What's Lille Tissages' business and competitive situation?
Lille Tissages is planning a significant expansion and relying heavily on internally generated cash flows from Item 345. However, this item has recently experienced reduced market share and profitability due to a price increase its competitors chose not to follow. While Lille Tissages is the industry leader in terms of operations and prestige, the sales figures have shown that brand loyalty is eroding in favor of similar products at lower costs. Additionally, an entire department and its facilities are dedicated to the production of this item alone and its resources cannot be leveraged in other production areas, placing further strain on the importance of this product’s performance in the market. While one of Lille Tissages’ strengths is its reputation in the industry, post price-increase sales figures reflect the growing weakness of their once competitive advantage. The company is currently considering reducing the sales price of Item 345 in an effort to bolster sales and profitability to cover both existing and future fixed costs. This would be an aggressive option for various reasons: (1) lower contribution margin per unit sold, (2) competitors do not price their products until Lille Tissages has communicated theirs to the market, and (3) Lille Tissages does not adjust its yearly prices once they have been announced. Lille Tissages realizes that competition is fierce and changes may need to be considered in their pricing plan to remain competitive. While Lille Tissages is unable to leverage its competitors’ actions in its pricing plan, they are in an overall stronger financial position. Many of their competitors are smaller companies and are struggling in the current market and would greatly benefit from a price increase to stabilize their operations. Lille Tissages has the advantage here, as they are