1
Swing v. Steady
Instructor’s Note
A) If either company could costlessly segment the market for pricing (that is, charge the 15%
lower price only to this new segment without undermining the prices charged to current
customers), how much additional profitability could each company earn by achieving a 20%
and a 40% increase in sales? Would you recommend that either or both companies pursue
this opportunity?
Answer
Swing
Steady
CM = $6.00
CM = $3.00
For a 40% sales increase:
B) In fact, neither Swing nor Steady can effectively segment this market (each must charge one
Answer
Swing Steady
2
Part A assumed that we could take this additional business without undermining
prices on previous business.
C) Which competitor is better positioned to take advantage of this opportunity? Assuming that
neither company can segment the market, what advice would you give to Swing and to
Steady regarding this opportunity?
Answer
This is an attractive opportunity for Swing and it should pursue this new business.
3
D) Was Steady’s decision to cut price financially justified?
Answer
Steady
=CM
P
E) Given the financial information that you have at this point, would Steady be better off to
withdraw from this market altogether?
Answer
Contribution without price cut:
( )
000,11$FC000,20$000,9$units000,250.4$ −=−=
F) What is the minimum monthly unit sales that Steady would require to make it more
profitable as a specialty widget manufacturer than it is currently as a commodity
manufacturer?
Answer
( )
000,5
+
−
=CMNew
FCNew
units
VCP
G) How much additional profit would Steady earn as a specialty widget, given its minimum case
scenario of 3,500 specialty units at a $6.00 price premium?
Answer