The fact that a superior product can generate a competitive advantage for a company does not mean that every attempt at improving a product's quality will create such an advantage. Investments in product quality, like those in marketing and distribution, must be weighed against other types of investments with regard to direct, tangible benefits, such as increased profitability (including one or both of decreased costs and increased revenues) resulting from an investment. If a company is already competitive with others in the market in providing a product that is satisfactory to customers and avoids a negative reputation, then investment in increasing the quality of the product may be wasted because product quality, so long as it exceeds a minimum threshold, is rarely a primary factor for most customers in their buying decisions.
This concept was not understood by executives of one leading toy company, which failed to improve its competitive position, despite tremendous investment in strengthening the durability of its wooden toys. The toy company's executives did not recognize the leading role in which the brand names of their company and that of their primary competitors play in the buying decisions of their customers. As such, customers who are satisfied with a certain brand tend to remain loyal to that brand, despite changes in the quality of products made by that brand or any of its competitors. Similarly, they failed to analyze and properly understand the negative effects of an improvement in product quality, whereby their future purchases by customers loyal to their brand were actually cannibalized by the improved durability and extended lifespan of the newly improved toys. The only positive outcome of the improved product quality was the ability to easily market the toys to customers.
This primary purpose of this passage is to
a. compare potential positive and negative outcomes of a type of business investment.
b. suggest greater due diligence into a type of business investment.
c. illustrate a variety of cases in which a type of business investment could fail to achieve greater revenue.
d. analyze the general problems of a company caused by a certain type of business investment.
e. criticize the manner in which managers tend to consider costs and benefits of business investments.
Why can't c. be the answer?
According to VeritasPrep
, (C) is incorrect as the passage only explores one case in which an investment did not achieve increased revenue.
Correct Answer: B
I can see one example of a business and several cases such as
1. If a company is already competitive with others in the market
2. Brand loyalty as over looked by the toy company
Please help. Thank you.