Welcome on board to Orkin Pest Control’s midwest sales management team. I would like you to analyze our current pricing scheme on our basic, monthly residential home pest control services in our representative mid-size market and give me a recommendation on how we can increase our monthly sales by 20% on this product arm. We have been successful at up-selling customers to our premium service, so we would like to attract a fresh batch of customers to our basic service in the next month.

Our sales department has estimated the following monthly demand for our basic service: Qd=95-4POR+5PTER where the demand for our monthly treatments does depend on the price of our only competitor in the market: Terminix. Currently Terminix is pricing their service at PTER=$65, while we are pricing our service at POR=$70.

We are thinking about cutting our price by $5 to match our competitor’s price and achieve our desired sales increase, but I am willing to drop below Terminix’s price by offering a $10 price cut on our service. What are your thoughts on the matter?