Transcript of "Pricing Strategy - Comparison of 7/11 and Cold Storage"
MICROECONOMICS – 2 - ASSIGNMENT
Pricing Strategy – Comparison of 7/11 and Cold Storage
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• Introduction : -
7-Eleven, Inc. is the world’s largest chain of convenience stores, with over 400
stores in Singapore it is the most omnipresent store in Singapore. Originally the
stores were open from 7 a.m. to 11 p.m, and hence derived the name. However,
today, the cornerstone of 7-Eleven’s business is to offer customers 24-hour
convenience, seven days a week. 7-Eleven is a convenience store focused on
catering to the needs of convenience oriented customers by providing a range of
fresh, high quality products and services at any time during the day or night.
Cold Storage is a premier player in retailing and has over
36 stores all over Singapore. It offers a comprehensive
range of quality products at reasonable price and also
provides various schemes to attract customers. Some of the
weekly schemes offered are : - Great Fresh Savings,
SuperBuys, No Frills & First Choice. Being a leading
discount supermarket chain in Singapore Cold Storage
exemplifies quality, huge range of products at competitive
• Comparison of Pricing Strategy : -
Products 7/11 Cold Storage
Ruffle Lays BBQ Style SGD 6.25 SGD 3.65
Seasons Limón Ice Tea (500 ml) SGD 2.50 SGD 1.20
Pepsi (500 ml) SGD 1.30 SGD 1.20
Magnolia Fresh Milk (1l) SGD 3.85 SGD 3.70
The above table is a comparison between the prices of various products in 7/11 and Cold Storage. The
comparison of prices of these products shows that the pricing of 7/11 is higher than that of Cold Storage.
• Analysis : -
Average Cost / Marginal Cost : -
7/11 being a convenience store is open 24 hours a day and 7 days a week. It is a small shop and stocks
lesser goods as compared to Cold Storage. Also, there are over 400 7/11 stores in Singapore as compare to
36 Cold Storage stores. Cold Storage on the other hand is a huge retail store with more emphasis on quality
of goods and operates from 9:00 am to 10:00 pm. It also stocks a huge amount and variety of goods
catering to various market segments.
Hence, it can be inferred that the Average Cost that 7/11 incurs on each product is higher as compared to
that of Cold Storage.
As depicted in the above figures the Average Cost of 7/11 is higher than that of Cold Storage. Hence, in
order to make profits 7/11 has to ensure that that its Price is above the Average Cost.
Price Elasticity of Demand: -
As stated previously 7/11 is a convenience store open throughout the year and omnipresent throughout
Singapore. However, Cold Storage has fixed store hours and is not as ubiquitous as 7/11 is. Hence, 7/11 is
extremely suitable and sometimes the only option available for people. Hence, when no other options are
available the Price Elasticity of Demand will be less. And lower the Price Elasticity of Demand higher
would be the price. Similarly, when Cold Storage operates there are other competitors like Fair Price and
7/11 also present; hence its Price Elasticity of Demand will be High. Higher the Price Elasticity of Demand,
lower would be the price.
This is also one of the reasons why 7/11 prices its products higher than Cold Storage.
Fixed Cost / Variable Cost: -
For reasons mentioned above, the proportion of Fixed Cost as compared to Variable Cost is smaller for
7/11. Hence, in order to increase profits, 7/11 cannot reduce its price. On the contrary the proportion of
Fixed Cost as compared to Variable Cost is larger for Cold Storage. Hence, in order to increase profits it
could reduce its price.
Hence, given 7/11’s high Variable Cost the Price has to be maintained high.
Consumer Surplus : -
7/11’s strategy is to make best use of the Consumer Surplus available and hence prices its commodities
high. Being easily available at any time of the day the Consumers are willing to pay a little higher for the
commodities. On the other hand, Cold Storage’s strategy is to increase market penetration by maintaining
lower prices and providing various weekly schemes and offers to attract customers.
The adjacent figure depicts that 7/11 has priced
its product at Ps to make best use of the
Consumer Surplus available. Whereas, Cold
Storage reduced its price and offered more
schemes to increase market penetration.
Hence, 7/11 has priced its products higher as
compared to Cold Storage.