Question Thirty years ago when you founded this company

Thirty years ago when you founded this company, you were content that you were making enough money to pay the rent on the two-bedroom apartment you moved your new spouse into. Since then, your hard work and good fortune have paid huge dividends. But you’re still not happy. Your net pre-tax margin is 4.0% of sales and your biggest competitor constantly returns 5.1% pre-tax. You’ve cut costs to the bone. You’ve sourced the best prices on materials. You’ve outsourced and globalized where there was a positive cost/benefit ratio. Your facilities are far from opulent and your executive compensation packages are at the industry expectations. When you compare each line item of your P&L to the line items of your competitor’s P&L, there are very few differences except these two:
•Your competitor can maintain their market share even though their average price is .6% higher than yours. Every time you’ve tried to move pricing up to match your competitor’s, you lose share. You’ve already talked to numerous marketing consultants about promotional programs that would help you increase price but every time you find that the cost of the promotional programs would be greater than the expected benefit.
•Your competitor’s cost of equipment maintenance and of scrap (goods that do not meet quality standards and must be discarded) is .5% lower than yours. The engineers have repeatedly found from thorough analysis that the fact that you’ve been in business for 30 years is the reason for both of those differences. Since replacing old (but very useable) equipment would cost billions of dollars, that’s out of the question. Your competitor’s newer equipment gives them an advantage that you can’t overcome because updating your equipment would cost more than you could ever earn back from the small increase in profits.

Without making any assumptions and using only the facts presented in this case, describe the analytic steps and tools that should be used and try to reach the “right” conclusion for this firm.

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