AWA Review Request

Hi Guys,

My first shot at the AWA section. Would appreciate any feedback.

Thanks

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The following appeared in an Excelsior Company memorandum.

The Excelsior Company plans to introduce its own brand of coffee. Since coffee is an expensive food item, and since there are already many established brands of coffee, the best way to gain customers for the Excelsior brand is to do what Superior, the leading coffee company, did when it introduced the newest brand in its line of coffees: conduct a temporary sales promotion that offers free samples, price reductions, and discount coupons for the new brand.

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The argument asserts that the most effective strategy for Excelsior to acquire new customers would be through sales promotion, by offering free samples, price reductions and discount coupons, for the new brand. The argument is supported by the fact that this was an effective launch strategy for Superior, the market leader in the industry. However, the argument is based on multiple assumptions, highlighted below, which bring into question the validity of the recommendation.

The core assumption is that, since this worked for Superior, it would work for Excelsior. However, the memorandum itself states that this strategy worked for Superior's "newest brand", and that they had a pre-existing line of coffees. This implies that Superior had existing brand recognition which is likely to have been behind the success of the sales promotion. This is a perfect case of confusing correlation with causation. In order to establish a causal effect here, we would need more data, with respect to the use of sales promotions for launches by other coffee brands, that had no existing brand recognition.

Secondly, the argument states that coffee is an expensive food item, which is indicative of the fact that coffee drinkers do not constitute a particularly price-sensitive market segment. Therefore, the assumption that this market segment would consider a new brand, solely on the basis of it being free or discounted is far-fetched and questionable.

Finally, the memorandum questions the brand loyalty of coffee drinkers, by assuming that they would be willing to switch brands due to a promotion. Coffee tends to be an integral part of many people's daily routine and people may get accustomed to the taste of their specific brand.

To conclude, adopting a launch strategy simply because it was effective for a market leader with existing brand recognition would not be a sound business decision. While it is an indicator of potential effectiveness, the management of Excelsior should acquire competitor research data as recommended above. In addition to that, to address that other assumptions noted, they should carry out thorough market research into their target market segment, especially to address the correlation between price-sensitivity and promotion, as well as further study the brand switching habits of this segment.