"We have to lower our price or we'll just get killed," said Hoyt Jones, director of operations for the sevenunit Binky's Sub shops. Binky's was known for its modestly priced, but very highquality, sandwiches and soups. Business and profits were good, but now Hoyt and Rachel, who served as Binky's director of marketing, were discussing the new $6.99 "Foot Long Deal" sandwich promotion that had just been rolled out by their major competitor, an extremely large chain of sub shops that operated over 5,000 units nationally and internationally.

"They just decided to lower their prices to appeal to valueconscious customers," said Hoyt.

"But how can they do that and still make money?" asked Rachel.

"There's always a less expensive variety of ham and cheese on the market," replied Hoyt. "They use lowerquality ingredients than we do. We charge $8.99 for our footlong sub. That wasn't bad when they sold theirs at $7.99. Our customers know we are worth the extra dollar. Now that they are at $6.99 ... I don't know, but I think this is really going to hurt us in the market. We need to do somethingfast."

Questions

1. How large a role do you believe "cost" likely played into the decision of this competitor to reduce its sandwich prices? Explain your answer.

2.Do you think the typical food service customer will consistently pay a higher price for betterquality food and beverage products? Give a specific example to support your answer.

3.Assume that you were the president of Binky's Subs. What steps would you instruct Hoyt and Rachel to take to address this specific pricing/cost challenge?