The Price is Right. Or Is It?

By Ric Rhinehart

Over the past two years the rising cost of coffee (and almost everything else) has us asking: What is the right price for a cup? As a trade association we cannot and will not recommend a price for a cup or a pound, but we can explore how coffee retailers can and should arrive at their own pricing decisions.

First of all retailers should know that there is nothing new or groundbreaking about the paradigm for pricing—everything here has been said before. An article 20 years ago would have laid out the same fundamentals of pricing as it relates to business. But then again, 20 years ago most Americans had never had a cappuccino, most of us probably had more money in our 401K, the price of coffee was less than half of what it is today, and banks were still lending money. Which still leaves us with: What is a reasonable cost for a cup of coffee?

Before one can answer the basic pricing question, it’s necessary to establish a business plan, beginning with hard questions such as: Do customers want or need your product and will they be willing to pay for it? If so, how much will they pay and what is the competitive landscape like? Are there others who sell the same or a similar product? What competitive advantages can the business enjoy? How elastic is pricing and demand for this product? How large is the market and can it be expanded? How will the product be marketed effectively? All of these questions are worth answering before launching any business; The more entrepreneurs know about how their product will fit into the market, the better their chances of success.

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