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Intern
Joined: 19 Jun 2018
Posts: 2

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05 Aug 2018, 15:33
Prompt

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.

My Response:
The beverage manufacturer argues that, in order to 1) improve company's profitability and 2) enhance consumer perception, the firm should lower prices on all the drinks it produces, because this tactic has been deemed a success in raising unit sales and consumer perception for its line of energy drinks. The flaw in this argument is two fold: 1) the success in raising unit sales does not necessarily mean an increase in profitability, and 2) improvement in customer perception on energy drinks does not necessarily carry over to other drink products.

One of the key objectives of the the beverage firm is to improve profitability, however, we don't know for sure that was the outcome from the price reduction promotion on energy drinks. We know that unit sales have gone up significantly, but profitability depends on both the unit and the margins on each unit. The price could have possibly been reduced so much that the profitability actually decreased. Even if we assume that the price promotion did, in fact, make the energy drink franchise more profitably, the effect might not be transferable to other drink products, with markets that might be very different, especially if the margins on the other products are already very low. Therefore, we cannot say for sure this tactic helps profitability across all drink franchises.

The other object of the firm was to enhance customer perception, however, this also presents some flaws in logic. Since we can't assume all drinks to equal energy drinks, we can't know for sure that the customers will react the same way to a price reduction. Majority of the customers surveyed were energy drink users, and this population could have very little overlap with the customers of all other drink products. Therefore, the perception improvement might not carry across to other drink products. On the contrary, the tactic might backfire if other drinks are luxury products that have well-established brands and reputation. Customers might see a price reduction as a decrease in quality and therefore perceive the product negatively. This object also cannot be accomplished by a price reduction.

For the two reasons above, the beverage manufacturer is not guaranteed to have the desired results of increased profitability and enhanced perception if they decide to deploy the price reduction tactic across all drink products that they manufacture.
Manager
Joined: 23 Nov 2017
Posts: 107
Location: Singapore
Concentration: Strategy, Other
GMAT 1: 660 Q49 V33

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05 Aug 2018, 17:30
the above is a good attempt, however, you may want to insert key words and increase the length of your write up.
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