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A Humble Request from an EXPERT to Review of my AWA ..

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Joined: 02 Jul 2017
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A Humble Request from an EXPERT to Review of my AWA ..  [#permalink]

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New post 15 May 2018, 08:31
The following appeared in a memo to executives at a company that manufactures industrial equipment:

"We are spending too much on free customer service after a sale has been made; we need to limit our warranty to two years in order to improve our profit margins. The current lifetime warranty can lead to costs decades into a product's life cycle. Also, we pay our customer service employees a premium because they must possess expert skills across the entirety of our very diverse product line, including products we no longer sell."

Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.

The argument given is providing a way to improve profit margins of a industrial equipment manufacturer by reducing the overall lifetime warranty of the product to only two years. The above argument is based on the assumption that by reducing the free customer service of the product to two years there will be a considerable decrease in the costing of the company. Also it is stated that the premium paid to the customer service employees will be saved as employees won't need to possess expert skills of products that the company no longer sells. The argument is clearly flawed as no clear correlation has been made between the after service costing and the profits, decrease in sales due to reduction in of service life has not been considered.

Firstly there is no clear data that states that the cost of service of the equipment is higher after two years and not before that. Possibility of the equipment having the maximum service requirement within the first two years should have been a point of consideration. For example many industrial equipments may need a good amount of service within the first year after installation like calibration to the specification of the comapny, post first production problems and also the requirement until satisfactory production is achieved.

Second point that should have been given a plethora of consideration is that there might be a drastic reduction in sales of the equipments on withdrawal of lifetime warranty. Maybe the products of the company are sold because of the lifetime warranty and scrapping the same might lead to a negative impact on the reputation of the company thus decreasing the overall profitability.

Thirdly argument makes a point about paying customer service employees a premium for the diverse skill set. This point clearly lacks weightage as even if the services are to be used for free service of first two years or for any paid service beyond that company will still require employees with diverse skill sets, as even for paid warranty after first two years the the service needs to be provided even if the customer pays for it.

Finally on basis of points mentioned it can be clearly stated that the argument is baseless and it doesn't have legs to support it. Argument might have been strengthened if proper details about the cost incurred due to service were discussed, effect on sales due to withdrawl of the warranty were discussed , costing incurred to the company on keeping expert customer service employees was discussed and an approximate amount of saving due to these factors had been discussed.

So it can be concluded that without proper analysis and mitigating the above stated flaws the idea of making profit by reducing service warranty to two years is futile.
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Re: A Humble Request from an EXPERT to Review of my AWA ..  [#permalink]

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New post 21 May 2018, 00:17
Here are my main thoughts:

1) all in all, the arguments you present are sound. You have indeed identified a few central flaws.
2) Your arguments are way too strong. There is no reason to say the argument is "clearly" wrong, "futile", or anything of the sort. In fact, there is no reason to argue the position the argument takes is necessary wrong at all - only that the argument presented fails to justify it. Anything more than that is leaving your own argument open to criticism.
3) The English isn't good enough. A lot of sentences are quite hard to follow. You need to read more, work on your punctuation (there are almost no commas!) and writing shorter sentences.

I recommend looking at the AWA video on examPAL, where we give a comprehensive overview of how to approach this section.
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Re: A Humble Request from an EXPERT to Review of my AWA ..  [#permalink]

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New post 11 Jul 2018, 06:48
The argument is well reasoned in stating that too much spending on free customer service might slip in profit margins as lifetime warranty can lead to costs into a product's lifecycle. However, limiting warranty to two years proposing a way to improve profit margins, perhaps, makes the argument less logically sound.

There aren't given any supporting research analysis of year-on-year service costs of lifetime warranty products indicating surge after two years from the date of purchase.
Also, each of company's product's lifecycle is well not taken into consideration assuming all the products have persisted with similar problems in the past. Many equipments amount to a good number of services within first two years in contrast to those who amount with coming of age in order to keep up with its lifecycle.

A well-defined example here would be two-wheeler vehicles which certainly need more number of services within first year from the date of its purchase in order to have better mileage with time. Whereas heavy industrial machinery such as mining industrial or farming equipment require constant maintenance nearly after five years to keep it in good working order.

Notwithstanding company paying premium to its employees for possessing experts skills across product line which are no longer in market, perhaps it would be more wise to invest along in endorsing new line of products, asking customers to keep in sync with new technologies. As a way to boost up profit margins, the company, however, can place various deals and offers in exchanging of old products in discount to new ones.

I believe limiting warranty to just any number of years do not purportedly remedy for improvement in profits. One needs to take obvious factors into consideration in order for profits to spike at a constant rate.

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Re: A Humble Request from an EXPERT to Review of my AWA ..   [#permalink] 11 Jul 2018, 06:48
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