Pricing strategy for a new doggy day care business

Marketing Strategy

Doggie Day Care

Launching a new doggy day care business in an upper-income area of the community requires a careful analysis of costs, pricing strategies, a clear strategy for pricing promotions and a well-defined series of profitability goals. The intent of this introduction is to evaluate the costs and pricing strategies of the proposed business.

Overall Cost Analysis

The most significant fixed costs for the doggie day care clinic include the following:

Lease for the facility

$2,000/month (for a facility with a dog run)

Utilities

$100/month (anticipate heavy water usage)

Staff

$3,500/month (burdened cost w/insurance for two staff members with veterinary training)

Supplies

$1,000/month (dog food, materials for care)

Monthly Insurance

$200/month (incudes liability)

Total

$6,800/month

With the assumption that 50 dogs being in day care initially this puts the breakeven point at $136 per dog, per month. With the goal of 100 dogs boarded per month being achieved, the cost will go to $68 per dog, per month. These figures do not take into account gross margin forecasts.

Temporary and Seasonal Price Promotions

Temporary and seasonal price variations need to be concentrated on the types and level of service, which can yield the greatest potential long-term customer gains for the lowest cost (Chao, Wilson, 1987). For temporary and seasonal price promotions to be effective, they must enable greater levels of customer loyalty and attract new customers over time. A frequent boarder discount and refer-a-friend programs would be useful for enabling greater customer loyalty over time and increasing lifetime customer value. Dropping prices or putting them into free-fall will end in the day care center going out of business.

Impact of Price Discrimination

Price discrimination is not necessarily a bad if used to differentiate premium service and charge higher rates for larger, more special-needs and high maintenance dogs. This approach to premium pricing and price discrimination is warranted when the service is exceptional and highly differentiated from competitors (Matanovich, 2003).

For VIP Treatment including weekly grooming, special dietary analysis and cardiovascular check-ups the doggy day care clinic could feasibly charge $250 per month, which would be 83% gross margin when 50 dogs are being cared for. The margin goes up significantly the more dogs are enrolled in this VIP Program for example.

Profitability

The profits for this venture are thin if only 50 dogs are enrolled and the pricing is defined on margin alone, with 30% being the threshold value. The doggy day care center must concentrate on a value-based pricing strategy and look to attain at least 50% margin for the mainstream services, and increase this to 80%+ gross margin for the VIP treatment. Concentrating on the exclusivity and value of the services will be much more effective than competing on price alone, which is a strategy surely to drive this venture out of business. This is also an inelastic market which means that price increases can actually increase revenue without dropping volume. Aiming at 50%^ gross margin for the baseline service and 80% for the VIP service is attainable and will give the doggy day care center future revenues to re-invest and add additional value to the clients' experience.