Pricing Strategy and Channel Distribution

Pricing Strategy and Channel Distribution 1

Pricing Strategy and Channel Distribution

Have you ever wondered where cupcake shops get their prices from? Have you ever wondered how cupcake shops stay in business for long periods of time? The cupcake shops that have near competition seem to compete with each other by offering deals and specials. In this paper, the pricing strategy will be discussed, the pricing tactics will be discussed and the tactic will be chosen from product line pricing, value pricing, and differential pricing or competing against private brands.

Determine and discuss a pricing strategy (Penetration or Skimming).

Cupcake Jewel will use the skimming price strategy. The skimming price strategy is when the cupcake shop sets a high price for a product or service at first and then the price is lowered over time. (Iacobucci) Cupcake Jewel will start with a higher price and gradually decrease the price to fit the market. The price will compete with other cupcake shops in close range. The price will start at $2.50 per cupcake which is less than the average price for a cupcake. The price will gradually decrease by $.10 but won’t go lower than $1.50 a cupcake. Cupcake Jewel will have to make a small profit off of each cupcake so the price cannot be lowered too much. The price will be based on what the customers are willing to pay for a cupcake.

Determine and discuss pricing tactics (Product line pricing, Value pricing, Differential pricing, or Competing against private brands) to be used for your product.

Pricing Strategy and Channel Distribution 2

Precious Jewel will use the competing against private brands pricing tactic. A cupcake shop wouldn’t do successful using product line pricing or value differential pricing tactics. Product line pricing is used when there are different products to sell in the same product range but at a different price based on the features. Product line pricing wouldn’t make sense to use since there will only be one product offered. The value differential pricing is when a product is sold at different prices in different places. Competing against other brands will allow Cupcake Jewel to charge less than branded retailers such as “Georgetown Cupcakes” in DC. Georgetown Cupcakes is a large cupcake chain in Washington, DC which features different cupcakes. DC cupcakes have a TV show which boosted their business. The cost of their cupcakes increased when the show aired. DC Cupcakes is also featured in many magazines and are known for doing cupcakes for celebrities. Cupcake Jewel is located about 45 minutes from DC Cupcakes and is considered a competitor. Cupcake Jewel will offer prices less than DC Cupcakes until the name and product line is noticed. Cupcake Jewel will compete against many of the