A COUPLE OF SQUARES: PRICING FOR THE FUTURE Harvard Case Solution & Analysis

A COUPLE OF SQUARES: PRICING FOR THE FUTURE Case Study Solution

Problem Diagnosis

Bernadette Erb, the marketing manager, co-founder and the co-owner of the ‘A couple of Squares’ bakery was struggling with the pricing of the products of the bakery in 2012. A number of developments had been experienced by the company over the past several years and they have also sought equity injection by George Gallant back in 2009, who owned 60% of the business however, now both the partners were looking to buy back the portion of the company by growing the company and sustaining its sales.

The owners were also looking forward to expand the company either through direct to consumer sales or internationalization. In order to achieve all the above goals, the company had to increase the sales revenue for the company to around $ 1.8 million in 2013 and profits to around $ 162,000 by growing the business 45% more. The company needed to address the pricing issue by developing a new pricing strategy for sustaining the cash flow and profitability of the bakery.

Case Analysis

The owners of A Couple Squares Pricing bakery were faced with three critical issues that needed to be addressed right now and these are:

  • Developing the right pricing strategy for the bakery products.
  • Increasing margins by reducing the operating costs.
  • Growing the company to buy back the portion of the business from the silent partner.

Currently, the industry where the bakery operating has a low bargaining power for its buyers. The retailers have set a margin of 100% of the price of the company’s products while the margins of 5% and 10% for large and small customers of the bakery are completely out of proportion. The close competitor of A couple of squares bakery charges much higher price than the average $ 1 price of the bakery’s products and this shows that the company is not competing on the basis of price. The overhead expenses and the labor costs are the main costs of the bakery and this is the reason of doing all the work by hand that has resulted in large number of the labor hours. Secondly, some of the decisions such as buying used machines in the past had also went wrong for the operations of the bakery (Walker, 2006).

The cost of manufacturing the bakery products does not seems to be in line with the costs of the industry standards. Furthermore, the market potential for the iced candies seems to be limited and after achieving revenues of 2 million in 2013, the company will have to expand the sales of new gourmet cookie to boost the revenues and profits. This would also reduce the labor costs for the company for producing such low cost products. The control of the business for Erb and Bradshaw is also currently limited, therefore, the first goal is to change the pricing strategy and achieve the revenue and profit targets and accumulate cash flow (Walker, 2006).

Recommendations

The recommendations for Bradshaw and Erb are as follows:

  • The current average price of each cookie for the bakery is around $ 0.91 as computed in exhibit 1 in the appendices. It should be increased by 38.46% in 2013, 11.11% in 2014, 75% in 2015, 42.86% in 2016 and then it should average at annual growth of 41.86%. At the target selling prices, the company would be able to achieve the target revenue in each year (Slater, 2001).
  • The selling price growth in 2015 is 75% which is huge however, this would be achieved by the expansion of the new gourmet cookie business by 100%.
  • The profit margin should be set at an average rate of 9% for all the customers to achieve the profit target of $ 162,000 in 2013 as shown in exhibit 1.
  • Furthermore, since the work in decoration department is highly manual, therefore, investments for new machines should be made for the packaging department to reduce the labor hours and labor costs (Suroweicki, 2009).
  • Management should make investments from its $ 49,000 credit card debt and line of credit.
  • The new machines and reduction in labor costs would reduce the operational costs and enhance the operational efficiency.
  • Once, the business grows to $ 10 million till 2020, then the owners should buy back the portion of business from Gallant.....................

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