NATIONAL INSTITUTE OF FASHION TECHNOLOGY, BENGALURU

MASTER OF FASHION MANAGEMENT

BATCH 2023-2025

FASHION MARKETING

Exercise – 18

SUBMITTED BY:

Naman Somani – MFM/23/76

Part A- Uploaded on Google Classroom as a separate attachment.

Part-B

Firms must take care when responding to competitors’

actions with a pricing change, as this could trigger a price war. Therefore, in
this activity, you need to identify what would be the most appropriate pricing
reaction for the following generic situations actions. What are the
implications of your decisions in such situations? Justify your answers.

ACTIVITY/TASK
1. Communicate the high quality of your product against a new competitor
2. The market that the firm operates in is deregulated (allowing more competitors
to enter)
3. A new substitute product/industry emerges
4. A major increase in production costs occurs
5. The firm is looking to benefit from economies of scale
6. When you know that key competitors will always match your price changes
7. To increase the market, share significantly
8. For one of the firm’s brands/products that have increased its brand equity
9. When the firm’s product is experiencing high seasonal demand
10. When a major competitor leaves the market

QUESTIONS
For each of the above situations, generally outline how
the firm should respond. Choose from:

• Reduce prices
• No change to prices
 • Increase prices

ANSWER:

1. Increasing the prices would communicate a better quality of the products and indicate
to the consumers that the premium price is for the better quality than the competitor
and helps them realise that the product is relatively expensive because of the better
quality of the raw materials.
2. The firm should decrease the prices because any new competitor that enters the
market might take some time to operate on the costs that the firm is operating on and
the existing economy can use this advantage to sell for lower prices and develop a
sense of loyalty in the customers and hence, retain its market share.
3. A new substitute is clearly a threat for the existing product and as we know the price
of substitutes is positively related to the demand of the original product. So, if the
price of the substitutes is less the demand for the product will also be less thus, the
price of the original product must be lesser.
4. An increase in production costs may off course lead to a rise in prices of the products
but, if the production costs can be sustained then the prices should remain constant
and in case it is not possible then clearly a firm in order to operate profitably has to
increase its prices.
5. Economies of scale reduces overall costs of the products, in this case if the company
has a loyal set of users or is an oligopoly or monopoly then it may keep the prices
constant and enjoy greater margins, but in case of a competitive market the firm must
reduce prices to gain competitive advantage and gain market share to destroy the
competition.
6. When we know that the competitors can match our prices it is always better to keep
the prices constant instead of cutting our margins and inviting more pressure from
the competition because reducing the prices will only invite a price war wherein no
one benefits and the firm with the deeper pocket sustains. It won’t create a problem
as long as the other firm is acting as a price taker.
7. To increase the market, share an obvious move would be to reduce the prices but an
appropriate positioning strategy along with constant prices can also benefit the firm
 to gain market share and penetrate the market. But conventionally reducing the price
would be a penetrative marketing strategy.
8. Increasing the brand equity would help the brand gain a premium price for its
recognizable name and the familiarity of people with the brand would help it to
command over higher prices. Therefore, an optimal strategy would be to increase the
prices to gain higher margins since people would pay for it.
9. We know that if demand for a certain product increases and considering that
substitutes don’t exist or the substitutes are not at par with the quality of the product
in consideration then the prices of the product could be increased because people
would be willing to pay for it for this season and later as the demand reduces, the
prices can be offered with an off-season discount so that there is no confused
positioning of the products.
10. If a major competitor leaves the market, then automatically a larger chunk of their
consumers might shift to our brand but since other competitors still exist prices must
not be raised rather must be kept constant to retain the margin and increase the profits
by increasing the volume instead of the margin earned on each product.