Ralph, a regional sales manager, was asked to analyze whether his company should launch a marketing effort to become RightFoods' produce supplier this year. He found that Fresh Green Veggies currently has a supply contract with RightFoods that has three more years in its term; RightFoods would have to pay Fresh Green $0.5 million to break the contract. Also, Fresh Green has installed automated ordering/billing software in RightFoods' home office; RightFoods would have to spend $100,000 to replace it and retrain its staff. He concluded that RightFoods' ________ costs would be too high to seriously consider a change in supplier, thereby recommending that a marketing effort not be launched this year.

Question

Quizplus · Accepted Answer

The costs mentioned in the scenario, such as the $0.5 million contract termination fee and the $100,000 software replacement cost, are examples of switching costs. These are costs that a company would incur if it decided to switch from one supplier to another. In this case, the switching costs associated with leaving Fresh Green Veggies as the supplier are too high for RightFoods to seriously consider a change. Therefore, the best choice is option C - switching costs.

Ralph, a Regional Sales Manager, Was Asked to Analyze Whether