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PRICING STRATEGY
Pricing strategies of local competitors - KAI Coffee Vietnam, Cheese Coffee, and Laha Coffee
Popular Vietnamese F&B brands that participate in the industry offer exclusive services and products with competitive pricing strategies thanks to urbanization, growth of spending, and an increase in the middle-class population.
First Competitor: KAI Coffee Vietnam offers dine-in and customer pickup service with a very competitive pricing strategy range from 28,000 VND – 69,000 VND (1.54 CAD – 3.80 CAD). Besides that, KAI Coffee is well-known for Combo KAI 2021 as special offers to both old and new customers during 2021’s Lunar New Year. As KAI Coffee doesn’t promote free delivery as many other brands do this year, customers will have to pay 190,000 VND (10.46 CAD) plus delivery fees for the Combo KAI 2021 program. KAI Coffee charges for its services and products to control fixed costs (rental lease payments, salaries, and business taxes) and other additional costs (Foody, n.d.).
Second Competitor: Cheese Coffee has promotions to retain old customers and attract more potential customers during 2021’s Lunar New Year. While the brand’s new beverages and food that were introduced on the menu expect customers to pay from 35,000 VND – 75,000 VND (1.93 CAD – 4.13 CAD), the brand provides free delivery within 3 kilometres from the shop. To be qualified for this service, customers need to pay over 100,000 VND (5.51 CAD) for an order using common delivery apps, such as Grabfood, Now, and Baemin. Additionally, loyal customers also get other special discounts in the “Big Order Big Fun” (Cheese Coffee, 2021, Big Order Big Fun section) promotion program if groups of friends are willing to request an order of over 500,000 VND (27.54 CAD). The pricing strategies of Cheese Coffee are set to make up for its high-quality products, operation expenses, and employee training (Now, n.d).
Third Competitor: Laha Cafe has a smaller organizational structure compared to KAI Coffee and Cheese Coffee. Laha Cafe develops its pricing strategies to control daily operation expenses and future investments. While service and product fees range from the low end of 15,000 VND (0.83 CAD) - small-sized Iced Coffee to nearly 40,000 VND (2.20 CAD) - medium-sized Italian Cappuccino, Laha Cafe does not offer seasonal promotions or special discounts during 2021’s Lunar New Year. However, Laha Cafe always provides loyal customers with free delivery services focusing on its existing market targets (Foody, n.d.).
The reason CoffeeHolic charges the prices in competition to that of the key competitors:
CoffeeHolic sets its price based on the pricing strategy of products and services in competition to that of the key competitors, such as KAI Coffee, Cheese Coffee, and Laha Cafe. CoffeeHolic offers customers different types of beverages including coffee, smoothies, fresh fruit juice, and additional desserts and handmade treats. The perceived value of the product in the local market is the most central pricing factor that CoffeeHolic determines in price setting methods. By understanding the importance of cost and value, it helps CoffeeHolic in maximizing its profitability since “pricing is the lever that has the highest and quickest impact on maximizing profit” (Campbell, 2020, para. 11), while the business is capable of covering fixed and variable costs (Info Entrepreneurs, n.d.).
KAI Coffee Vietnam has built a very competitive pricing strategy based on its high-quality products and strategic location in the local area. While customers may pay over 190,000 VND (10.46 CAD) plus delivery fees for the Combo KAI 2021, KAI drinks usually cost customers between 28,000 VND – 69,000 VND (1.54 CAD – 3.80 CAD) per person (Foody, n.d.). Besides that, Cheese Coffee on Hong Bang street provides various beverage sizes with the prices going up to 75,000 VND (4.13 CAD) even though beverages and food on the menu expect most customers to pay at least 35,000 VND (1.93 CAD) (Now, n.d.). And Cheese Coffee takes advantage of delivery apps offering a seasonal promotion for groups of customers on holidays. In particular, the brand announced the “Big Order Big Fun” (Cheese Coffee, 2021, Big Order Big Fun section) promotion for orders that were over 500,000 VND this 2021’s Lunar New Year. Furthermore, the third competitor, Laha Cafe charges customers with the most competitive price compared to the pricing strategy of CoffeeHolic. Laha Cafe focuses on the price that is affordable to different types of customers in the local market. And Laha menu prices usually range from the low end of 15,000 VND – 40,000 VND (0.83 CAD – 2.20 CAD) without seasonal promotion programs for loyal customers (Foody, n.d.).
