A manager notes that a competitor has just launched a major price promotion. The manager's brand has strong brand equity and is perceived as higher quality. What is the most strategically sound response, according to the principles in the textbook?

Question

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When a competitor launches a major price promotion and your brand has strong equity and is perceived as higher quality, the most strategically sound response is to avoid a price war and instead reinforce the brand’s value through non-price strategies. 
Option 1: 'Don’t compete on price and increase advertising to reinforce the brand's quality and value.' This aligns with leveraging brand equity and signaling long-term value to customers, emphasizing quality, differentiation, and the non-price benefits of the brand. It helps preserve margins and avoids eroding brand perception with repeated price cuts. 
Option 2: 'Launch a new product to compete directly with the competitor.' Introducing a new product as a direct price- or feature-based counter-move often distracts from the core value of the existing brand and can dilute focus, increasing costs without guaranteed impact on the price-sensitive share gained from a simple promotion. It may not address the core consumer perception that the brand already carries high quality and value without needing a new SKU. 
Option 3: 'Ignore the competitor's promotion completely.' This could miss an important market signal and risk losing mindshare or sales if customers immediately switch to the lower-priced alternative, especially in price-sensitive segments. It also forfeits the opportunity to reinforce the brand consistent with its value proposition. 
Option 4: 'Immediately match the competitor's price cut to avoid losing any sales.' Matching price cuts can trigger a price war, eroding margins, and can devalue the perceived premium position of a higher-quality brand. It contradicts a strategy built on quality and value rather than price competition. 
Option 5: 'Pull all advertising and shift the entire budget to an even deeper price promotion.' This moves decisively toward price-based competition, undermining brand equity and potentially triggering a long-term degradation of price expectations and perceived quality. 
Across these choices, the prudent path emphasizes protecting brand strength and value signals rather than engaging in short-term price cutting, which is why option 1 is the strategically sound choice.

MARK5560 (L1) Final Exam

A manager notes that a competitor has just launched a major price promotion. The manager's brand has strong brand equity and is perceived as higher quality. What is the most strategically sound response, according to the principles in the textbook?

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