Background:

You work at an aluminum can manufacturing company that has recently found a way to make its cans more efficiently. This improvement has reduced the manufacturing cost per can from $0.89 to $0.79 cents. It's a significant cost reduction, and you're wondering how to make the most of this advantage.

Prompt: How Can You Best Exploit This Cost Advantage?

Consider Basic Economics:

Think about how you can use this cost advantage wisely. There are two main strategies you can consider:

1. Penetration Strategy:

This means you lower the prices of your aluminum cans to attract more customers. It's like a sale where people buy more because things are cheaper. But remember, this decision affects not only your company but also your competitors.

2. Price Skimming Strategy:

Here, you keep your prices the same and make more profit on each can. It's like keeping the regular price and earning extra money. Again, think about how this choice impacts your company and the competition.

3. Market Share and Competitors:

You're in a strong position because your company is the leader in the market, holding 40% of it. The next biggest player has 30%, and there are many small competitors. Understanding your market position is vital.

4. Substitutes:

There's another type of can made of steel, but it's not as good as aluminum. Some people choose steel cans because they're cheaper, but they aren't as high quality.

Possible Outcomes:

- If you drop prices, your competitors might have to follow suit, as this market is very competitive. But this could also lead to some smaller companies leaving the industry and bigger ones copying your cost-saving method.

- Lowering prices might also attract more customers away from steel cans to aluminum cans, which isn't great for steel can manufacturers. They might start making aluminum cans too, and some of them have deep pockets and strong support.

Final Analysis:

Considering all these factors, it's likely better for you to keep your prices the same for now and make more profit. You can save your cost advantage for a future time when it might come in handy during a price war.