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22 Oct 2015, 07:19
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The following appeared in a memorandum from a company’s marketing department:
“Since our company started manufacturing and marketing a deluxe air filter six months ago, sales of our economy
filter—and company profits—have decreased significantly. The deluxe air filter sells for 50 percent more than the
economy filter, but the economy filter lasts for only one month while the deluxe filter can be used for two months
before it must be replaced. To increase repeat sales of our economy filter and maximize profits, we should
discontinue the deluxe air filter and concentrate all our advertising efforts on the economy filter.”
Discuss how well reasoned . . . etc.
--------------------------------------------------------------------------------------------------------------------------------------------------
The memo states that since after manufacturing and marketing deluxe filter with better specifications, the sales of the economy filter have gone down. This has decreased the company profits. To increase the profits again, the company’s marketing department suggests that they should again focus on manufacturing economy filters instead of deluxe filters, even though deluxe filters’ sales have been increasing. This is a deterred argument and has a lot of logical flaws.
First of all, the memo states that the sales of economy filters have gone down because of deluxe filters. This is illogical. If a company is manufacturing a better product, then people are obviously going to prefer the better product. The company can check whether the quality of air filtered by the economy filter is to the mark. If people are not satisfied by the quality of air filtered by the economy filter, then people will obviously look for better options. What the company can also check is the ease of availability of service and repairs of the economy filters. If people have better service and the filter is repaired satisfactorily, then they will again start buying the economy filters.
Second, the marketing team suggests that the focus on deluxe filters should be diverted to economy filters. This will degrade the performance of the deluxe filters. The company will again lose the market for deluxe filters, and the resulting effect will be depreciated profits. Discontinuing a product or depreciating performance of a product can prove detrimental to a company’s reputation.
Consider the example of the famous car manufacturing company Honda. Honda has a range of cars from economy class to luxury class. Depending on the necessity of the customer, the company designs and manufactures cars. If they launch a luxury car doesn’t mean that they discontinue of shift their focus from other cars. They study the market for each type of car and then launch the car. So if more people are going to buy an economic model, then the company tries to make the economic model better for their customers. While doing this Honda, does not neglect the luxury cars because the target audience for those types of cars is different. A similar business model can be implemented for the sale of filters.
Finally, the memo wrongly compares the price of the economy filters to the deluxe filters. Instead, the comparison should be between the prices of economy filters manufactured by the company with the price of economy filters manufactured by a competitor. If the competitor is selling the economy filters at a much lower rate, then the company should revise its rate chart and offer attractive prices to customers. This will help the company to regain the lost market in the economy filters.
The conclusion by drawn by the marketing department is thus flawed and has many errors. The result can have detrimental effects on the company and drive the company to loss. If all the above points are considered, the argument can be properly judged.
“Since our company started manufacturing and marketing a deluxe air filter six months ago, sales of our economy
filter—and company profits—have decreased significantly. The deluxe air filter sells for 50 percent more than the
economy filter, but the economy filter lasts for only one month while the deluxe filter can be used for two months
before it must be replaced. To increase repeat sales of our economy filter and maximize profits, we should
discontinue the deluxe air filter and concentrate all our advertising efforts on the economy filter.”
Discuss how well reasoned . . . etc.
--------------------------------------------------------------------------------------------------------------------------------------------------
The memo states that since after manufacturing and marketing deluxe filter with better specifications, the sales of the economy filter have gone down. This has decreased the company profits. To increase the profits again, the company’s marketing department suggests that they should again focus on manufacturing economy filters instead of deluxe filters, even though deluxe filters’ sales have been increasing. This is a deterred argument and has a lot of logical flaws.
First of all, the memo states that the sales of economy filters have gone down because of deluxe filters. This is illogical. If a company is manufacturing a better product, then people are obviously going to prefer the better product. The company can check whether the quality of air filtered by the economy filter is to the mark. If people are not satisfied by the quality of air filtered by the economy filter, then people will obviously look for better options. What the company can also check is the ease of availability of service and repairs of the economy filters. If people have better service and the filter is repaired satisfactorily, then they will again start buying the economy filters.
Second, the marketing team suggests that the focus on deluxe filters should be diverted to economy filters. This will degrade the performance of the deluxe filters. The company will again lose the market for deluxe filters, and the resulting effect will be depreciated profits. Discontinuing a product or depreciating performance of a product can prove detrimental to a company’s reputation.
Consider the example of the famous car manufacturing company Honda. Honda has a range of cars from economy class to luxury class. Depending on the necessity of the customer, the company designs and manufactures cars. If they launch a luxury car doesn’t mean that they discontinue of shift their focus from other cars. They study the market for each type of car and then launch the car. So if more people are going to buy an economic model, then the company tries to make the economic model better for their customers. While doing this Honda, does not neglect the luxury cars because the target audience for those types of cars is different. A similar business model can be implemented for the sale of filters.
Finally, the memo wrongly compares the price of the economy filters to the deluxe filters. Instead, the comparison should be between the prices of economy filters manufactured by the company with the price of economy filters manufactured by a competitor. If the competitor is selling the economy filters at a much lower rate, then the company should revise its rate chart and offer attractive prices to customers. This will help the company to regain the lost market in the economy filters.
The conclusion by drawn by the marketing department is thus flawed and has many errors. The result can have detrimental effects on the company and drive the company to loss. If all the above points are considered, the argument can be properly judged.
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01 Nov 2015, 11:05
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rohan89
I guess it's written in timed condition. The write up is well written & length is okay. However the issues discussed and examples seem bit elaborative. Concise thought creates room for further essential discussion.
The score may stand close to 3.5 / 4.00. However, it can be improved by addressing some striking issues like
- the memo correlates the decrease sales and profit to the launch of deluxe filter. However the correlation is not substantiated with relevant information / evidence.
- There could be more logical reason for decreasing profit e.g. competitors' move, alternative product / technology etc.
- 6 month may not enough breathing time for a new launch. It may take more time to cross break even.
- Recommendation for discontinuing the deluxe air filter may prove short sighted proper causal relationship is established.
Hope it will helps
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