Pricing
Copper Kettle Cafes, a 38-store coffee chain in the Pacific Northwest, must decide whether to raise the price of its flat-rate coffee subscription and the list price of drip coffee for walk-in customers.
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Copper Kettle Cafes runs 38 stores in Washington and Oregon. The chain's core drink is drip coffee, listed at $3.20 per cup for walk-in customers. Fourteen months ago the chain launched the Morning Ritual subscription: $21.99 per month for unlimited drip coffee, joined from the mobile app. The program now has 12,400 active members, and the marketing team credits it with daytime traffic and predictable revenue.
The finance team is worried about two things. First, the wholesale cost of a drip cup (beans, milk, cup and lid) is $0.46, and members are drinking more every quarter; the average member consumed 14.6 drip cups last month, up from 11.9 a year ago. Second, green coffee prices are rising, and the chain's margin pool needs to grow by roughly $15,000 per month over the next year to absorb the increase without touching food margins.
Two candidate moves are on the table: raise the subscription to $23.99 per month, which the member survey suggests would push about 8% of members to cancel, and raise the walk-in drip price from $3.20 to $3.40, which the category benchmark suggests would cut walk-in drip cup volume by about 3%. You need to advise the CEO on what each move does to the drip margin pool, and what to recommend.
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