Case: farm equipment limited

Farm equipment limited (FEL) is engaged in manufacturing farm equipment of different types. It markets its equipment through a network of distributors located nation-wide. Besides, it also export its equipment to different countries. The chairman of the company is quite satisfied with performance of the company. One say, a meeting of distributors held at the company headquarters. in the meeting, the chairman also participated. After some discussion about the distribution strategy, almost all distributor urged the chairman to introduce some new model to satisfy the changing demands of customers. The chairman who had engineering background recognize the implication of distributor’s suggestions but suggested that introduction of the new models would require heavy investment in research and development. Further, change in the highly automated production line would be very costly. His argument was

“the company has quite successful even with a limited number of models. Therefore, instead of introducing new models, it would be more appropriate to cut the cost of production of the existing models and reduce their price. After all what customers want is value for their money”

With this argument, the chairman decided not to introduce new models but insisted to cut the cost and price of existing models. However, he agreed to seek the opinion of a consultant to test the validity of his decision.