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“Today Shapes Tomorrow

 Published Every Monday    Volume  135 Special Edition August 3, 2009

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Chapter 9 – Competition heats up but your new strategy seems to working in week-7

Last week we discussed details of the sixth week.  Your competition had dropped price from $1 per cup to $0.75 per cup and it affected your sales in week-6.  So let us discuss what did you do in week-7? 

PRICE Analysis – As predicted, you had to decide on price for week-7.  Your competition, “Jack & Jill Lemonade”, had dropped its price from $1.00 per cup to $0.75 per cup which affected you sales to go down from 80 cup in week-5 to 45 cups in week-6. To address the drop in sales you researched and evaluated the following three options –  

  • Keep the price the same to $1.00 per cup. Your customers are unwilling to pay $1.00 per cup, even though your lemonade is organic and better quality than the competition.

  • rop the price lower than competition to $0.50 per cup. You decided against it, because your product and services are far better than the competition.  You have an advantage over your competition such as organic lemons, taste, and customer service.  In addition you have a very good cost advantage from the local organic farmer of 33% cost discount only available to you so far.

  • Match the competition price of $0.75 per cup.

Based on your analysis and review of the three options, you decide to drop the price.  You advertise and meet the competition price of $0.75 per cup.  

SALES – By dropping the price from $1.00 per cup to $0.75 per cup you were able to increase your sales from 45 during week-6 to 70 during week-7.  Your advertising about the price drop helped to bring back customers who were sensitive to paying $1.00 per cup when they could buy $0.75 per cup from the “Jack & Jill Lemonade”.  

CUSTOMERS – You regained most of the lost customers.  It is a success!  

COST Advantage – You have created a competitive cost advantage over your competition.  During week-6 you had smartly cut the cost from $0.33 per cup to $0.24 per cup, a 27% cost reduction.  Your smart cost reduction strategy allowed you to drop the price by 25% and still keep a healthy 51% profit margin for week-7.  Not bad!  

Keep up the good work!  This is how your week-7 numbers look –


Learn more about…

What is Credit History?  Why is it important to have a good credit history? Volume 12.    

What is Economy, Business, Workers, Goods,  Services,  Stock, DOW, S&P500, and NASDAQ in Volume 16. 

Does it pay to study hard? Volume 17.    

What is Currency and Foreign Currency Exchange rate? Volume 14What is stronger or weaker currency? Volume 20. What does the dollar slide mean? Volume 32.

How does money grow in a bank? Volume 21. 

What is Fed Funds rate and Discount rate? Volume 22

What does the interest rate cut mean for you? What is APR? Volume 23. 

How to read stock information? Volume 25. 

What is “Black Monday”…Crash of 87”? Volume 31.

Who are CEO, CFO, Shareholders, and the Board of Directors? What is SOX? Volume 33

What does “$4.95 + Tax” means?  Volume 47.

What is a Recession?  What is a Depression? Volume 48.

What is Mergers & Acquisition (M&A)?  What is a Merger?  Volume 49.

What is ADR?  Volume 62.

What does buying back of shares means?  Volume 63.

Why is consumer confidence so important?  Volume 64.


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