Question

Happy Foods and General Grains both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?A. Increase total perceived consumer benefits through differentiation.B. Raise prices above the current reservation price. C. Lower price to the break-even piece. D. Increase the number of stock market shares available to investors.

Answer 1

A. Increase total perceived consumer benefits through differentiation.

Step-by-step explanation:

If both companies have the same cost of producing a box of cereal as 45 cents, and it is not possible for either company to lower their production costs any further; the only way that one company can achieve a competitive advantage over the other is by increasing total perceived consumer benefits through differentiation because raise prices above the current reservation price will drive customers if the total perceived customer benefits are not improved.

Furthermore, lowering price to the break-even piece will be unwise as no profit will be made.

If the perceived customer benefits are improved, consumers will be willing to pay more because of what they perceive they will benefit from a company which the other competitor's product cannot offer them.