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22 Jul 2016, 15:20
Kudos
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Hi All,
I have just started preparing for my AWA section and I got the following question for my MGMAT CAT exam. I have pasted my exact response ( without any corrections post the exam). Can somebody help me evaluate and also let me know my strengths/weaknesses.
“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.”
The argument claims that a promotional price reductions on energy drinks have been highly successful, as there has been a dramatic increase in the unit sales. The argument then concludes that to improve the profitability and to enhance the company's perception , similar price reductions should be offered on all the drinks produced by the firm. The conclusion lies on a few assumption for which the author has not provided enough evidences. The argument is thus weak and unconvincing.
Firstly the argument readily believes that the energy drinks have been in the market for a while and only after the most recent price reduction, the sales have gone up. This statement is bit of a stretch as the author fails to provide enough statistical proofs. The sales of the energy drink can also go up when there some major sports tournament going on and it is being highly advertised. For example, during the FIFA world cup, all the foot ball fans want to follow what their football idols are doing and also want to be a part of the most happening event. The author has failed to rule out any possibility of any going marketing events. In addition to this sometimes a new brand ambassador for the product can also create a curiosity amongst the new generation. We do not have any other information that rules out these possibilities.
Secondly we do not even know if the energy drink is the new line of product introduced by the company hence the promotion. Such promotions generally have good outcomes as everybody wants to try the new product in the market. However it is very risky to assume that these effects would continue. It is highly possible that over the period when almost all have tried the new product, the customers are not too pleased with the product and the sales slowly go down. It is very important to understand the duration of the promotion.
Lastly the author extends the assumptions to a point where he is directly correlating the effects of the one successful for one product to another. It is highly possible the energy drink which could be new to the market is better than all the other energy drinks available in the market hence it is selling more. Now given this scenario, there is no guarantee that just by reducing the prices, the sales of all the drinks will go up. We also need to keep in mind what can be effects of a price reductions. Sometimes price reduction is perceived as a sign of either drop in the quality or a desperate measure to capture the market. Both these assumptions can create negative brand image amongst the customers.
Without the answers to a few basic questions such as: is there any other marketing event going on for the energy drink ? Is the energy drink a new line of product ? we can be a in a better position to analyse what we need to do improve the sales of the other drink. The author should also look at a few market surveys which can capture the actual customer's feedback about the current price of the other drink. Once we have answers to these questions the argument can be well substantiated and can make a strong case for further corrective actions.
With all the flaws stated above in the current the argument, the author sounds unconvincing. The argument without the above data points is more like a wish full thinking.
Thanks and Regards,
Shradha
I have just started preparing for my AWA section and I got the following question for my MGMAT CAT exam. I have pasted my exact response ( without any corrections post the exam). Can somebody help me evaluate and also let me know my strengths/weaknesses.
“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.”
The argument claims that a promotional price reductions on energy drinks have been highly successful, as there has been a dramatic increase in the unit sales. The argument then concludes that to improve the profitability and to enhance the company's perception , similar price reductions should be offered on all the drinks produced by the firm. The conclusion lies on a few assumption for which the author has not provided enough evidences. The argument is thus weak and unconvincing.
Firstly the argument readily believes that the energy drinks have been in the market for a while and only after the most recent price reduction, the sales have gone up. This statement is bit of a stretch as the author fails to provide enough statistical proofs. The sales of the energy drink can also go up when there some major sports tournament going on and it is being highly advertised. For example, during the FIFA world cup, all the foot ball fans want to follow what their football idols are doing and also want to be a part of the most happening event. The author has failed to rule out any possibility of any going marketing events. In addition to this sometimes a new brand ambassador for the product can also create a curiosity amongst the new generation. We do not have any other information that rules out these possibilities.
Secondly we do not even know if the energy drink is the new line of product introduced by the company hence the promotion. Such promotions generally have good outcomes as everybody wants to try the new product in the market. However it is very risky to assume that these effects would continue. It is highly possible that over the period when almost all have tried the new product, the customers are not too pleased with the product and the sales slowly go down. It is very important to understand the duration of the promotion.
Lastly the author extends the assumptions to a point where he is directly correlating the effects of the one successful for one product to another. It is highly possible the energy drink which could be new to the market is better than all the other energy drinks available in the market hence it is selling more. Now given this scenario, there is no guarantee that just by reducing the prices, the sales of all the drinks will go up. We also need to keep in mind what can be effects of a price reductions. Sometimes price reduction is perceived as a sign of either drop in the quality or a desperate measure to capture the market. Both these assumptions can create negative brand image amongst the customers.
Without the answers to a few basic questions such as: is there any other marketing event going on for the energy drink ? Is the energy drink a new line of product ? we can be a in a better position to analyse what we need to do improve the sales of the other drink. The author should also look at a few market surveys which can capture the actual customer's feedback about the current price of the other drink. Once we have answers to these questions the argument can be well substantiated and can make a strong case for further corrective actions.
With all the flaws stated above in the current the argument, the author sounds unconvincing. The argument without the above data points is more like a wish full thinking.
Thanks and Regards,
Shradha
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