Cookie Craze Preliminary Pricing

There are a number of different approaches to the issue of preliminary pricing, and which one the company chooses depends on the strategy that the firm has. Some of the different strategic options include maximizing profit, maximize volume, maximize margin, cost recovery and survival. Preliminary pricing strategies usually fall into two types. The first is to maximize volume. This strategy is known as penetration pricing, and holds that the company should set prices below the existing competitors in the market in order to build market share rapidly. The company may even take a loss on this type of pricing until it is able to build economies of scale in production.

The other strategic option is to establish the product as a premium offering. The cookies at Cookie Craze are the best cookies anybody on planet Earth has ever tasted, and as such cannot be given away for free. As a luxury good, premium pricing is essential to building cachet in the market and establishing our good as a premium product. In addition, most of the competition in our area makes...

We need to firmly send a signal to the market that we are better, in another class, and the best way to do that is to price higher than these competitors. This strategy would fail if our cookies were only as good, but the reality is that our cookies are much better. The higher price points are justified by the better quality of cookie.
Initially, we are looking to sell out of our own shop for $4 a cookie, and wholesale for $2.50 per cookie. That wholesale price will depend entirely on volume. Customers in the shop who buy a dozen will get a free cookie, for an average price of $3.69 per cookie. At this point, we must consider the breakeven point.

The cookie will consist of a base dough, and then added seasonings, flavorings and other goodies (icing, chocolate covered bacon…that sort of thing). Production will be in batches of 48 in order to hold down the cost per cookie of labor. The ingredient cost for each individual cookie will range between 75 cents and $1.10, depending on the type of cookie. The different splits for the sales are as…