Breadmaking 101: pricing for profits

Journal of Critical Incidents

"Cost and prices, time for the numbers. What should I do?" A few weeks ago Karen Faulkner finalized the purchase of a bakery which specialized in bread. The prior owner had decided to sell the business because it lacked profitability. There were plenty of customers which suggested to Karen that the problem was with costs or pricing. The last price increase on any of the products was in 2002, ten years ago. Karen thought she could turn things around and would start by repricing her products. "This isn't a hobby, it's a business and if I don't get this right, there won't be a store." Karen was overwhelmed, but she decided to start by repricing the signature product--the honey wheat loaf. "I'll start with the honey wheat loaf; it will be a 'pricing beta test'."

Notes and numbers were spread out on the table so that Karen could figure out costs and margins. Once she estimated cost, the difficult decision would be to decide on a price. A loaf of honey wheat still sold for $5.25.

If the price needed to increase, what was the best price? What price would cover costs and keep customers buying loaves? Was it better to raise prices incrementally or all at once to avoid sticker shock? What were her alternatives? Analysis the alternatives.