Question

Brandy and Teri are competitors in the bakery business in a small wealthy upscale resort town. Brandy recently negotiated a contract with a supplier for really cheap cooking oil. She knows that this may increase his profits by offering cheaper products. In this competitive environment, keeping the price down is all that matters.
a. True.
b. False.

Answer 1

Answer:

b. False

Explanation:

In a competitive environment, pricing strategy is one of the strategies to ensure efficiency and profitability. But lowering of prices at the expense of deterioration in the quality of product offerings cannot be a recommended strategy.

The four competitive strategies specified by Michael Porter are namely, Cost Leadership, Differentiation, Cost Focus and Differentiation focus.

Under Cost leadership, a firm strives to offer it's products at the lowest cost and be the cost leader in an industry.

Differentiation refers to adding unique attributes and values to the products which differentiates such products from those of the competitors.

Cost focus refers to cost leadership when targeted at a particular marketing segment and similarly, differentiation focus is differentiation when applied to a specific marketing segment.

A firm cannot focus at price at the expense of quality of it's offerings. Thus, keeping prices down isn't all which matters.