Fig. 6 shows a product-development timeline for two firms in the reusable-drinks-container sector. EcoSip launched a bottle with a built-in filter in March....
Question 1 Report
Fig. 6 shows a product-development timeline for two firms in the reusable-drinks-container sector. EcoSip launched a bottle with a built-in filter in March. Its rival, FreshFlow, plans to launch a similar product in July. Both firms have spent money on design, testing and advertising. EcoSip believes it can keep a high price until FreshFlow enters the market. Consumers have been reading online reviews and may compare the quality, warranty and price of the two products. The figure was prepared for an economics lesson on how firms respond to competition.
(a) Identify which firm enters the filtered-bottle market first. [1]
(b) Define product differentiation. [2]
(c) Explain why FreshFlow may decide to differentiate its product rather than copy EcoSip exactly. [3]
(d) Explain two possible disadvantages to EcoSip of spending heavily on advertising after July. [4]
Answer Details
(a) EcoSip enters the filtered-bottle market first. [1]
(b) Product differentiation means making a product different from competing products through features, design, quality or branding. [2]
(c) Differentiation may attract a separate group of consumers, make direct price comparison less likely, and enable FreshFlow to gain sales or market share despite EcoSip's earlier entry. [3]
(d) Heavy advertising raises EcoSip's costs and may reduce profit if the extra sales are insufficient. FreshFlow may respond with its own advertising, creating costly promotional rivalry. Also, consumers may not respond much if the products remain close substitutes. [4]
Download The App On Google Playstore
Everything you need to excel in your exams
