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Essay Question:
The following appeared in a corporate memorandum of a beverage manufacturer:
“Our promotional price reductions on energy drinks have been highly successful, as we have seen a dramatic increase in unit sales. Further, surveys of our consumers indicate that this promotion was favorably received by the majority of our customers. Therefore, to improve our company’s profitability and enhance its perception in the eyes of consumers, similar price reductions should be offered on all drinks produced by our firm.”
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.
Your Response:
The argument appearing in the corporate memorandum of a beverage manufacturer highlights how a recent promotion price reduction has increased unit sales. It continues to highlight positive customer feedback which results in their methodology of spreading this to other sectors of their business as a way to increase profit. This way of thinking is flawed because it does not take into consideration operating expenses in trying to maximize its company's profitability.
First, it must be understood that a increase in unit sales does not mean higher revenue or moreover profit. Since a promotional price had to be used to bring in additional consumers, revenue is affected. This memorandum gives no insight on whether expenses were decreased. The assumption by leading business experts is that temporary price reductions, while successful, do not lead to longterm profit growth. We must see these financial aspects to understand if the recent promotion mentioned resulted in higher profits. We are left assuming it did but not given any tangible evidence to support this claim.
Secondly, surveys of customers that have received a promotion is a velvet dagger because consumers are generally pleased with discounts. This assumption that a consumer would be displeased with a discount is unrealistic. Furthermore we need to understand the parameters of the survey and what the feedback was per demographic. Without doubt if the survey only probed if a customer was happy with the discount leaves many areas in gray. An attached appendix of the survey conducted can help clear this gray area and allow for us to better understand what the consumer seemed favorable by this promotion. Was it solely the discount, or was it more?
Lastly, the decision to improve profits and customer perception by offering price reductions across the board is lacking necessary additional evidence. Simple business tells us lowering prices does not mean higher profits. Before making such a broad statement the following must be considered: do all drinks cost the same to manufacture and whether all drinks need enhanced perception, is there a current demand versus supply issue at hand, and lastly has this strategy worked in similar industries. Without knowing these direct questions it is extremely difficult to fathom that this will result in profitability.
In conclusion this memorandum offers many flaws with its blanket statements and assumptions. If there are certain sectors that are cheaper to manufacture it may make sense to attract a new customer basis to strengthen your market share by offering a short term promotional price. However we have no profit results from the previous promotion so we are not even sure that they achieved their intended goal. We're only left with the statement that unit sales increased.
The following appeared in a corporate memorandum of a beverage manufacturer:
“Our promotional price reductions on energy drinks have been highly successful, as we have seen a dramatic increase in unit sales. Further, surveys of our consumers indicate that this promotion was favorably received by the majority of our customers. Therefore, to improve our company’s profitability and enhance its perception in the eyes of consumers, similar price reductions should be offered on all drinks produced by our firm.”
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.
Your Response:
The argument appearing in the corporate memorandum of a beverage manufacturer highlights how a recent promotion price reduction has increased unit sales. It continues to highlight positive customer feedback which results in their methodology of spreading this to other sectors of their business as a way to increase profit. This way of thinking is flawed because it does not take into consideration operating expenses in trying to maximize its company's profitability.
First, it must be understood that a increase in unit sales does not mean higher revenue or moreover profit. Since a promotional price had to be used to bring in additional consumers, revenue is affected. This memorandum gives no insight on whether expenses were decreased. The assumption by leading business experts is that temporary price reductions, while successful, do not lead to longterm profit growth. We must see these financial aspects to understand if the recent promotion mentioned resulted in higher profits. We are left assuming it did but not given any tangible evidence to support this claim.
Secondly, surveys of customers that have received a promotion is a velvet dagger because consumers are generally pleased with discounts. This assumption that a consumer would be displeased with a discount is unrealistic. Furthermore we need to understand the parameters of the survey and what the feedback was per demographic. Without doubt if the survey only probed if a customer was happy with the discount leaves many areas in gray. An attached appendix of the survey conducted can help clear this gray area and allow for us to better understand what the consumer seemed favorable by this promotion. Was it solely the discount, or was it more?
Lastly, the decision to improve profits and customer perception by offering price reductions across the board is lacking necessary additional evidence. Simple business tells us lowering prices does not mean higher profits. Before making such a broad statement the following must be considered: do all drinks cost the same to manufacture and whether all drinks need enhanced perception, is there a current demand versus supply issue at hand, and lastly has this strategy worked in similar industries. Without knowing these direct questions it is extremely difficult to fathom that this will result in profitability.
In conclusion this memorandum offers many flaws with its blanket statements and assumptions. If there are certain sectors that are cheaper to manufacture it may make sense to attract a new customer basis to strengthen your market share by offering a short term promotional price. However we have no profit results from the previous promotion so we are not even sure that they achieved their intended goal. We're only left with the statement that unit sales increased.
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