A Caveat

A Caveat: The strategy hinges on several assumptions. First, there is a direct relationship of customer-satisfaction to revenue. Second, at this point the slope of the marginal revenue curve is greater than the slope of the marginal expense curve. (It would seem self-evident that there is a cusp, below which poor customer service creates a drastic drop-off in both customer satisfaction and revenue.) Or put another way, the slope of marginal revenue-marginal cost curve is <> 1 and marginal costs exceed marginal revenues. In this case increased volumes only exacerbate the problems. Third, the balance sheet will sustain an offensive strategy.