“We have to lower our prices or we’ll just get killed,” said Hoyt Lamont, director of operations for the 10‐unit Blinky’s sub shops. Blinky’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 $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 5000 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.

“There’s 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 wasn’t 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 don’t know, but I think they are going to kill us in the market. We need to do something, and fast!”

1. How large a role do you believe product “cost” likely played in the decision of this competitor to reduce its sandwich prices?

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