RC Passage: Price Reduction

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The fact that reducing price can generate a competitive advantage for a company does not mean that every reduction in price will create such an advantage. Price reduction, like improvement in service, must be balanced against other types of efforts on the basis of direct, tangible benefits such as increased revenues. If a company is already effectively on par with its competitors because it provides products at an acceptable price and keeps customers from leaving at an acceptable rate, then reduction in price may not be effective, since price is not necessarily the deciding factor for any customer in any situation. 

This truth was not apparent to managers of one operating system software vendor, which failed to improve its competitive position - despite its attempt to reduce price. The software managers did not recognize the level of customer inertia that arises from the inconvenience of switching operating systems. Nor did they analyze their reduction in price to determine whether it would attract new customers by producing a new standard of price that would excite customers or by proving difficult for competitors to copy.

The discussion of the operating system software vendor in the last paragraph serves which of the following functions within the passage as a whole?


It describes an exceptional case in which reduction in price actually failed to produce a competitive advantage.


It illustrates the pitfalls of choosing to reduce price at a time when business strategy is needed more urgently in another area.


It demonstrates the kind of analysis that managers apply when they choose one kind of business strategy over another


It supports the argument that strategies in certain aspects are more advantageous than strategies in other aspects.


It provides an example of the point about reduction in price made in the first paragraph.

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