The only significant alternative for T-30 (Triaxx-30) is to shift to a new supplier Calhoun & Pritchard Inc. As a result of this, Beauregard loses its market share. The market share was stable for the past three years. The data shows that some customers are price sensitive. These customers shifted to the low-cost supplier immediately. Calloway (Sales Manager) believes that if the company does not change the price back to $3 then these customers will never buy T-30 from Beauregard in future. This point is the problem to find a solution.
The actual sales in 1988 were 100,000 yards in volume. It was constant in 1989 and 1990; the sales came up to 150,000 yards. The total cost when 200,000 yards is in the manufacture to the company is $3.102 per yard. The company is planning to increase the cost by almost a dollar.
Increasing the cost will make the company lose its valuable consumer base. If the company continues to charge current prices, the order book will not show a profit. A company can reduce the price back to $3, but it is below the company cost. This pricing strategy will be lower than the company cost. The customers might come back with price parity because of the location advantage. And dropping the price from $4 to $3 won’t affect the sales of any of their other products. The company is in a tight financial situation. The company has also not sold the products below $3 in the past. The demand has come down by twenty percent just be increasing the price by a dollar. Though it does not affect the sale of any other products, it is still harmful to the company. The immediate recommendations to the company are:
- Finding a price, which is slightly above the cost. The price of $3.12 will give the company a profit of $.01. This profit is mediocre and not huge. But it will help retain the customers. The mediocre profit margin will also give the company an edge by getting back the price sensitive customers.
- The company must be able to get their profits back. It should start with low margin and not go greedy by increasing the price by one-dollar straight. Clearly, the customers of Beauregard are loyal but price sensitive.
- The company must release in its publications the costs that it is experiencing and the reason of the price increase. The profit margin that it will get by making the price $3.12. This strategy will help the company get its old customer base. It will also help the consumers to see how transparent the company is. (Ellet, 2007)
The above recommendations will have the company back on its feet within the customers. Once, the consumer base realizes that the company is not overcharging them and taking a minimal profit, they will shift back. Transparency is the key here. The company needs a middle ground.
Ellet, W. Case Study Handbook: How to Read, Discuss and Write Persuasively About Cases. Harvard business Review, 2007. Print.