Since our company started manufacturing and marketing a deluxe light

The following appeared in a memorandum from the ElectroWares company’s marketing department:

“Since our company started manufacturing and marketing a deluxe light bulb six months ago, sales of our economy light bulb—and company profits—have decreased significantly. Although the deluxe light bulb sells for 50 percent more than the economy bulb, it lasts twice as long. Therefore, to increase repeat sales and maximize profits, we should discontinue the deluxe light bulb.”

Discuss how well reasoned . . . etc.

The argument that simply discontinuing ElctroWave’s deluxe lightbulb will reverse a decline in sales of the economy lightbulb and help to maximise profits is flawed. The argument fails to address other possible causes of the drop in sales, it sets out a loose goal to ‘maximise’ profits without defining what this means, and the product under discussion has only been recently launched.

First, the argument assumes that the decline in sales of the economy light bulb is linked to sales of the deluxe light bulb. The passage states that the deluxe product lasts for ‘twice as long’ as the economy product but this does not necessarily mean that sales of one impacts sales of the other. ElectroWares may have a broad customer base exhibiting changing consumer preferences. It is possible that consumers are generally moving away from economy products and towards higher end products with perceived environmental benefits such as longevity. Second, the suggested strategy change is driven by a desire to ‘increase repeat sales and maximise profits’ without supplying specific information about targeted sales volumes or profit levels. We are told that the deluxe product sells for 50 per cent more than the economy product but we are not told how this higher sales price affects profitability. In fact, profit margin information for both products is absent. Without further information it is not possible to say for certain whether changing sales strategy will have the desired effect of driving up profits. Third, the deluxe product has only been marketed for 6 months. This seems like a relatively short time to market a new product, especially since the product was manufactured by ElectroWares and the company no doubt incurred costs in developing the product. Perhaps more time is required in order to validate the product’s viability and to give the company any opportunity to recoup its development costs.

In summary, the argument makes an over simplistic connection between a drop in sales and the presence of a new product. More information about consumer trends, margins and new product development costs would be helpful to substantiate the argument.