What implications would the price reduction strategy have on the company’s customers?

Question 1: Read the case and answer the questions below
In 1998, Daimler Chrysler introduced a new car; a new brand and a new look with advanced technology in nine EU countries. It was named ‘Smart’ and was certainly distinctive and nice looking. The smart car is only 2,500 mm long, 1,515 mm wide and 1,529 mm high. It seats two adults or one adult and two children. The Smart car’s weight is 720kg, has a 22 litres-gas tank, and gets 100km per 4.8 litres. It has a frame called Triton safety cell, which comes in silver colour and blue removable panels, which can be changed in less than an hour, in such colours as red, yellow, black, blue and green. The optional leather seats are papaya coloured. If you are thinking that the interchangeable panels and the wild colours remind you of a swatch watch, you are correct as the swatch was the inspiration for developing this car. In the early stages of the project, Daimler-Benz and SMH (maker of swatch watch) formed a joint venture; the car was called “Swatch Mobile.”
The Swatch mobile concept was based on Nicolas (chairman of SMH) conviction that consumers become emotionally attached to cars as they do to watches. His vision was of high safety, ecology and a very consumer- friendly area to sit in. Like the swatch, the swatch mobile was to be affordable and stylish. Nicolas noted that safety would be a key selling point, declaring, “This car will have the crash security of a Mercedes.”The car was to emit almost no pollutants due to its electric engine, and was to be capable of gasoline powered operations, using a highly efficient miniaturized engine. Nicolas further predicted that worldwide sales would reach 1 million in the U.S accounting for half the market. Shortly after the introduction, the joint venture between swatch and Daimler-Benz ended when Daimler bought out SMH’s stake. Nicholas was disillusioned and Daimler-Benz found it difficult to work with Nicolas.
To date, smart cars have two criticisms; safety and price, despite developments of crash safety that enables smaller cars to be just as safe as larger ones. During its first winter (1999) on the road, there were reports of several accidents. In response, the company developed “Trust Plus,” a software package that will cut power if the wheels start to slip. As for the price, it originally sold for $10,500.After a period of disappointing sales in Italy and France, the price was reduced to $9,300. Although the buyer’s of smart car have high incomes, or already own two cars, they are concerned about the price-value relationship.
a. Describe the market potential for the smart car and discuss whether it is an international or global product. (10 marks)
b. “Swatch car is a unique success story.” Explain this statement. (10 marks)
c. Describe the company’s competitive strategy for its continued success in business. (8marks)
d. How should the company position smart car in the markets it operates from? (8 marks)
e. What implications would the price reduction strategy have on the company’s customers? (4 marks)

 

 

 

 

 

 

 

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