Competitive response
Should we match a price cut?
| Customer segment | Share of our volume (%) | Volume lost when we held our price (%) |
|---|---|---|
| Loyal regular buyers | 60 | 5 |
| Occasional buyers | 25 | 12 |
| Price-sensitive buyers | 15 | 60 |
The prompt
A rival cut its price by 10 percent. We sell 1,000,000 units a year at USD 20, earning a contribution of USD 5 per unit (a 25 percent margin). If we match, contribution falls to USD 3 per unit and we keep all our volume. If we hold our price, we will lose some volume; the table below shows how each customer segment reacted the last time a rival cut price. Which is better, and when should we reconsider?
Interviewer-led: the interviewer shows the segment table and asks for the expected volume loss, profit under each option, the break-even point, and a recommendation.
Before you reveal anything, plan your own structure and first move on paper. Then reveal one part at a time and compare.
The exhibit
| Customer segment | Share of our volume (%) | Volume lost when we held our price (%) |
|---|---|---|
| Loyal regular buyers | 60 | 5 |
| Occasional buyers | 25 | 12 |
| Price-sensitive buyers | 15 | 60 |