CoffeeHolic menu usually expects customers to pay from 20,000 VND – 40,000 VND (1.09 CAD – 4.37 CAD) while loyal customers are offered special discounts and promotions on holidays. This pricing strategy helps CoffeeHolic in better competing with other large brands (KAI Coffee and Cheese Coffee) while loyalty programs can make CoffeeHolic more competitive than Laha Cafe. Besides that, CoffeeHolic develops a competitor-based pricing strategy because this pricing guide “uses the price you set to appeal to customers and define your niche relative to your competitors” (Gartenstein, 2019, para. 4). Pricing products and services this way is very effective “by setting a price that’s in the same ballpark as other products in the same niche” (Gartenstein, 2019, para. 4). Moreover, the pricing strategy also reflects the high-quality products and services offered, ensuring that the customers are provided with excellent service based on the brand’s Vision & Mission.
Price Strategy for new products: Market skimming
CoffeeHolic’s co-owners would like to develop effective pricing strategies that shape its overall profitability for the future. In particular, there are four most common methods of pricing, including Economy Pricing, Prestige Pricing, Market Skimming, and Market Penetration. By following this, CoffeeHolic’s co-founders and co-owners need to consider the strategic decision in pricing new products based on the mentioned pricing methods.
Firstly, Economy Pricing allows a “no-frills low price” to exist (Friesner, 2014, para. 3), and this strategy enables a Food & Beverage (F&B) manager to identify business expenses (both fixed and variable) with reduced marketing and promotion expenses. However, in Vietnam, small businesses may find it difficult to reduce production costs. during the pandemic, and CoffeeHolic may also “struggle to remain profitable” (Mind Tools, n.d., para. 15). Besides that, Market Penetration is another common pricing strategy to increase market share, competing with low-cost key competitors by charging a lower price for new products and services. While Penetration Pricing supports many businesses to increase rapid sales growth in a short time, the profit margins of the organization may suffer before achieving economic success. As a result, neither Economy Pricing nor Market Penetration can be the most effective pricing strategy that CoffeeHolic co-owners can implement for pricing our new products and services in the future. Furthermore, the idea of charging a premium price for a unique product or service in the local market may help enhance a brand identity although production costs will destroy the business’s profits by low sales volumes and “discount rivals” (Mind Tools, n.d., para. 34-35). Due to the serious disadvantages of Prestige Pricing, the strategy might not be one of the best options for introducing new products of CoffeeHolic.
On the other hand, Market Skimming is believed to “work best during the introductory phase of products and services” (Sonntag, n.d., para. 6) by charging customers a high price for new products. Then the price will be logically lowered to attract a large number of potential customers. Pricing Skimming is also considered “ the best strategy for ensuring that you cover your production costs” and “maximize profits in a market” during the introductory phase (Mind Tools, n.d., para. 27-28). This strategy enables CoffeeHolic to effectively promote “word-of-mouth marketing campaigns” from new customers (Hayes, 2020, When a new product enters the market section), and “the high price interpreted as a sign of high quality” (Hayes, 2020, Firms often use skimming section). Generally, there are some drawbacks to Market Skimming as the future growth of the business can be at stake, and “customers may begin to lose interest” (Mind Tools, n.d., Timing is critical section) because of expensive products and services in the introductory phase. Nevertheless, Market Skimming limits can be removed by price reduction and product improvements after reaching a loyal target audience.
In conclusion, the sales growth of a business is determined by the efficient pricing strategy that works best for that business. And co-owners at CoffeeHolic believe that Skimming Pricing is one of the best options to introduce new products in the local market after considering its advantages and disadvantages.
