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TerraCog specializes in high quality Global positioning system (GPS) and similar products. The firm has built its GPS line for the serious outdoor enthusiasts’ market, and the products are known for their durability and value added features. Even though TerraCog is always not the first one to market new products, the company does not have any problem in capturing the market as the products are of high quality and effectively addressed customer needs.
A competitor Posthaste has introduced a GPS prototype called ‘BirdsI’ that displays satellite imagery. TerraCog did not see any threat in the launch of ‘BirdsI’ as TerraCog’s GPS system is superior in both technology and performance, furthermore ‘BirdsI’ lags both accuracy and reception quality. But the product has become a huge success and numbers of key buyers and product reviewers have found it an exciting innovation. Old customers of TerraCog keep asking for Terracog’s version of the product. In order not to lose the market, Terracog also plans to launch a GPS with satellite imagery dubbed project Aerial on minimum price level. However, the projected cost for the production threatens to destroy the project.
The redesigned version of Aerial which includes features like satellite imagery is planned to be launched in the coming holiday season. TerraCog is losing its market share to Posthaste’s BirdsI, a similar product already present in the market and is eager to hit the market with Aerial. But the cost of redesigned Aerial is high ($475) and it is not profitable to price Aerial below $475, which is $75 higher than BirdsI.
The production team first projected the cost to be $500, but later made minor changes and could reduce the cost to $475. They don’t want to compromise on the quality in any way and hence any further reduction in cost is not possible for them. Sales team feels that Aerial should be priced below $425 to capture the lost market share to competitors....
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