W hen Jacques Papillon was appointed marketing manager for Argent Tobacco, one of the first things he did was commission a study of retail prices in the drugstores, supermarkets, and convenience stores that sold Argent cig- arettes. What he found was disturbing. Whenever Argent reduced the whole- sale price in order to promote its brand, fewer than half of the retail outlets responded with price cuts of their own. Instead, most retail outlets "ate" the price reduction, which increased retail profit but did nothing for Argent's sales or profitability. M. Papillon traced the source of the problem to an incentive conflict between Argent, who is interested im the profit from sales of its own brand, and retailers, who are trying to maximize profit from sales of all the brands they carry. In other words, when a customer comes into a store, Argent wants the customer to purchase Argent's brand, while the retailer is content if the customer purchases any brand. As a consequence, retailers were reluctant to "pass through" Argent's price reductions because doing so would cannibalize sales of other brands they carried.
W hen Jacques Papillon was appointed marketing manager for Argent Tobacco, one of the first things he did was commission a study of retail prices in the drugstores, supermarkets, and convenience stores that sold Argent cig- arettes. What he found was disturbing. Whenever Argent reduced the whole- sale price in order to promote its brand, fewer than half of the retail outlets responded with price cuts of their own. Instead, most retail outlets "ate" the price reduction, which increased retail profit but did nothing for Argent's sales or profitability. M. Papillon traced the source of the problem to an incentive conflict between Argent, who is interested im the profit from sales of its own brand, and retailers, who are trying to maximize profit from sales of all the brands they carry. In other words, when a customer comes into a store, Argent wants the customer to purchase Argent's brand, while the retailer is content if the customer purchases any brand. As a consequence, retailers were reluctant to "pass through" Argent's price reductions because doing so would cannibalize sales of other brands they carried.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Based on the topic in the picture, what are the key points there that you think are important to analyze as a decision-maker ?
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W hen Jacques Papillon was appointed marketing manager for Argent
Tobacco, one of the first things he did was commission a study of retail prices
in the drugstores, supermarkets, and convenience stores that sold Argent cig-
arettes. What he found was disturbing. Whenever Argent reduced the whole-
sale price in order to promote its brand, fewer than half of the retail outlets
responded with price cuts of their own. Instead, most retail outlets "ate" the
price reduction, which increased retail profit but did nothing for Argent's sales
or profitability.
M. Papillon traced the source of the problem to an incentive conflict
between Argent, who is interested im the profit from sales of its own brand,
and retailers, who are trying to maximize profit from sales of all the brands
they carry. In other words, when a customer comes into a store, Argent wants
the customer to purchase Argent's brand, while the retailer is content if the
customer purchases any brand. As a consequence, retailers were reluctant to
"pass through" Argent's price reductions because doing so would cannibalize
sales of other brands they carried.'
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