Decision Analysis

Athens Glass Company

Group 2

Miral Faraz

Mariyam Asif

Mehr Ejaz

Izza Junaid

Ali Baqir
Introduction:

Athens Glass Works, a midsized regional glass company, serves several niche markets in

Southeastern United States. Previously, it held almost 35% of the non-glare glass market due to

its reliable service; exceptionally high quality glass; low priced shipping and well excellent

customer service. However, in the last quarter of 1992, due to future long-term expansion and

modernization plan, AGW increased its prices by almost 10% from $2.15 to $2.36. However,

competitors did not follow suit and kept their prices constant. This resulted in the market share of

AGW declining to almost 20% in 1993. The dilemma that AGW now faces is whether it should

go back to the old prices of $2.15 in order to regain their market share or whether to stick with

the current price of 2.36, which would mean higher profit margin but a continuously declining

market share. In this report we would seek to explore both the options and their respective

outcomes to propose an optimum solution.

Analysis:

Using the information provided in Exhibit 1 of the case i.e. the sales volume and the unit price

per square foot of glass we can calculate the market share of Athens Glass Work in each quarter

and compare them. From the third quarter of 1991 till the third quarter of 1992 the market share

of AGW fluctuates, however there is an overall increase from 35.23 % to 35.50%. In the fourth

quarter of 1992 the price per square foot of glass is increased to $2.36 and the resulting market

share has dropped down to 26.15% and it continues to decrease. According to the volume of

sales estimated by Christina Mathews, given that the price per foot is decreased to $2.15, the

company would be able to regain its original market share with sales of 275,000.However,

keeping the price constant at $2.36 , the market share will drop to 16.3% of the total market

share with the volume of sales at 150,000.

We consider the repercussions of maintaining the price at $2.36. Firstly, the market share of

AGW will decline further to 16.3% of the total market (Exhibit). Hence, maintaining the price at

$2.36 seems unfeasible. But decreasing the price means that the firm is taking only short term

consequences into account and ignores the long-term possibilities.

Firstly, the competitors of AGW are also facing a financial constraint due to economic recession

and hence might end up increasing their prices. This would result in a level playing field of

AGW causing them to regain their original market share. Secondly, reducing the prices would

result in a loss for the company and hence financial constraints might occur for future expansion.

Hence keeping the price constant and hence taking advantage of higher profits might result in the

company focusing on recapturing the market through launching new products.

Moreover, according to Exhibit 2 of the case, a price of $2.36 shows a profit, whereas a price of

2.15 shows a loss. Hence, keeping the price constant at 2.36 means there is a lost opportunity of

increased market share whereas decreasing the price means a loss of profit. However, in order to

align with the organization’s goal of expansion, AGW must focus on generating higher cash

flows in order to fund the expansion projects.

Conclusion:

According to our analysis, we believe that Athens Glass works should maintain their prices for

non-glare glass at $2.36. The reason for this are plentiful including the fact that maintaining the

price at 2.36 results in higher profits and also aligns with the company goal of expansion which

in turn makes it possible for them to regain lost market share through new products. Moreover,

the disadvantage of low market share for AGW is only temporary as competitors will soon have

to increase their prices given the economic conditions of the country.

 Appendix

Influence Diagram
 Estimated Cost at Various Volumes
$0.50

$0.45

$0.40

$0.35 Material
$0.30 Energy

$0.25 Labor

$0.20 Shipping
General Overhead
$0.15
Depreciation
$0.10

$0.05

$-
150 175 200 225 250 275 300 325

Exhibit 1

Manufacturing and Selling & Admin Costs at

Various Volumes
$1.80
$1.60
$1.40
$1.20
$1.00
Manufacturing Cost
$0.80
Selling & Admin. Costs
$0.60
$0.40
$0.20
$-
150 175 200 225 250 275 300 325

Exhibit 2
 Sales Volumes - AGW VS Competitors
350 800

300 700

600
250
500
200
400 AGW
150 Competitors
300
100
200

50 100

0 0
$2.05 $2.05 $2.15 $2.15 $2.15 $2.36 $2.36 $2.36

Exhibit 3

AGW Sales VS Price

350 $2.40
$2.35
300
$2.30

250 $2.25
$2.20
200
$2.15
Sales
$2.10
150 Price
$2.05
100 $2.00
$1.95
50
$1.90
0 $1.85
1 2 3 4 5 6 7 8

Exhibit 4