Choosing pricing for a new café — 9-mark recommend

Edexcel 1BS0 Paper 2 style

"BeanTown" is a new independent café opening in a town with 4 established competitors (Costa, Greggs, Pret, and one independent). Coffees in the area sell for £2.80–£3.50.

Recommend a pricing strategy for BeanTown. Justify your recommendation.

[9 marks]

AO1 (up to 3 marks):

• Competitor pricing matches market norms (B1).
• Penetration pricing sets price below market to capture share (B1).
• Loss-leader pricing uses below-cost items to drive footfall (B1).

AO2 (up to 3 marks):

• BeanTown faces 4 established competitors — entering at the highest end (£3.50) would deter trial (B1).
• Penetration pricing at £2.20 builds awareness and footfall but margins suffer (B1).
• Loss-leader (e.g. £1 espresso) draws trial; customers may then buy food/cake at full price (B1).

AO3 (up to 3 marks):

• Pure penetration risks attracting only price-sensitive customers who switch back when the price rises (B1).
• A loss-leader on coffee with strong full-margin food/cake offering captures both trial AND profit per visit (B1).
• Justified recommendation: combine introductory promotional pricing (e.g. "£1 espresso for first month") with normal-price food and pastries — generates trial without permanently undercutting positioning. Reposition to competitor pricing after month 1 once a customer base is established (B1 supported recommendation).

Total: 9 marks.