Alex's new constraint - Demand

Not rated yet. Be the first who rates this item!

Due to spare capacity, market demand is now Alex's new constraint. Alex wants the marketing department to accept orders at 10% below cost in order to increase demand. Johnny thinks Alex's proposal makes no business sense.

D: accept orders 10% below cost
D': Not accept orders 10% below cost
B: Increase market demand
C: avoid price wars
A: Increase profit
Click on the icons on the arrows to see assumptions and injections
In order to Increase profit I must Increase market demand and in order to Increase market demand I must accept orders 10% below cost. But, in order to Increase profit I must also avoid price wars and in order to avoid price wars I must Not accept orders 10% below cost. I can't both accept orders 10% below cost and Not accept orders 10% below cost.
RelationAssumption(s)Injection(s)
D-D'Both decisions/actions are mutally exclusive.
B-Daccepting orders 10% below cost will increase market's demand for our products. There are other actions to increase market demand like offering faster shipping times.
C-D'1. Accepting orders 10% below cost would cause price warsAdding another competitive advantage with the reduced cost could avoid a price war.
A-B1. Market demand is a constraint
2. Market demand will increase profits
A-C1. A price war would cause loss of market share
2. A price war would cause a decrease in profits