Question

2. You are the marketing manager of a company that makes men’s suits. Many companies produce similar products and they are selling wholesale for $180 to $250 per unit. In the process of surveying the market for men’s suits, you came to know that many consumers are willing to pay much more for suits with designer label and you have been exploring the possibility of adding designer suits into the production line of the company. You submitted a proposal for producing designer suits to the company CEO. After looking into your proposal, the CEO told you that he could not commit to implementing the proposal without knowing how much more buyers will be willing to pay for such suits. You conducted research on the market and collected the following data. Demand elasticities for designer suits ranges from -2 to -3, marginal cost is typically $150 to $200 per unit and the wholesale price is in the $200 to $400 range. Explain how these data provide evidence that allay the concerns of the manager. (8 pts)

Answer 1

The manager of the company would be concerned about matching the costs incurred for producing designer-label suits with the competitor prices. Thereby there is a need to improve the internal processes of the manufacturing. This includes removal of all the wastes from the processes and minimizing defects and errors. Thus, by providing designer-labeled suits with lean manufacturing processes, the company will be able to not only increase sales and profit margins but also gain higher market share and customer satisfaction.