Question

Are your loyal customers likely to switch to the new private label product? (That is, is the target market for the private label line your existing customers or budget shoppers?)
Assume you are part of the management team of a cookie manufacturer. A major supermarket chain has approached your firm to manufacture a private label version of one of your best-selling and most profitable cookie product lines. The supermarket chain would like a cookie that is a similar design, look, and reasonably similar quality (can be a little less).

They want the packaging to look fairly basic (to communicate a lower price cookie), but they want it clear to consumers that the product is comparable to your branded cookie line. They want to purchase this new product at a 25% lower price than they now pay for your current brand. They then plan to retail both products, virtually side-by-side, with the private label version retailing at $1.99, compared to your cookie normal retail price of around $2.50.

Answer 1

Answer:

Yes.

The loyal customers will also be attracted to the new private label cookie, just as budget shoppers will be attracted.

Explanation:

The proposal, if accepted, may jeopardize the company's normal cookie sales in the supermarket.  The little reduction in the quality of the cookie (which cannot translate to significant production cost reduction) may be perceived as much by some loyal consumers of the normal cookie.  However, the new private label cookie will easily attract budget shoppers, who value the reduced price of $1.99 instead of the normal price of $2.50.  Accepting this proposal should depend on the continued patronage of the normal cookie and the sales number of the private label cookie.