variable costs are not affected and if they are affected, then the price caters for this increase. In loss leader strategy, for example, the cost of coffee production will be taken care of the increase in price. It is expected that the increase will not turn the customers away as they will be attracted to the low prices of supplement products that are sold in Nanaimo.
In cost based strategy, several factors will come into play. The cost of production will play a major issue. These include variable and fixed costs.
Mills, G 2002, Retail Pricing Strategies and Market Power, Melbourne University Publishing, Melbourne.