Case Analysis: Swing Vs. Steady
(b) In fact, neither Swing nor Steady can effectively segment this market (each must charge one price to everyone). Calculate the break-even sales changes for this opportunity for each of them. Calculate the changes in profit for a 40% increase in sales. Briefly explain why this answer differs from your answer in part a.
(c) Which competitor is better positioned to take advantage of this opportunity? Assuming that neither company can segment the market, what advice would you give to Swing and to Steady regarding this opportunity?
Swing v. Steady
(continued, page 2)
Swing took the opportunity to enter the new market segment, cutting its prices 15% to do so. Consequently, Swing's unit sales are now 7,000 monthly at a price of $8.50. Steady, however, was belatedly forced to match Swing's price in order to retain its customers in this market. Steady's management believes that it would have lost at least 60% of its business had …show more content…
Steady's management believes that it could charge prices at least $6.00 higher than the going commodity price, but would incur additional variable cost of $3.00 more per unit. [Note: this decision would preclude Steady's continued production of generic widgets, unless of course Steady opted to buy all new buildings and equipment for the new operation, which would generate incremental fixed costs of $23,000 monthly rather than the $3,000 assumed