Tropical Squeeze: Pricing the New Blend
Tropical Squeeze Ltd makes cold-pressed juices in Bridgetown, Barbados. It plans a 500 ml mango-pineapple blend. Variable cost is BDS$1.40 per bottle. Launch fixed costs, including design and promotion, are BDS$14,000 for the first month. The main competitor sells a similar 500 ml bottle at BDS$3.20 retail. Supermarkets require a 30% margin on the retail price. Tropical Squeeze proposes a retail price of BDS$3.20 and a first-month sales forecast of 9,000 bottles. Its promotion plan is a radio jingle, 1,000 free samples at a food fair, and a 10% discount coupon in a local newspaper. The company has BDS$10,000 cash for launch and must recover launch costs within three months. The owner wants to know whether the price and promotion plan are financially sensible.
1. Calculate producer revenue per bottle, contribution per bottle, break-even volume for the first month, and the forecast monthly profit or loss.
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Retail price = BDS$3.20. Retailer margin = 30% × 3.20 = BDS$0.96. Producer revenue per bottle = 3.20 − 0.96 = BDS$2.24. Contribution = 2.24 − 1.40 = BDS$0.84. Break-even = fixed costs / contribution = 14,000 / 0.84 = 16,666.7, so 16,667 bottles. Forecast sales = 9,000. Forecast contribution = 9,000 × 0.84 = BDS$7,560. Forecast loss = 14,000 − 7,560 = BDS$6,440. The launch does not break even in month one; it needs about 7,667 extra bottles, or lower fixed costs, or a higher contribution per bottle.
2. Recommend whether Tropical Squeeze should raise the retail price to BDS$3.60 or lower it to BDS$2.80. Show your reasoning.
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At BDS$3.60, producer revenue = 3.60 × 0.70 = 2.52; contribution = 1.12; break-even = 14,000 / 1.12 = 12,500 bottles. That is closer to the 9,000 forecast, but the price is above the competitor's BDS$3.20 and may discourage trial. At BDS$2.80, producer revenue = 1.96; contribution = 0.56; break-even = 25,000 bottles, worse. Recommendation: keep the retail price at or near BDS$3.20 for launch, because matching the competitor avoids a price disadvantage. Instead reduce launch fixed costs, seek a lower variable cost, and set a sales target above 16,667. A higher price should be tested only after brand acceptance.
3. Evaluate the promotion plan against the launch budget and objectives. Recommend improvements.
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The plan uses three tools: radio for broad awareness, sampling for trial, and a coupon for price promotion. Sampling is strong for a new taste, but 1,000 samples at 500 ml cost at least BDS$1,400 in variable cost plus staff time. A 10% coupon reduces contribution: 10% of BDS$3.20 = BDS$0.32 retail; if the producer absorbs it, contribution falls from BDS$0.84 to about BDS$0.52, so break-even rises. Radio is expensive for a small launch. Recommendation: keep targeted sampling at supermarkets and food fairs; replace broad radio with social media and in-store demonstrations; use a coupon only with a sales limit. Track redemption and repeat purchase, not just first trial.