We must assign priorities to factors that are in line with our strategy and the price of our products is one important factor. In some cases, prior objectives are linked to sales volume, when, for example, we want to increase or defend a market share. In some other cases, the priority can be the immediate profit generated by the product sales.

 

Once we analysed our target market and our competition, it was obvious that our objectives are linked to sales volume. Our objectives are to increase our market shares in the following years. We must penetrate the market of organic food which is growing steadily and we plan to be profitable in the long run.

 

In this cases, volume is the priority, that is why we will choose a pricing method guided by market considerations. It is called the market based pricing method. The other method is called the profit based pricing but it does not fit with our main objective.

 

We thus have to analyse the following factors :

1) The customer price sensitivity and market elasticity  

2) The competitive offers & The overall positioning of the brand

3) The cost position, breakeven point, margins and cash flows.

 

 

 

In order to determine price sensitivity of our customers, We conducted a survey where we asked potential costumers: « what price would you pay for our products ? ».

 

 

 

 

 

 

 

 

We noticed that the majority of our potential customers are ready to pay a little bit more than in other stores. It is important to highlight that it would be quite difficult to determine the « best » price because we only conducted a qualitative survey. In fact, we were not able to conduct a quantitative one which would have allowed us to determine it in a much accurate way.

 

Generally speaking, the elasticity in the organic food market could not be neglected. That is why we can not increase sharply our prices without being impacted in the quantities sold. Indeed the elasticity of organic food turns around 1 or 2.

 

 

 

Volume is the priority, we will choose a pricing method guided by market considerations. It's important to have clear volume objectives before starting the analysis. We took into account all our ressources needed and we calculate that our greenhouse will be able to produce 27 000 kg of organic food a year.

 

Thanks to the costumer price sensitivity and the market elasticity, we realised that the price should be the same as in other stores to stay competitive in an elastic market or even a little bit higher if the customers are well informed of the advantages we offer.

 

We also need to look at the prices of our competitors. We will not analyse the price of our competitors for each fruit or vegetable they offer. Indeed, it is easier to take the average basket of fruit and vegetables and to determine its price per kg. A market study conducted buy Into the minds, a marketing company, shows that the average price of an organic basket is around 3€/kg without taking into account transportation costs.

 

It is more difficult to determine the accurate price for a mean basket at Delhaize for example because this statistics do not exist as such but if we take the example of strawberries, we can find the price of 4,50€ for 500gr while at Ecoshelves it will be 5€ for the whole kg. The case is similar for Origin’o.

 

 

 

To ease the financial prediction, we chose to provide the price of the average basket of organic fruit and vegetables per kg instead of the price of each product we offer. We mainly took into account our customer price sensitivity and our competition. Finally, a price of 5€/kg is good choice because it allows us to stay competitive on these market but also to cover our huge fixe costs in a couple of years.