Frozen Yogurt – Low Fat, High Price?
Summer has officially arrived and frozen yogurt is on our minds – pricing of frozen yogurt, that is.
We have noticed a flurry of new frozen yogurt store openings recently and thought it would be a timely topic to investigate. Besides being low in calories, the main attraction seems to be the do-it-yourself nature of the business model. If you have not been to one, here is how it works:
- You take a really large (one-size-fits-all) cup from the dispenser and fill it with your choice of various soft serve frozen yogurt flavors from a self-serve dispensing machine – you control how much you dispense.
- Then you go to the toppings bar and choose from a wide variety of toppings, including fruits, syrups, M&M’s sprinkles, etc.
- When you are all done, you go the check-out counter (usually staffed with cheerful high school kids) and your custom creation is weighed to calculate the total, priced at around $0.59 per ounce.
So what does all this have to do with strategic pricing, you may ask. Plenty, and here is why:
Innovative price structure:
- Unit of measure: Unlike traditional frozen yogurt shops, which sell by size tiers, i.e. small, medium, large, these new fro-yo places charge by the ounce, a much finer, granular unit of measure.
- Tiered Fixed vs. variable: While the traditional stores charge fixed prices at three different size tiers, e.g. $2.95 for small, $3.95 for medium and $4.95 for large, these new stores charge on a fully variable basis by weight..
- I am in control: This very much appeals to kids of all ages and provides the ability to personalize the product, a trend we have observed in many other industries such as sneakers and tee shirts.
- I am getting a deal (not): We have been trained that do-it-yourself businesses usually charge less than full service businesses. So you expect to pay less here than at traditional stores. Not so, on a per ounce basis traditional stores are usually cheaper ($0.29-0.39 per ounce). But because it is very hard to make that comparison, consumers default to what they have learned: self-serve is cheaper than full-serve.
- The eyes are bigger than the stomach (and wallet): Providing only really large cups leads customers to “over-buy.” It is really hard to not fill the entire cup – believe me, I have tried. And, last but not least, you have no idea how much it will cost you until it is too late, i.e. at checkout!
The checkout counters are equipped with high tech scales that weigh, calculate the price and are tied into the cash register. It seems obvious, but without this equipment the pricing model would not work. An example of the importance of price execution.
Price structure adjustment due to market forces
Recently, our local outlet started to advertise “have your cone and eat it too.” While it had been cup-only, now they were offering frozen yogurt in a cone. I can only assume that this was in response to those consumers who wanted their frozen yogurt in a cone (like me). But how does that work with the variable pay-by-weight price structure? It does not – it is really hard to weigh a cone, it will mostly likely fall over and make a big mess. So management made the logical decision to change its price structure for cones and charge a fixed amount per cone: $3.99 regardless of how much you fit in it. The price point it well chosen, as it is really difficult to put more than 6 ounces in a cone, so selling a cone is actually more profitable than selling the same amount in a cup (6 x $0.59 = $3.54) . This is an excellent example of how market realities and an inability to execute (i.e. weighing cones) demanded an alternate pricing structure.
We hope this has whetted your appetite for frozen yogurt and better pricing. If so, call us. We’d love to share our expertise with you in the latter while savoring the former.