Follow these 2 steps to pricing for repeat purchase and maximum gross profit.
We’ve all been there. Any time you price a product, you never want to leave money on the table. But you also never want a table that excludes your product.
Here are 2 steps to setting the right price:
1. Determine frequency of purchase.
This involves basic marketing research at your stores or online. Customers can self-report frequency of QSR visits and their frequency to your brand. During a month, you’ll see a range from one visit to more than eight to your brand and up to over 20 total QSR visits per month.
2. Determine how much customers spend.
A self-report by customers will show thoughts on average spend per visit. If it’s inaccurate, it’s an indication of the amount they feel comfortable spending.
Now combine the results of these two pieces of information. Calculate a total spend for light, medium and heavy users and your brand’s share of that spend.
When price setting, keep in mind, total spend amount is the ceiling. It’s not wise to assume that the customer will spend above that level. You can assume that you can gain a higher share of the spend.
Consider this current example: Vitamin Water.
Obviously not a QSR brand, but their recent pricing strategy is extremely visible and effective. It’s an ideal example you can apply to your brand with ease.
Here’s a brand that was first sold at $1.50 per bottle, then was raised to $2.50. They achieved a modest market share because it was a new and different product. However, product consumption was low due to the high price.
To combat this low-frequency consumption, the company began selling three bottles for $3 on a regular basis. The key to this pricing structure is that it completely changed consumer consumption patterns: on the surface, it’s a discount, but if you look deeper, it’s a strategy to increase product consumption. Now, a consumer buys six or twelve bottles per purchase and drinks it more frequently because the price seems more reasonable.
The penny profit per bottle is lower. However, the gross margin per purchase is much higher. Consumption is more frequent. Brand loyalty builds market share, and gross profit increases.
There are other strategies for all brands. But when you understand your consumers’ spending and frequency of consumption habits, you can set prices that maximize both.