Question

Read the following situation and choose the best possible alternative.

The city of Nagar has a population of 10 million: 2 million are rich, 3 million are poor and 5 million belong to the middle class. Saundarya Cosmetics makes and sells beauty products to the rich class at a premium price, and its products are very popular with these customers. Many people from the middle and poor segments want to buy these products but cannot afford them because of the high prices. Lately, sales growth in the rich segment has been slowing down. Which of the following is the best option for Saundarya Cosmetics to increase its profits over the long term?

• A. Sell the same products at lower prices to the middle and poor classes as well.
• B. Sell its products under different brand names to the middle and poor classes, keeping the price the same.
• C. Sell similar products, but of different quality levels and under different brand names, to the middle class and the poor class separately.
• D. Keep targeting only the rich class and hope that today's middle class becomes tomorrow's rich class.

Hint:

Think about why a premium brand cannot simply lower its price or reuse the same brand name for cheaper customer segments without hurting its existing business.

Answer 1

The Correct Option is C

Step 1: Understanding the Question:
Saundarya Cosmetics is a premium brand whose growth in the rich segment is slowing down, while a much bigger pool of middle and poor customers wants the brand but cannot afford it. The question asks for the option that grows long-term profit without wrecking what already works.

Step 2: Key Idea or Approach:
A premium brand usually cannot cut its price for everyone without damaging the very premium image that makes rich customers pay more in the first place, and using the same brand name at a lower price also weakens that image. Companies solve this by using a different quality level and a different brand name for a different income segment, a strategy often called brand tiering or market segmentation.

Step 3: Detailed Explanation:
Selling the same product at a lower price to everyone would either force a loss on the company or make the rich customers feel the premium tag was fake, and either way it damages the existing profitable segment. Selling under a different brand name but at the same high price still leaves the product unaffordable for the middle and poor classes, so it does not open up any new sales. Continuing to target only the rich class ignores the fact that this segment's growth is already slowing down, so it does not solve the actual problem in the question. Selling similar but lower-quality products under separate brand names to the middle class and the poor class lets the company enter two new, much larger markets, 5 million plus 3 million people, at price points those customers can afford, while the original premium brand for the rich class stays untouched and keeps its image.

Step 4: Final Answer:
The best long-term option is to sell similar products of different quality, under different brand names, to the middle class and the poor class separately. This corresponds to option 3.