SITUATION
Tom Anderson started his records storage business in the New York metropolitan area in 1991. His differentiation strategy was to offer competitive prices while providing state-of-the-art technology, easy access to his warehouse, and, of course, great service. After opening the business, Anderson learned that most potential customers had already signed long-term storage contracts with competitors. These contracts included a removal fee for each box permanently removed from the storage company's warehouse, making it difficult for customers to consider switching.
Anderson believes that the survival of his company hinges on his view of what the essence of his business is. In other words, is he operating a storage company or a real estate business? He is convinced that he must answer this question before making any decision regarding pricing strategy.
Question 1 What do you think Anderson means when he asks, "Is my business storage or real estate?" Why do you think he feels a need to ask this question prior to developing a pricing strategy?
Question 2 What pricing strategy would be effective in combatting the existing contractual relationships between potential customers and competitors?
Question 3 Assuming that business costs would allow Anderson to lower prices, what problems do you see with this approach?
Question 4 Do you believe his business could benefit from offering credit to customers? Why or why not?