Baking Up Business

Oftentimes, the pricing of a product is the most visible indicator of quality. A loaf of bread will look like any loaf of bread, but how else are you to know that the loaf had been hand-kneaded, made of stone-ground, organic flour, and baked in a wood-fired, hand-forged German brick oven?

The prices at the Bakery often elicit a response of shock, confusion, dismay, or in the best of situations, curiosity. “Just why are your breads, pastries, cookies, and cakes so expensive?” This opens up an opportunity for us to give a winning sales pitch, which usually consists of culinary catchphrases along the lines of “decadent, creamy, melt-in-your-mouth heaven.” Unless we catch a hint that the customer is a bakery buff, he or she would rather accept that our levain bread costs $5.79 because of its chewy, heavily aromatic interior and crisp, caramelized onion crust, not because we let our dough starter pre-ferment in a two-stage process involving wild yeast cultures and lactic-acid bacteria. The idea of consuming bread brought to life by rarely-used bacterial cultures is too much to handle for some; all they want to know is that the bread tastes fantastic.

An alternative explanation I could technically give customers is an analysis of the 5 Cs of Pricing. In terms of company objectives, the Bakery follows a profit orientation, as the mark-up on our prices are quite high. It is possible that the Bakery may also be engaging in premium pricing, but seeing as how employees often change prices at their own discretion, this is perhaps unlikely (or poorly implemented).

Customers generally find our prices too high due to their existing reference prices. Grocery store bakeries, Asian bakeries, small, independent bakeries, and even expensive specialty bakeries all charge lower prices relative to the Bakery, even if their prices are still above average.

I would categorize the Bakery as operating in a monopolistically competitive market since product differentiation is one of our key strategies. We rely on our quality ingredients, hand labour, and unique creations to allow us to charge higher prices.

Costs also play an important role in pricing; however, my knowledge of the Bakery is limited in this area. I’m certain the Bakery’s costs are more than covered though, as the cost of inputs in baked goods is not particularly expensive. I would be interested in seeing a break-even analysis, but we sell so many different items that I doubt anyone could tolerate calculating more than one.

The manufacturer of our goods owns all of the Bakery’s locations, as well as the other retailers. The larger Bakery location occasionally acts as a wholesaler, but is not involved in any contracts. The delivery agents who transport the goods from the plant to the retailers also work for this same company, meaning the entire supply chain is vertically integrated. Pricing orientations should therefore be aligned. 

Now, I highly doubt a customer would stand around long enough to hear all this, and I also highly doubt that he or she would find the price of our goods any more reasonable afterwards, but hey, at the very least, I’ll sound smart and the offending complainer will walk away.