Rawlings and Spalding are sports equipment firms that routinely compete against
ID: 376415 • Letter: R
Question
Rawlings and Spalding are sports equipment firms that routinely compete against each other for the same customers. Rawlings has a goal of increasing market share in the proprietary sports clothing market. Last quarter, Rawlings indeed expanded its market share, but noted that the prices of inputs used to make its proprietary clothing increased. As a result, Rawlings may have to increase prices for its proprietary clothing line by 2 to 5 percent. Rawlings believes that these price increases could undermine their market share gains if Spalding does not also raise prices. Rawlings wants to maintain its newly gained market share in proprietary sports clothing. Therefore, Rawlings plans to keep prices on its clothing line low by raising prices on other products it sells. Evaluate this strategy. Why might this pricing approach actually decrease Rawlings’ profits and earnings per share?
Explanation / Answer
Rawlings and Spalding both are sport equipment firms and are competitors in the industry and the customer base may also be same and depend on the business strategies applied by them. At present the target of Rawling is to get hold of the Sports Clothing Market because it has observed that the margin in this kind of product is high and the demand is also better than other sports equipment because clothing is bought by fans and also people who are not into playing any sport. The focus was to get hold of this industry and make a better profit and Rawling was successful to some extent in doing so because the results of the last quarter depicts that the market share has increased but in the process the cost price has increased by 2 to 5 percent and in order to compensate Rawling may have to increase the price of clothing but again Spalding will get hold of the market if they do not increase the price. As an alternative Rawling plans to keep the prices of the clothing as it is and increase the prices of other products it sell.
The strategy may seem fruitful but in the long run it will affect the brand and acceptance of the products of Rawling because the industry is dynamic and very competitive and a slight difference affects the business to quite and extent. Rawling can focus on the clothing products solely but diversity is also important in a business because even if the consumer visit to buy clothing may also look for other products and the higher prices may propose a feeling that Rawling charges and more and they may shift their preference to Spalding. Public Relation in such a business is very important because the competitor may also deal with the same customers and the attitude will matter along with the quality and price of the products.
Pricing is a very important, Sensitive and critical approach because this affects majority of the customers and the competitors will take advantage of the situation by advertising their low price with same quality. The same strategy may back fire for Rawling because even if the clothing products go out of Spalding's hand it will gain the market of the other products and in order to gain more business they may lower the price of the clothing because they can afford it as the business is doing very good. Rawling may lose the market hold that they share at equal proportion with Spalding.
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