Suppose you were hired as a consultant for a company that wants to penetrate the Comp-XM market. This company wants to pursue a niche cost leader strategy. From last year’s reports, which company would be the strongest competitor? Select: 1Save Answer Digby Chester Andrews Baldwin

Option B. Chester Company

Explanation:

The company wants to pursue Niche Cost Leader Strategy. In a Niche cost leader strategy the product is highly differentiated and the cost the company charges to its customer is low as apposed to other competitors. The companies that has highly differentiated product and are new entrants usually use this strategy to win a good share of market size.

The strongest competitor would have lowest price, very stable market share price, high investment in plant and equipment, higher production capacity, lowest return on investment, lowest earnings per dollar sales. etc.

Now we will asses different reports and conclude which competitor will be the strongest competitor for the Niche Cost Leader Strategy company. The analysis is given as under:

Lowest Price: If we look at the Production information, Price Column and take the average price of the products of each company then we can conclude that Chester's price of average product is $20, Baldwin has $24.17 and the rest of the competitors are charging high. This means Chester is charging lowest price.Stable Market Share Price: The vulnerability of share price of Chester is the lowest which stands at $0.45. This means that the stock exchange values the company's share as a stable stock with least vulnerability. (See Stock Market Summary)Lower Return on Asset and Return on Sales: If we analyze the Selected Financial Statistics then we will acknowledge that Chester also has 2nd lowest Return on Assets and Return on sales which shows that the company is charging lower prices to its customers. Baldwin is not appropriate to consider here because the company is incurring losses hence its Return on Assets and Return on Sales can not be considered as good indication.Higher Investment in Plant and equipment: The company has 2nd highest investment in plant and equipment with highest Net Book Value of $148k and Baldwin stands at $178k. Now again the higher investment of Baldwin is financed by debt which costs the company more than Chester. This means Chester would be strongest competitor because the company will have to only bear the depreciation cost which is non cash flow in nature and not the interest cost which Baldwin is bearing. (See Income statement for Interest Cost and Balance sheet for Carrying value of the asset).Production Capacity: Chester has the highest production capacity which means that the company despite its 2nd largest investment in plant and equipment. This means that the plant and machinery of Chester is more innovative which is the reason that the production capacity is higher than other competitors.

From the above analysis it seems that Chester is pursuing Niche Cost Leader Market and is the strongest competitor that the company will face. Hence B is the correct option here.

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