A family-owned manufacturer makes a portable solar lantern for rural markets where electricity supplies are unreliable. A field trial found that customers v...
Question 1 Report
A family-owned manufacturer makes a portable solar lantern for rural markets where electricity supplies are unreliable. A field trial found that customers value long battery life, but many have low and irregular incomes. Imported lanterns sell for $18 to $22. The manufacturer’s variable cost is $11 per lantern and it must also pay fixed manufacturing costs. Its objective is to build a trusted product brand over two years, not simply make immediate sales.
(a) Identify one product feature that meets the customers’ need described. [1]
(b) What is meant by variable cost? [1]
(c) Show the contribution per lantern if the business charges $20. [2]
(d) Which price objective is most consistent with building a trusted brand: premium image, survival, or closing the business? [1]
(e) Explain two reasons why the business should compare its proposed $20 price with imported competitors’ prices. [4]
(f) Explain two ways the manufacturer could differentiate its lantern without lowering its price. [4]
Answer Details
(a) A long battery life meets the need caused by unreliable electricity supplies. A rechargeable battery or solar charging panel is also acceptable. [1]
(b) A variable cost is a cost that changes as output or sales change. [1]
(c) Contribution per lantern is selling price minus variable cost:
\[\$20-\$11=\$9\]
The contribution is $9 per lantern. [2]
(d) A premium image objective is most consistent with building a trusted brand. [1]
(e) The manufacturer should compare $20 with imported prices for two developed reasons:
- Customers can compare similar lanterns selling for $18 to $22. If the price is much higher, sales may fall, particularly because many customers have low and irregular incomes and are price-sensitive. [2]
- Competitor prices help the business position its product as value for money. This helps it avoid a price that damages market share or its objective of building a trusted brand. [2]
(f) Two ways to differentiate without lowering price are:
- Provide a longer warranty. This reduces perceived risk for customers and helps build trust in the brand. [2]
- Improve durability or water resistance. Customers see greater value and may choose the lantern over imported alternatives. [2]
Local repair service or clear local-language instructions, each linked to added value or trust, are also acceptable differentiated methods. [4]
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