George and Sheila Boggs are retiring and moving to Florida, and will soon put their house on the market. Most of their wealth is tied up in the house, so it is particularly important that they get a good price for it. But the local real estate market is depressed, and it is a buyer’s market. Hundreds of houses are for sale in the surrounding suburbs, and there are plenty of “ordinary” houses for sale at a fair price. Those that sell quickly are those that are priced to be a bargain or those that are special in some way and appeal to the tastes of a particular buyer.

A real estate agent tells the Boggses that they should simply put a low price on the house and get their money out quickly. George and Sheila want more than a fire-sale price, and they are considering doing some improvements prior to putting the house on the market. Since kitchens, bathrooms, and garages are the three most important selling points, they are consid¬ ering renovating the kitchen and bathrooms and cleaning out and painting the interior of the garage. The exterior of the house could be repainted, shutters could be added for decorative effect, and money could be spent on landscaping the garden and resealing the driveway to give the house more appeal and a better first impression. George is also thinking about interior modifications: he figures that if a wall were removed upstairs the master bedroom could have a large en suite bathroom complete with whirlpool bath and sauna room. Passive solar heating and much more interior light could be introduced by adding a few skylights and enlarging exist¬ ing windows. You have been asked for advice on the competitive strategy that the Boggses might use to get the maximum net income out of the house.

(a) Discuss the pros and cons of a cost-leadership strategy in this context.

(b) Discuss the pros and cons of a differentiation strategy in this context.

(c) If they follow a differentiation strategy, how much should they spend on the house prior to its sale?

(d) What do you recommend that they do?