Price Setting Method - Central Pricing Factor:
As CoffeeHolic’s target customer group is young people from the age of 24 – 35 with fairly average income, the price method of the café is cost-based pricing. All food and beverages on our menu are priced reasonably low, which is similar to the normal prices within the market, ranging from 20,000 VND (approximately $1.20 CA) to 80,000 VND (approximately $4.40 CA). Our idea about price setting for CoffeeHolic are demonstrated below:
The variable cost for all drinks:
• Coffee beans
• Milk
• Fruits
• Eggs
• Water
• Cakes
Fixed cost for a coffee shop:
• Monthly rent
• Labour cost
• Coffee grinders
• Coffee machine
• Blenders
• Juicers
• Decoration
Currently, we expect 80% of our maximum budget to pay for our expenses. Then, the amount of the cost of the beverage will be 100% - 80% = 20% (Wiki book, nd). Thus, we intent to markup a 20% to this average price. This will make our beverages’ prices increase between 25,000VND (~$1.50 CA) and 100,000 VND (~$5.50 CA). Typically, special coffee drinks cost from 40,000VND (~$2 CA) to 100,000VND (~$5 CA) at surrounding local coffee shops. For an additional charge of 5,000VND (~$0.25 CA), our customers can upsize for their drinks. Besides selling beverages, we also offer many different pastries and cakes. With this pricing model, we hope to attract more customers to our place.
Through researching competitors’ price on Foody, this is our competitors’ average price list:
According to Godsmark, Brown, & Arduser (2004), the initial start-up cost for a coffee shop is significantly lower than most other businesses. With that said, we have determined that our central pricing factor is the competition factor. When we get a stable number of customers in the market, we will consider at a price level among our direct competitors such as KAI Coffee, Cheese Coffee, and LaHa Coffee. To attract customers, we will slightly charge less than what our direct competitors are charging for the same product. As a result, this does not only make our store achieve a high volume of sales rapidly, but it also attracts a huge number of customers.
MARKETING STRATEGY
Top 3 effective methods to reach our best customers (target market)
Packaging Our Products:
The first thing that reaches the customers’ eyes is a product’s packaging. Packing includes more than literal packaging (Jackson, 2017). It includes how we pack the products (its design and colours), the brand’s logo and how we present the logo on the menu, brochures, and other places. Packaging will be focused to attract the target customers because the attention to small details can leave a lasting impression on customers (Duke, 2019). The packaging is also an important factor to impress customers who have never tasted our products before, which supports them in whether they want to try a particular product or not. With that being said, paying close attention to packaging will make our beverages and food more appealing and more outstanding from competitors’ products, as a result, our target groups of customers will be more likely to pick our products out from the others (Green Seed, n.d.).
Social Media Marketing:
Social media is a good way to communicate with our existing and potential customers. It helps engage customer's involvement in our brand story from the very beginning. We will approach our customers through social media platforms such as Facebook and Tik Tok, but Instagram is considered to be the most suitable platform as it is more appealing and popular among young people (Most popular social media in Vietnam, 2019). By promoting our brand on Instagram, it will eventually increase our sales. On the other hand, customers who have had experienced well with our service can share the images of our coffee shop and may tag their friends on these pictures. This can be considered a free marketing tool for our end but has an effective impact on our business (Green Seed, n.d.).
Seasonal Deals and Special Offers:
Offering deals and special offers are the third, most effective strategy that we chose for developing our business. Everyone likes it because they feel like they are getting a bargain, especially with their favourite products. We will offer deals on special occasions, such as Tet (Vietnamese Lunar New Year), International Women’s Day, Valentine’s Day, and Christmas Holiday. We also have more products on our menu on these occasions to attract people who want something more special. This will be a great way to maximize the interest of customers in our shop (Green Seed, n.d.). Providing concession for a while is effective to procure a lot of customers to our business. When customers know about the offers of our coffee shop, they tend to come with their family and friends (Duke, 2019).
Top 3 marketing activities and the detailed implementation plan
Making our product’s packaging stands out:
First of all, we will use environmentally-friendly materials for our brand because sustainability is one of our goals and green materials are more suitable for the vintage theme of Saigon in the 1970s that we are heading to. Paying attention to details and maintaining consistency is what we will do next. Paying close attention to details is a key point to make our products and services outstanding. We will cooperate with a professional to ensure that this is going to work out well (The Unique Group, 2016).
