Kustom cupcakes - Case Study PDF

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KUSTOM CUPCAKES

summary of the case… Kustom cupcakes was a boutique Perth retailer. It was a two person partnership business and they started their business on 2010 and 2015 they permanently closed their business. They specialized in producing and selling a wide range of cupcakes through cafes and other similar retails. They also catered different types of functions such as wedding, birthdays, corporate functions etc. They had their own retail store that was located within the close proximity to the Perth CBD. So their store was pretty small. It was just 100 square meters for which they couldn’t really accommodate customers to eat or drink in the store so operated as primarily a takeaway service. Even though they were located in a metropolitan area, the rent they paid was relatively low. Their primary mean of communication was their website where customers could find information about their services and offerings. The overall advertising expense was very low as well since Kustom cupcakes heavily relied upon word of mouth, online presence, social media. Also their very visible and prime location itself was a plus point as it attracted a lot of customers. So their pricing policy, it was based upon the graduated approach where basically you pay a lower price for each product when you buy them in bulk. Producing and selling cupcakes were not the only source of their revenue. They also offered cake decorating courses which was really popular as well and they were personally conducted by both the owners.

From a firm’s perspective, successful pricing strategies that help create customer value are influenced by the five Cs of pricing. Each can potentially affect how firms determine their price level. Briefly explain each of the factors and how these affected Kustom Cupcakes’ approach to pricing. If it still operated, would have suggested it changed the relative influence of the five Cs within its pricing stategy? Explain.

Company Objectives: Would anyone like to me what the company objective of Kustom Cupcakes?  

Their objective was to be the quality leader. Customer oriented.

So, the company objective can be Profit Oriented, where they focus on target profit pricing, maximizing profit or target return pricing. It can be Sales oriented where they basically set the price very low to generate higher amount of sales and attract new customers. It can be competitor oriented where they also set the price very low so they can discourage new competitors from entering the market. Or it can be custom oriented, where they put their focus on the quality of the product. They target a market segment from whom the quality is more important the price. So in this case the prices are set relatively high. In case of Kustom Cupcakes, they offer a wide range of flavors of cupcakes with the highest quality of all ingredients, which targets a market segment of consumers who highly value the quality and are prepare to pay that amount for that high quality cupcake. Based on this objective kustom cupcakes is likely so set a relatively high price.

Customer: After they figure out the objectives they then move on to understanding their customers and how they would react to different prices. When it comes to cupcake industry customers are more likely to be price sensitive. In this price elastic scenario, relatively small changes in price will generate fairly large changes in quantity demanded. For Kustom Cupcakes, the publication price for individual cupcake was $3.5, but the price would be decreased to $2.5 if a box of 24 was purchased. Similarly, the cost for 6 cupcakes were $20 and the discount increased when they purchased a box of 12 cupcakes. So this sort of made people purchase cupcakes in boxes rather than individually since that way they were paying a lower price for each cupcake.

Cost:

It is important for firms to understand their cost structure so they can make effective pricing decisions. It helps them figure out to which extent the goods or services produced will be profitable. When the cost of producing a product is higher the producer will naturally charge a higher price for the product to make profit but depending on their target segment, the higher cost can actually reduce the sale of their product since customers make their purchase decisions based on their perceived value. Customers won’t just pay a higher price because the firm couldn’t come up with a more cost efficient way to produce the product.

So, for Kustom Cupcakes, their variable costs were the wages they paid to their employee and the cost of the ingredients. And the fixed cost were the price they had pay for the rent, which was relatively lower which helped the company lower its operation cost. Therefore, Kustom had a small number of staff and a relatively low rent that helped the firm reduce their overall cost.

Competition So then we have competition and as well all know, competitions can have a really profound impact on the prices of the goods. Fortunately, Kustom doesn’t really have many competitors in the market or in the metropolitan area where they are located. Also, they offer cake decorating course which I think was a really unique idea. So although the prices they charge are a bit high, they kind of had a high market share within that industry so I guess there high price really didn’t affect their demand in the market that much. Channel Members Normally, different channel members like, manufacturer, wholesaler, retailer, they all have different perspectives and goals so their pricing strategies are pretty different.

In this case, Kustom cupcakes was a boutique retailer that not only manufactured the cupcakes but also used to sell them. So as a retailer and also the manufacturer they are less likely to be influenced by the channel members when determining the price level.

If it still operated today, I believe the that influences on Kustom Cupcakes by each of the five C’s would have changed a bit. If it still existed today, I believe the business would have grown and there would be more competitors present in the market now than there were back then. Which I think would change the company objective. They will shift from being customer oriented to competitor oriented or profit-oriented to meet its goals and this probably would cause them to reduce the price of the product. And in regards to the cost, if the consumer demand for the product remained high then kustom would have employed more employees and increased their manufacture for which they probably have to relocate to larger store....