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Exeter Industries produces and markets several lines of food and beverage products. The company plans to expand its market to cover a new geographical area, and the first products to be introduced into this new market are three of Exeter's coffees. A meeting of the marketing committee has been called to determine the pricing and promotional strategy for the introduction of these coffees. Exeter’s roasting capacity can satisfy the production needs for this new expansion, but then they will be operating at capacity. Exeter does not believe that it can afford the investment costs for developing increased capacity. Mark Williams, vice-president of marketing, has suggested that Exeter continue its policy of premium pricing for “Rich Roast Coffee” in the new market. Mark believes that Rich Roast is a superior blend of Arabica beans, grown organically, that create a full-bodied flavor and aroma that will have little difficulty gaining customer acceptance. He believes that the current marketing strategy of advertising the quality and unique flavor of this blend does not need to be changed. Exeter will simply follow its established advertising strategy in the new geographical area. Exeter also offers a midgrade, “Vitality Coffee, and entry level, Mellow Roast Coffee” that are priced to attract new customers. Mark thinks that once these new customers discover the quality of these midgrade and entry level coffees, they will want to move up to the top of the line “Rich Roast.” Michael Porter’s Competitive Strategy that would be most closely linked with their marketing strategy of “premium pricing” would be differentiation. 1. Explain how the concept of image, brand loyalty, and price justification are consistent with this strategy given Exeter’s market plans. 2. What economic theory relative to the concept of pricing would encourage the use of the “premium pricing” strategy? 3. Explain why “Low Cost Strategy” would be inappropriate for Exeter to follow.
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