Rational Decision Making

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Introduction & Problem Identification:

Julie works as a brand manager for a regional salty snack manufacturer. She is currently facing an ethical dilemma regarding the profitability of her potato chip product line. A recent drought has resulted in a 25 percent increase in potato prices, making it necessary for Julie to raise the prices of her potato chips by 15 percent in order to maintain margins. However, she is concerned about the potential negative impact on customer loyalty and how her competitors might respond. Another option she is considering is reducing the net weight of the package without informing consumers. [1]

The ethical dilemma Julie faces is whether to raise the prices of potato chips, which may risk negative customer reactions and competitive responses, or to downsize the package without informing consumers but potentially engaging in deceptive practices.


Decision Criteria:

  1. Profitability: Evaluated by company stakeholders on maintaining margins and ensuring long-term profitability for the company. 
  2. Customer perception [2]: Assess the potential impact on customer satisfaction, loyalty, and perception of fairness.
  3. Ethical Considerations: Evaluate the decision's alignment with relevant laws, ethical principles, transparency, and consumer trust.
  4. Competitive Landscape:Consider the impact on market share, competitive positioning, and the ability to sustain a competitive advantage.
All of the criteria are equally significant, and I will be given equal weight for all of them. For each alternative within the same criterion, I'll provide a score between 1 and 5, with 5 representing the greatest score.

Generate Alternatives: 
  • Alternative 1: Raise the prices of potato chips by 15 percent to maintain margins. 
  • Alternative 2: Downsize the package without informing consumers, maintain prices while avoiding immediate customer backlash.
  • Alternative 3: Applying for a loan to alleviate current financial pressure and using a portion of the loan to address the increase in raw material costs, while allocating another portion for advertising expenditure in order to boost product sales and counter the decline in profits caused by the rise in potato prices.

Evaluate Alternatives:

 

Alternative 1

Alternative 2

Alternative 3

Profitability

4

3

5

Customer perception

2

1

4

Ethical Considerations

3

2

4

Competitive Landscape

3

2

5

Total score

12

8

18👑

Select the Best Alternative:  

  1. Profitability: By obtaining a loan to address the financial pressure and allocating funds to tackle raw material cost increases, the company can maintain its margins and ensure long-term profitability.
  2. Customer perception: the company can focus on promoting the product and potentially increase customer satisfaction and loyalty.
  3. Ethical considerations: By obtaining a loan transparently rather than resorting to deceptive practices, the company maintains its integrity and consumer trust.
  4. Competitive landscape: the company can enhance its market share, competitive positioning, and sustain a competitive advantage over rivals.

Based on the evaluation, Alternative 3 appears to be the best choice. It scores the highest in every criteria. This alternative provides a comprehensive approach by addressing the financial pressure and raw material cost increase while also focusing on improving customer perception and competitive positioning. Therefore, Alternative 3 is the best choice to fulfill the weighted criteria and maximize the long-term success and profitability of the company.


Reference:

Author: Geoffrey P. Lantos, Associate Professor of Marketing, Stonehill College

Inabo, S. (July 14, 2022) Customer perception: Definition, Importance & How to improve it. Zendesk. https://www.zendesk.com/blog/simple-guide-customer-perception/ 

Comments

  1. ShiyaoJune 8, 2023 at 7:03 PM

    This comment has been removed by the author.

    ReplyDelete
  2. ShiyaoJune 8, 2023 at 7:10 PM

    Hello Chuer,

    I think your analysis process is very clear, it helped me understand this scenario.But from a practical perspective, it seems that many companies tend to choose option 2 when facing similar dilemmas, especially in the food industry.

    Cost reduction is a practical response to financial challenges because it aims to improve the company's bottom line by reducing expenses. By cutting costs, companies can temporarily alleviate the financial burden and maintain profitability, at least in the short term. This approach is particularly common when companies experience continuous cost increases, such as rising raw material prices, increased labor costs, or regulatory changes.

    Many enterprises tend to reduce costs to alleviate pressure. In the context of continuous cost increases, I do not believe that loans to sustain production can alleviate the pressure on enterprises.

    ReplyDelete

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