Panera Bread has hired you as a consultant to determine the optimal pricing stra

Question

Panera Bread has hired you as a consultant to determine the optimal pricing strategy for its coffee and bagel products. You have determined that Panera has two basic types of customers: those who are hungry and those who are thirsty. Suppose that the customers have the following values for Panera products:

Also, assume that the “target market” has 1 hungry customer and 1 thirsty customer (a simple way of representing equal proportions of each type of customer).

Part 1: If Panera prices the coffee and Bagels separately (a la carte), what is the optimal price and total profit?

Part 2: Can Panera bundle the coffee and Bagels and increase its profit? If so, what are the optimal combinations and prices, and what is the total profit associated with the optimal bundling strategy?

Part 3: Suppose that there are 10 thirsty customers for every hungry customer. Does this change the optimal bundle?

Explanation / Answer

They have to price $1 for cofee and $2 for bagel. the optimal profit is (1-.25)+(2-.4)=$2.35

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