Identify and explain one reason why a business may not always respond to a competitor's price cut by matching it. CedarCraft makes handmade wooden toys and ...
Question 1 Report
Identify and explain one reason why a business may not always respond to a competitor's price cut by matching it. CedarCraft makes handmade wooden toys and sells through its own website. A mass-market manufacturer has reduced the price of plastic toys before a holiday season. CedarCraft's objective is to maintain profit while building a reputation for durable products.
(a) Identify one reason why CedarCraft may be unable to match the mass-market manufacturer's price. [1]
(b) Explain one alternative competitive response CedarCraft could use. [2]
(c) Which one of the following would best support CedarCraft's reputation: show product durability in videos, use lower-quality wood, remove customer reviews or stop after-sales service? [1]
(d) Explain why maintaining profit may be more important than matching every competitor's price. [2]
Answer Details
(a) CedarCraft may have higher unit costs because it makes toys by hand on a smaller scale. [1] It cannot necessarily obtain the low costs available to a mass-market producer.
(b) CedarCraft could show the durability and craftsmanship of its toys in promotion. [1] This differentiates its handmade toys from cheaper plastic toys and can justify a higher price to customers who value quality. [1]
(c) Showing product durability in videos would best support CedarCraft's reputation for durable products. [1] Lower-quality wood, removing reviews, and stopping after-sales service would weaken rather than support this reputation.
(d) A large price cut reduces the revenue earned per toy and may not be covered by lower costs. [1] CedarCraft could then make a loss or lack the funds needed to continue operating. [1] A business should respond to competition in a way that supports its objective, which here is maintaining profit.
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