Cooperate with influencers/reviewers to promote our brand:
Instagram users love to share their photos and videos about their daily lives. When they see an influencer doing the same, they are more likely to follow. If we get an influencer to post a picture of himself drinking a cup of coffee or eating dessert at our coffee shop, we will soon have a lot of people who want to take photos at the same location and even the same food or beverage item. Another way to promote our coffee shop is to ask the influencers/reviewers to write reviews or create short videos about our products or our service (Panchal, n.d.).
Hosting events at our coffee shop:
Many events attract customers such as Singing Together, English Classes, Workshops, and seasonal/occasional events like Valentine’s Day and International Women’s Day. These are the opportunities to promote special items on menus and offer discounts. The events will be advertised by flyers, posters, and social media platforms such as Instagram and Facebook. These events can help enhance brand awareness and attract more customers (Jackson, 2017).
Top 3 marketing goals for our coffee shop in the next two years
Building brand awareness:
Because our brand is new so building brand awareness is one of the top marketing goals in the next two years (Alexa Blog, n.d.). According to Hollie Higa, every brand has a personality – “a human voice shaped by the tone you strike and the platforms you're using and the subjects or topics you're talking about”. Our goals are to create an atmosphere of the old Saigon in the 1970s for customers and to make it nostalgic and inspirational. Our service is guaranteed to make customers satisfied by engaging and friendly staff as well as paying attention to details. Moreover, our coffee shop is a place that is used for a variety of purposes such as talking with friends, dating, working, or participating in an event. We want customers to recognize us with these characteristics.
Brand awareness can be difficult to keep track of and measure, but we can always review the effectiveness of our activities by checking the quantitative metrics such as social engagement, organic traffic, blog traffic, and overall website traffic. In general, if our brand awareness strategy is effective, we will see traffic increase (Higa, 2020).
Increase customer value:
This marketing goal moves beyond just generating new business. Nowadays, it is even more important to delight our existing customers, keep them happy and, whenever possible, assist them to promote us. Delighted customers will not only visit us again but also refer us to their friends and colleagues (Higa, 2020).
To measure our upsell targets or retention targets, we will evaluate if we are boosting customer value and loyalty over time. With that being said, we will keep track of content that we post on social media platforms and observe to see which promotions/deals that attract customers’ attention most. This will help us know which content is most valuable to our current and new customers (Higa, 2020).
Grow and maintain thought leadership:
“According to research conducted by LinkedIn and Edelman, 60% of decision-makers said thought leadership convinced them to buy a product or service they weren't previously considering”. This goal is different from building brand awareness. Brand awareness is just making our brand be seen, heard, and recognized. On the other hand, thought leadership is making people recognize us as one of the best and trustworthy in the industry (Higa, 2020).
It is not easy to measure the effectiveness of thought leadership. However, it can be easier to measure the success of every campaign related to thought leadership. For example, if we are hosting an event, we can include a small survey at the end to measure how effective the event is (Higa, 2020).
POSITIONING STATEMENT
Understanding that “the positioning statement conveys the value proposition to the brand’s ideal customers” (Hart, 2020, What is the purpose of positioning statement section), we are trying our best to further develop our coffee shop into a preferable place for everybody when CoffeeHolic was established in the first quarter of 2021. For people who just simply desire a place to hang out or relax, CoffeeHolic is an ideal place that offers a great variety of beverages and desserts as well as a retro atmosphere and vintage-inspired decorations, bearing the style of Saigon in the 1970s. For anyone who is a coffee lover, we are committed to serving you the best cups of coffee that are made from high-quality coffee beans in addition to other signature items. With five core members who obtained useful knowledge and experience in related fields, we are committed to delivering high-quality products and professional services to the customers. (Hart, 2020)
THE SALES PROCESS
According to Bryce Sanders, President at Perceptive Solutions, a process for an effective sales cycle usually starts with meeting and communicating with customers. After that, the waitress provides the customers with a menu and recommends the customers with beverages/desserts according to customers’ preferences (if necessary) then takes their orders. Then, the staff in the kitchen will receive orders from the waitress and prepare accordingly. After about 10-15 minutes, the waitress brings the food to customers. The customers then enjoy the beverages/food (this process usually takes about 45-60 minutes). Last but not least, the customers pay and finish the sale. The sale process will be from 15 to 90 minutes depending on the type of beverages/food the customers' order and whether they take out or enjoy in the café shop. (Freshworks, n.d.)
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