Final answer:
The pricing strategy in response to a competitor's price reduction should consider the product's price elasticity. If elasticity is less than 1, increasing prices might be beneficial, but if elasticity is 1, it is best to maintain current prices.
Step-by-step explanation:
In response to Grazzi's price decrease, the recommended pricing strategy for your marketing team would depend on the price elasticity of the product.
If the product's price elasticity is less than 1, it is considered inelastic, and increased prices could potentially offset the decrease in units sold, thus increasing total revenue.
However, if the elasticity is exactly 1, indicating unitary elasticity, this suggests that total revenue is already maximized at the current price, and it would be advisable to maintain the present price level.
When facing a price cut from a competitor like Grazzi, it's imperative to evaluate the price sensitivity of your customers before making any strategic pricing decisions.