Beauregard Textile Company
Executive Summary
In a desire to increase the company’s working capital for the company’s future financial investment in a plant modernization and expansion program, Beauregard Textile Company increased the price of its Triaxx-30 product to bring its profit margins up to that of their other products. In a sequential-move game theory Calhoun & Pritchard, Beauregard’s primary rival, did not raise its price even though its costs were assumed to be similar. As a result, Beauregard’s unit sales dropped significantly as their customers purchased the cheaper competitor’s product, causing Beauregard’s profit contribution to decrease. A closer examination of Beauregard’s cost analysis revealed that it includes fixed costs, which when excluded, the decision to raise the price of Triaxx-30 was unnecessary. Thus, when Beauregard raised its price, it was in the best interest of Calhoun & Pritchard to leave their price unchanged. In the end, Beauregard needs to reduce its price to its previous level in order to regain the majority of the market share and increase their profits.
Brief Review of Issues Addressed in the Case
The Beauregard Textile Company case begins with the sales manager and the controller for Beauregard evaluating their options to determine a pricing strategy for the next quarter of a textile product that has lost significant market share to a competitor. Over the past three quarters, Beauregard increased the price of its Triaxx-30 product from $3 per yard to $4 per yard. This increased price reflected an adjustment to bring the profit margin of Triaxx-30, referenced in the industry as T-30, to align with other products and recent increases in production cost. Calhoun and Pritchard, Beauregard’s only significant rival in this market duopoly, typically announce their own pricing of the T-30 after Beauregard set its fabric prices for the quarter. While Beauregard has increased its prices over the past few quarters, Calhoun and Pritchard did not change
In a desire to increase the company’s working capital for the company’s future financial investment in a plant modernization and expansion program, Beauregard Textile Company increased the price of its Triaxx-30 product to bring its profit margins up to that of their other products. In a sequential-move game theory Calhoun & Pritchard, Beauregard’s primary rival, did not raise its price even though its costs were assumed to be similar. As a result, Beauregard’s unit sales dropped significantly as their customers purchased the cheaper competitor’s product, causing Beauregard’s profit contribution to decrease. A closer examination of Beauregard’s cost analysis revealed that it includes fixed costs, which when excluded, the decision to raise the price of Triaxx-30 was unnecessary. Thus, when Beauregard raised its price, it was in the best interest of Calhoun & Pritchard to leave their price unchanged. In the end, Beauregard needs to reduce its price to its previous level in order to regain the majority of the market share and increase their profits.
Brief Review of Issues Addressed in the Case
The Beauregard Textile Company case begins with the sales manager and the controller for Beauregard evaluating their options to determine a pricing strategy for the next quarter of a textile product that has lost significant market share to a competitor. Over the past three quarters, Beauregard increased the price of its Triaxx-30 product from $3 per yard to $4 per yard. This increased price reflected an adjustment to bring the profit margin of Triaxx-30, referenced in the industry as T-30, to align with other products and recent increases in production cost. Calhoun and Pritchard, Beauregard’s only significant rival in this market duopoly, typically announce their own pricing of the T-30 after Beauregard set its fabric prices for the quarter. While Beauregard has increased its prices over the past few quarters, Calhoun and Pritchard did not change