Lille Tissages, S. A.

Background
Lille Tissages, S.A. was one of the largest companies in the textile industry located in Lille, France.
Its 2003 sales had exceeded FF96 million out of which 2.6% was for item 345. Item 345 was one of the most successful products. In its prime years from 1998 – 2001 they had a market share for Item 345 of 35%. In 2002 the market share dropped to 30%, and then continued to drop in 2003 to 20%. See exhibit 1. This is believed to have been caused by Lille Tissages, S.A. raising the price of Item 345 from FF15.00/m to FF20.00/m in 2002, while the competitors kept their price atFF15.00/m.
The reason for raising the price in 2002 was the need to bring the profit per meter up to that of other items on the line. Although the company was in a strong position financially, it would require considerable capital in the next few years to finance a recently approved long-term modernization and expansion program.1

Facing stiff competition the senior management needed to reconsider the pricing plan for Item 345. So in early 2004 they held a meeting to decide in which direction to go.

A reasonable forecast of industry volume for 2004 was 700,000 meters.
The sales director proposed that if the firm were to reduce the price of Item 345 to FF15.00/m, they would be able to increase sales to 175,000 units (or 25% of industry volume). But if they were to keep the price at the current value of FF20.00/m, they would be able to sell not less than 75,000 units (or 11% of industry volume).

Questions
1. Should Lille Tissages, S.A. lower the price to FF15.00/m? (Assume no intermediate prices are being considered.)

2. If the department that produces Item 345 was a profit center and if you were the manager of that department, would it be to your financial advantage to lower the price?

3. Is there any possibility that