Mr. Asad Ali is the sole proprietor of Regal Electronics. Regal Electronics manufactures several products, one being dessert coolers. For several years, Ali has established his dessert cooler brand to be a high quality product in the mid-level price range. In 1987, the government announced additional taxes that would drive up the price of dessert coolers (and other products). Ambassador, a higher-end competitor of Regal, increased their prices and the lower-end competitors followed. When the tax decision was unexpectedly reversed, Ali was raised with the issue of maintaining the somewhat new price increase (of 65 Rs) or dropping prices down to the original cost of the cooler, 1000 Rs. Ali is faced with the difficult assessment of how to exploit market conditions for increased profits without having the advantage of enough time to consider the optimal pricing strategy .
Since there are a large number of competitors currently in the industry, pricing can be a valuable tool . Regal is currently positioned (in the middle) of all of these competitors, not a bad place to be. He is not at the bottom, and there is still room to grow.
Ambassador is the industry leader and has the most equity; and thus, the one to watch. What this means is that the name Ambassador is recognized in the industry, people will spend more just because of their name. They are recognized by consumers and trust that they are getting added value with their product. This allows Ambassador to charge higher prices for their products. Ambassador has done a great job of establishing its name in the industry. Many smaller competitors will follow the lead of Ambassador.
90% of Regal’s sales take place between the months of April and mid-July; with the decision to change prices taking place at the end of June. Given that it is so late in the sale season, Ali will have only ~3 weeks to meet his goal of 1,000 units. Even with a forecasting and planning team in place, it is not a simple...