How the Boba Guys Got the Price Right

“Five dollars? We could get an awesome burrito with that kind of money. That will never fly.”

Pricing may be the most sensitive topic in all of business. The way a business makes pricing decisions ultimately reflects its core DNA. Is it straightforward? Is it mechanical? Is it opportunistic? In the spirit of transparency, we will open up our kimonos a bit and hope for the best.

In big business, pricing is seen as a science. It is framework-heavy, using models like cost-plus, competitive assessments, and willingness-to-pay metrics. However, we have always leaned toward the notion that business is less science and more art, particularly for small businesses like ours. We see pricing as a form of communication. It conveys a message to a customer.

First, we looked at the current “going rate” for quality boba and thought about where we could position ourselves. In San Francisco, we determined that the going rate for good bubble tea was around $3. However, we were quite aware that some places had bubble tea for $1! This approach didn’t get us very far. It was all based on subjective criteria—the “going rate” depends on the person, and given our decision not to emulate other businesses, there was no applicable benchmark.

Then, we wrote a list of pricing options and outlined the pros and cons of each. At $3, we were at par with the market price, but the economics simply did not work. We had several premium ingredients—milk, tea, and syrup—that were more expensive than the average bubble tea shop. Although we could have compromised on one or two of the ingredients, we felt strongly about committing wholeheartedly to quality milk tea by keeping all of the ingredients “top-shelf.” It just so happened that we were both reading Steve Jobs’ biography and agreed with his philosophy of preserving quality for things unseen, like the back of a cabinet.

We then began weighing two other options: $4 and $5. $5 just seemed too steep. We thought to ourselves, “Five dollars? We could get an awesome burrito with that kind of money. That will never fly.” After much deliberation, we found ourselves in the range of $4. We knew that the high-quality boba places in other regions, like Southern California, charged as much as $4.50. We toyed with the extra $.50, but that meant we would need to carry change. Sometimes, common sense is all you need. When we told our mentors about the final price at launch, they all said, “I could’ve told you that.”

Even when we locked in the price and opened for business, we had the occasional moment of regret. We knew that some customers would simply compare us to other, lower-priced bubble tea establishments. That's when we though back to the beginning. We wanted to tell our story and not be anchored by existing perceptions of bubble milk tea—a message that we want to convey through our price. If we had concentrated too hard on what others were doing, we would have lost sight of what was meaningful to us.

We hope that gives our readers a glimpse of what went on in our heads. One aspect of pricing that we didn’t cover is margins, but we will save that for a later conversion when we revisit what we will do with our profits.

The Boba Guys share their adventures in food enterprise every Monday.

via Barry Schapiro / Twitter

The phrase "stay in your lane" is usually lobbed at celebrities who talk about politics on Twitter by people who disagree with them. People in the sports world will often get a "stick to sports" when they try to have an opinion that lies outside of the field of play.

Keep Reading

The Free the Nipple movement is trying to remove the stigma on women's breasts by making it culturally acceptable and legal for women to go topless in public. But it turns out, Free the Nipple might be fighting on the wrong front and should be focusing on freeing the nipple in a place you'd never expect. Your own home.

A woman in Utah is facing criminal charges for not wearing a shirt in her house, with prosecutors arguing that women's chests are culturally considered lewd.

Keep Reading

In August, the Recording Academy hired their first female CEO, Deborah Dugan. Ten days before the Grammys, Dugan was placed on administrative leave for misconduct allegations after a female employee said Dugan was "abusive" and created a "toxic and intolerable" work environment. However, Dugan says she was actually removed from her position for complaining to human resources about sexual harassment, pay disparities, and conflicts of interest in the award show's nomination process.

Just five days before the Grammys, Dugan filed a complaint with the Equal Employment Opportunity Commission, and her claims are many. Dugan says she was paid less than former CEO Neil Portnow. In 2018, Portnow received criticism for saying women need to "step up" when only two female acts won Grammys. Portnow decided to not renew his contract shortly after. Dugan says she was also asked to hire Portnow as a consultant for $750,000 a year, which she refused to do.

Keep Reading