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in class marketing group presentation worth 10%. kustom cupcakes case study, market segmentation...

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From a firm’s perspective, successful pricing strategies that help create customer value are influenced by the five C’s of pricing. Each can potentially affect how firms determine their price level. Briefly explain each of the factors and how these currently affect Kustom Cupcakes’ approach to pricing. Is the relative influence of the five C’s upon Kustom Cupcakes likely to change in the future? Explain

Price plays a crucial role in value proposition of any purchase. Whether a business succeeds or fails depends on how the company has constructed the marketing plans and pricing strategies. Since price is the overall sacrifice the customer is willing to make thus it should be perfectly planned. The 5 C’s of pricing helps to determine the optimum price tag. They are: Cost: A firm should understand their cost structures, for them to them to know the degree of profitability each potential price would bring to the firm. However, prices should not be based on costs of production. Consumers don’t care how much it would cost to produce the product, they can only judge the value of the product with the price they are paying and the benefits they receive. Let’s recap the types of costs: Fixed cost: rent and basic utilities. Small outlet (100m squared) -> small scale production means costs are lower. Variable Cost (which changes with the quantity of products produced); for Kustom Cupcakes may include cost of labour, raw materials and supplies. They have no advertisement cost, because they rely on word of mouth. They also have a minimal number of employees (6 people) thus they keep variable costs low. Kustom cupcakes have a minimal staff of 6 people. Also, Kustom cupcakes have no advertisement cost, as it believes in the word of mouth. Thus, making the variable cost minimal. Also, the main outlet where the cupcakes are sold is very small (100 square meters approximately) thus the rent and other maintenance and utilities cost is low, making the fixed cost minimal. This constitutes to a minimal total cost making the pricing strategies of Kustom cupcakes cost effective. Company Objectives: Being a boutique cupcake store specialising in cupcakes, they are customer orientated: they set prices based on how it can add value to the rest of the goods, earning them a reputation of high-quality goods in the target market of cake connoisseurs who are willing to pay a premium price. doing so, they can obtain a greater market share. Customers: Customers want value and half of the equation of value is price. Price relates to demand, i.e. this is demonstrated through the demand curve. The demand law states that usually as price increases demand decreases - this is generally true with exceptions with prestige goods which consumers purchase for status rather than functionality. However, in the case of Kustom Cupcakes, whose target market is the niche segment of customers who value high quality offerings who know they are paying a higher price.

Quantity discounts are used to entice customers to buy more.

Competition: Not only is Kustom Cupcakes a retailer for cupcakes, but also specialises in cake decorating - they offer courses. There is a saturated market for cake decorating in Perth (as there are many retailers offering this and they are fully booked), but Kustom Cupcakes have a comparative advantage to its competitors as they are one of the few retailers that offer courses as well as sell cupcakes. I’ll delve into how competition, in the future, may affect

Channel Members: channel members include manufacturers, wholesalers and retailers. in this case, the manufacturers are the retailers so there isn't a discrepancy on how the products should be priced. this is supply chain management (the active integration and coordination of all supply chain activities to provide you, the customer, with the best value). so, the cupcakes are made and distributed in the right quantities and the right time and place - hence delivering value to the customers and minimises costs. Is the relative influence of the five C’s upon Kustom Cupcakes likely to change in the future? Explain. If we conduct a SWOT analysis for Kustom Cupcakes, we can evaluate how the firm will perform in the future and see how the 5Cs affect them.

Kustom Cupcakes currently holds a unique position being one of the only firms in the Perth metropolitan area that offers cupcake decorating services and cupcakes for sale. As firms enter the long run, or as the market matures, competition for Kustom Cupcakes will increase as other firms will adopt the unique services and offerings that Kustom Cupcakes currently have. Hence, to maintain profitability, Kustom Cupcakes would have to constantly update their pricing strategy according to their competitors, who may partake in pricing tactics such as market penetration to compete with existing firms. Changing Customer Base: Customers are attracted to what Kustom offers, as it is modern and unique. However, as the firm enters the long run, it should continually update its knowledge of its changing customer base and their demands. Price skimming strategies may be established, if they want to maintain their exclusive position in the market.

Questions; Describe Kustom Cupcakes’ current position in the market, in comparison to other dessert-based firms.

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Unique position where they are one of the only firms who have cupcake decorating courses as well as sell cupcakes. They target a niche segment of the market - which are cake connoisseurs who demand quality offerings and are willing to pay a premium for it.

Under the company objectives section of the 5Cs, which orientation does Kustom Cupcakes adopt? Explain. Customer Orientation: they set prices according to how it adds value to the rest of their products. Kustom Cupcakes sets quite high prices ($3.50 per cupcake), hence enhances the reputation of the business as high quality, with high quality offerings. How does this affect their pricing strategy currently? Kustom Cupcakes sets their prices quite high as they know their services are exclusive in the area. Higher prices portray a higher quality, prestigious image in the consumers mind. A typical course lasts for three to four hours and costs $120 per person. An individual cupcake is priced at $3.50, decreasing in price per unit as the box size increases from 6, 12 to 24, where each cupcake is $2.50. So, they set quite high prices but offer quantity discounts to incentivise customers to purchase more

What is market diversification and how has Kustom Cupcakes utilised this? 

Market diversification: when firms broader portfolio of products, which help them diversify their risk and enhance firm value better than a single product can. Instead of only selling cupcakes, they also offer courses (which are always fully booked) which will generate revenue even when demand for cupcakes decreases.

What are the strengths and weaknesses of Kustom Cupcakes?

Strengths   

Products can be personalised Location is easily accessible Loyalty scheme

Weakness   

Sell perishable products Does very little promotion (relies on word of mouth) Small store, easily congested if customer base continues to grow

In the long run, how will competition affect Kustom Cupcakes’ pricing strategies?   

Long run: more firms will enter and provide same services as Kustom Cupcakes Hence, they need to lower prices to remain profitable Do pricing tactics such as quantity discounts, price skimming....