We have to lower our price or well just get killed, said Hoyt Jones, director of operations for the seven-unit Binkys Sub shops. Binkys was known for its modestly priced, but very high-quality, sandwiches and soups. Business and profits were good, but now Hoyt and Rachel, who served as Binkys director of marketing, were discussing the new $4.99 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 value-conscious customers, said Hoyt.

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

Theres always a less expensive variety of ham and cheese on the market, replied Hoyt. They use lower-quality ingredients than we do. We charge $6.99 for our foot-long sub. That wasnt bad when they sold theirs at $5.99. Our customers know we are worth the extra dollar. Now that they are at $4.99 . . . I dont know, but I think they are going to kill us in the market. We need to do somethingfast.

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 foodservice customer will consistently pay a higher price for better-quality food and beverage products? Give a specific example to support your answer.

3. Assume you were the president of Binkys Subs. What steps would you instruct Hoyt and Rachel to take to address this specific pricing challenge?