• Responding to Competition

• Your company has recently begun to lose its share of the market due to competition from a new firm which charges customers less. You have been asked to suggest ways of solving the problem.

• Discuss and decide together:

• How advertising could help the company to deal with competition

• What types of incentives the company could offer to customers

• A: You know our sales have fallen a lot during the past quarter.

• B: Yes, one of our competitors is charging a lot less than us.

• A: I know. It is a new company in this line of business. We really need to do something about it.

• B: What do you think we can do?

• A: I think we can launch an advertising campaign to promote our product.

• B: Yes, it’s good idea. But that will surely add to our cost and there push up our prices.

• A: I know what you mean. Price is a major consideration when a customer decides on a purchase. But there are certainly many other considerations on their part, for example, quality and after-sales service. Also advertising will boost our product image. You know some people only like to buy products they’ve heard of.

• B: That makes sense. Ours is high quality product and our after-sales service is good enough, I think. That’s why we are charging a higher price than our competitors. So we should emphasize our quality and after-sales service in our ad so that…

• A: So that people will try our products out of curiosity and then get to know the high quality of our product and after-sales service and then more people will buy our products.

• B: But I am still worried about the price. You know customers always like low prices.

• A: Yes, indeed. In fact, we can cut down a bit on our price. You know when sales increase after our advertising, we are likely to increase our total profit even if we slash our price a little bit.

• B: Yes, a low price high volume strategy.

• A: That’s it. We may even consider some other incentives, such as a coupon to go with our newspaper ad, and…

• B: And I think we can offer free delivery for our customers.

• A: Yes, but we cannot afford to offer free delivery for all our customers.

• B: Only those who are within the free delivery area, I think.

• A: OK, not a bad idea.