Running Case This Bar Saves Lives(TBSL): Pricing Under Pressure

Uh-Oh, We Got A Meeting, Now What Do We Do?

The TBSL team had discussed at great length whether to go after Target as a seller of their bars since Target's customer base wasn't a perfect fit for their product. The discussions came to a head, however, when they received an email from a Target executive agreeing to a meeting. The TBSL team stared at the email, not sure whether to cheer or cry. In spite of the difficulty getting a meeting, they had actually managed ita meeting with Target purchasing.

As a major retailer that enjoyed mass market appeal (and sales), Target was considered a potential golden goose that could make or break TBSL. On the one hand, the team knew that if they could put TBSL bars on shelves at Target, they had a chance to make the brand into a household name and generate nationwide sales, which would not only help them make a decent profit but would also mean significant aid to malnourished children across the world. In fact, significant Target sales could mean TBSL might be able to increase its ambitious aid goals. Food aid would reach new heights the team initially thought were only a remote possibility.

The meeting was a week away, but the team was nervous, considering the importance of this discussion. Truth be told, most of the team members thought this meeting would be a make or break event for the company. Failure here would signal to the team that something was wrong in their plan. The initial plan was to try to get an inroad with Starbucks, the primary focus on the marketing plan, but later to extend into more traditional quality outlets such as Whole Foods. Target was considered a wild card by TBSL. It offered higher sales than Whole Foods or other higher end markets, but had a reputation for decent quality, if not high-quality products. The question for TBSL was whether the high-end image could be maintained in Target, given that Target was focused on delivering valuegood quality for reasonable prices. Could TBSL sell for a high enough price to make a quality statement while still fitting within Target's pricing structure for bars? One thing TBSL knew. If Target could not get the right price on the shelf, it would not take the product. Target has a very strict sales rate they expect, and specialty products that do not sell fast enough at the right price are not considered viable options in its stores. The product and price combination has to work or it will not carry the product. The meeting was on a rainy Monday, and the team hoped the weather was not a reflection of how the meeting would go. It was wishful thinking.

Value Pricing At A Discount

The Target team consisted of five people, who entered the room as a group. The meeting occurred in a conference room with Target's team taking up one end of the table. TBSL's team sat together and had discussed their strategy beforehand. In fact, they had been selling successfully in Starbucks in California for over a year at $3.99 per bar. The TBSL team felt this would be a significant selling point to Target since most bars sold at Target in a box for between $3.00 and $6.00 per box of between 4 and 6 bars. TBSL felt this would allow them to convince Target to provide a higher end product that raised their prices in the bar category. Unfortunately, this was not the view of the Target team.

1. Target: Well, I see that you have been selling some units in Starbucks for $3.99. That's great for a high-end retailer, but we are a volume retailer that provides good quality at a good value. We want to offer customers good products, but at a great price. Your product is really goodwe've sampled the bars you sent, and it would fit our high-quality image. So, it just becomes an issue of whether or not we can agree on price. What were you thinking for an assortment and price combination to sell in our stores?
2. TBSL: Well, we sell single bars for $3.99 at Starbucks in California and have a deal to expand to additional stores in neighboring regions within the next 612 months.
3. Target: That's great. It will help exposure and there is definitely some overlap between Starbucks customers and Target customers. But you know that we pride ourselves in offering quality products for a reasonable price. So, for bars, even as good as yours, and they are good, we've tasted them and they are some of the best we have ever tasted, we are thinking we need you to be somewhere in the five bars for $4.99 price range. At that level we feel we can sell a lot of bars, which would make us and you happy, assuming of course that you will give us the standard 20% margin that we get for good brands. So, what do you say? Can we put this thing to bed and add This Bar Saves Lives to our list of great brands? We will, of course, support the brand with promotion, and I would think you would be featured a couple of times a year in our insert. What do you say? Pretty easy decision I think, are you in?
4. TBSL: (after a minute to sort through the infoalways a good idea, by the way) We are truly grateful for the opportunity to partner with Target. It is one of our goals to get our tasty bars, and more importantly, our mission of helping malnourished children, out to the mass market, and Target is a retail pillar for folks who care about good-quality products at a value, but also care about broader social issues. For us, Target is in some ways a perfect fit.
5. Pause (strategic delay for effect)
6. TBSL: However, as you know, our bars are made from premium ingredients and taste good. Good enough to have Starbucks customers paying $3.99 per bar. We are gluten free, organic, locally sourced, and made from premium ingredients, so super high quality against any standard. Our idea is that you can increase your price level for bars by adding our bars to your assortment. Now you can charge more for good bars and raise prices.
7. Target: Well, we agree with some of your points. Your bars taste good. Customers will like them. We need a high-end bar to set the standard for the group. But
8. Pause (for equally dramatic effect on their side)
9. Target: While we agree that your bars are some of tastiest and healthiest around, Target customers want a good value, which means we have to have a maximum price of $4.99 per box. It doesn't matter whether you have 4 or 5 or 6 bars in the box, under $5 is all that matters.
10. TBSL: We are a premium bar with quality ingredients
11. Target: Yes. That's why we are interested in carrying your bars as new product, but it still needs to fit in our overall plan. And, you need the volume. Think about it and let us know within a week whether you want to do business. At best, we could do a $4.99 per box of 4 bars for you, but that is about as good as we can do. Here is some data to help you make your decision based on bars we currently sell. As you can see, your $3.99 per bar price might work in a specialty retailer, but here, that is totally impossible. Take a look at the data below, and let us know what you want to do next week. Let's meet Tuesday to set a plan.

    Offer	Kind	Luna	Goodnessknows	Lrabar	Cliff	Nature Valley	Kashi
    Bars	4	6	5	5	6	6	6
    Ounces	1.4	1.69	1.2	1.6	2.4	1.2	1.2
    Price	$4.99	$5.99	$5.79	$4.99	$4.99	$3.14	$2.99

What To Do??

The TBSL team agreed to a follow-up meeting within the next week. However, the team knew it would be difficult to make a decision on what price they would accept (if any). They worried that if they didn't agree to Target's suggested price that they would lose their chance to sell through Target, which would mean they would either have to find another retailer (and none were as large or important as Target) or give up on national retail, which accounted for 30% of all grocery purchases, including bars. Aboard the airplane heading home from the meeting, they pondered what made the most sense. Pricing was proving more difficult than they had anticipated.

Running Case Questions

1.Does it make sense that TBSL approached Target to begin with, given TBSL's premium product positioning? Why would TBSL consider Target as a retail outlet?

2.Do you think TBSL would consider dropping the deal and forgoing a chance to end up on Target's shelves? Would this be entirely bad?

3.What information do you take from their analysis (as represented in the chart)?

4.Who is TBSL's primary competitor for Target shoppers?

5.Do you think TBSL should create a new or distinct product to sell through Target, and what are the pros and cons of doing so?

6.What price or package combination (number of bars) do you recommend for TBSL given the scenario, and why?

*PLEASE no plagiarism and not copy other cheggers answer, I've seen the other answers and they are math solutions I DON'T NEED MATH for this, I keep getting the wrong answer