IGCSE, A Level Business Student Forum

BASEL Tyres uses batch production to make car tyres in 15 different sizes. Last year BASEL sold 60 million tyres including 40 million tyres of its best-selling size. The Finance Director has been looking at the financial data shown below. She said: ‘Liquidity is important. I need to do some ratio analysis to measure business performance. In the previous year our Return on Capital Employed was 33%.’The directors are worried about increased competition but they cannot decide on the best way for LWM to respond.

Financial Data of BASEL Tyres for Current Year
Revenue: 3,000 million
Profit: 1,000 million
Long Term Liabilities: 2,000 million
Capital Employed: 4,000 million

06 Explain two ways BASEL might respond to increased competition. Recommend which way LWM should choose. Justify your answer. [12]

Possible Points:
> Introduce new products
> Lower prices /Competitive Pricing
> Merge or takeover
> Advertise OR use promotion
> Provide good after sales services (additional features)

Possible Structure:
Way 1 >> APP >> AN
Way 2 >> APP >> AN
Evaluation: (which way is more suitable, give strong justifications as per the scenario)

One way BASEL can respond to increased competition is using competitive pricing which is setting prices to match your competitors. This can help attract price conscious customers. Last year BASEL sold 60 million tyres and 40 million tyres of its best selling size. If BASEL lowers there price a bit they can increase their sales volume even more and maintain market share. Lower prices may also encourage repeat purchases from existing customers.

Another way BASEL can respond to increased competition is investing more in promotion and advertising. For example BASEL could put out ads showing the quality, reliability and safety of their tyres. This can raise brand awareness among potential customers who might not have considered BASEL before. Promotion can also improve the perceived value of the products allowing the business to charge higher prices. Advertisement can also improve a businesses reputation, attracting new partnerships with car dealerships.

Overall investing in promotion and advertising is the better response as reducing prices risks lowering profit margins. Promotion supports long term growth and creates brand awareness which helps the business differentiate from competitors and allows BASEL to maintain profitability.

kn] asel should launch unique and innovative products in the market for customer attraction
ap] for e.g. basel should introduce high life tyres and tyre with high capability and performance
an] this will attract customers for their uniqueness and sales will increase this will also make a good rad image of their tyre company and they should contract with car companies to use their tyres in their new car this will increase customer trust on them and make the customer loyal to them

kn] they can also use low prices or competitive as they are making 40 million and 60 million sales if they reduce price more customer will attracted so their profit will not reduce and stand back there
ap] for e.g. when basel reduce prices low income people will start buying there tyres as affordable this will built their market good
an] in long term this will increase their customer base and trust level for their tyres and company and this will make their profit rise with good margin

evaluation] as considering both of new products will be making products according to new technology and features and low prices will attract low income people so basel should use both together by making new features and low prices this will be best strategy for them for high sales and customer attraction