Ch. 7— Pricing Strategy

Kristy PhillipsAdolfo EscalanteMauricio Ramos

• With the economy in a point of a recession, high priced items such as organic products are seeing a drop in sales.

• Due to the drops in sales, retailers such as Whole Foods Market is facing difficulties of motivating customers to remain purchasing organic with the raise in prices.

Falling profits and stock price off 20% in 2008.

Problems

Reasons Why Organic Prices Are Rising

Energy and Commodity prices: corn farmers are using their crops to

turn it into ethanolCorn, grain, and soybeans at record

prices is causing farmers to grow conventionally

With less organic farmers, prices will become increasingly high due to the lack of supply and variety.

“Organics is becoming the private school of food”

• Only 27% of shoppers thought organics were worth the money—even though most agreed they are healthier (WSL Strategic Retail Survey)

• Only 1 out of 5 organic shoppers is a “hard-core devotee” Would rather buy less quantities of organic

products than purchase non-organic

Perceived Total Benefits VS. Total Price

BENEFITS

PRICE

• Personal satisfaction and Eco-friendly tactics• Better for consumption

• NO hormones, GMO, or pesticides• Health

• Purchase price• Time and effort to find and buy

Elastic VS. Inelastic Demand

Majority of the PublicSmall increase in Price Demand drops significantly Elastic

Availability of substitutes Bad shape of U.S. economy Comparative pricing

“Hard-Core Devotees”Small increase in Price Demand drops slightly Inelastic

“The cost of feeding myself processed foods is far greater than the cost of organic foods.” Product’s perceived quality, status, or benefits justifies price

Solutions/Recommendations

1. Sell bundles of products at a discount

2. Give suppliers (farms) incentives to stay organic

3. Reduce operating costs to achieve competitive pricing. (Not too low or else demand will suffer)