The following appeared in a memo to the board of directors of Bargain Brand Cereals.

“One year ago we introduced our first product, Bargain Brand breakfast cereal. Our very low prices quickly drew many customers away from the top-selling cereal companies. Although the companies producing the top brands have since tried to compete with us by lowering their prices and although several plan to introduce their own budget brands, not once have we needed to raise our prices to continue making a profit. Given our success in selling cereal, we recommend that Bargain Brand now expand its business and begin marketing other low-priced food products as quickly as possible.”

Write a response in which you discuss what questions would need to be answered in order to decide whether the recommendation and the argument on which it is based are reasonable. Be sure to explain how the answers to these questions would help to evaluate the recommendation.

The argument presented above suggests that the company should expand its product line and market more lower-priced products. While this argument may be reasonable, there are at least two questions the board should answer before determining if it is reasonable for the company to follow this recommendation. First, what is the company’s competitive edge? Second, what additional risks does the company face by expanding its product line?For the highly competitive company, expanding into new markets and product lines comes with a certain amount of risk. The company may be unable to compete with the existing market leader or may discover that its competitors have found a way to outmaneuver it. In this case, the company will have wasted its time and money, and may even lose market share. In order to minimize this risk, the company should first conduct a thorough analysis of its current product line and its competitors. This assessment, coupled with market research, should inform the board as to whether it is worthwhile for the company to pursue a new product line. If the board determines that there are already several companies providing a similar product at a lower price, then the recommendation to expand the company’s product line may be a poor one.

This analysis of the product line should include an analysis of the company’s strengths and weaknesses. A strength may be the company’s ability to provide the consumer with a product that is healthier than its competitors. A weakness may be that the company only produces a small line of products, which may limit its market potential. If the board does conclude that the product line has sufficient potential for growth, then the company should consider expanding into other product lines. However, if the board determines that the product line is too weak, the company would be foolish to expend additional resources on it.

The company’s competitive advantage is an important consideration. The company may have a specific advantage in the marketplace due to its reputation for providing quality products. Alternatively, the company may have a large market share and a loyal customer base. In either case, the company should analyze the competitive advantage in detail before expanding. If the advantage is in the company’s reputation, the company should endeavor to preserve it. If the advantage is its market share, the company should be wary of expanding too quickly, lest it alienate its customers and lose market share. By understanding the company’s competitive advantage, the board can make an informed decision as to whether the company should expand its product line.

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