The Director of Marketing opened the discussion with her team with a frank assessment of the situation: "We have a competitor whose overhead is not ashigh as ours and who is able to compete at discounted prices while maintaining similar margins. This wouldn't be as much of a problem if their product was totally inferior to ours. However, their product is perceived as "good enough" and therefore they are scooping up a lot of the market share we used to have.

We must learn ways we can combat this. So far, we've adjusted our pricing on the particular items we have that are similar to those they sell and raised prices a bit on others that they don't carry, in an attempt to offset the hits we are taking on the discounted products. But this does not feel like a long-term solution for us." The Director has asked you to advise her on the issues her team needs to consider when dealing with this situation and why these issues matter in her considerations.