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02 Apr 2016, 20:59
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The Prompt
The following appeared in an advertising brochure carried by ChromeChannel Communication salespeople:
Pay-per-click web advertising is the best investment an advertiser can make. In the eighteen months since MacDowell's halved its television advertising and doubled its web advertising, its sales have grown by nearly 30% and it has opened forty more stores to keep up with demand. This is just one example of the fact that television advertising is on its way out, and smart businesses will continue to up their investment in pay-per-click ads.
My Essay
This argument draws on the case of MacDowell's reallocation of advertising budget, from television to pay-per-click to convince potential customers that they should invest in pay-per-click advertising instead of television advertising. The argument is deeply flawed for a number of reasons and fails to provide all the details necessary regarding the case to make it a convincing argument.
This argument makes the jump from correlation to assuming causation. We are told sales grew by 30% at the same time that advertising spend was switched from television advertising to pay-per-click advertising, however we are not told about other factors that could have increased sales during that same time period. For example maybe the sales force was doubled at the same time and this more than made up for the lack of awareness caused by cutting out the more effective television advertising.
A second issue with this argument is that we do not have enough information on the financial picture to understand if doubling the investment on pay-per-click and halving the TV investment actually led to higher profit. We know that sales increased, but it could be that MacDowell was spending a lot more incrementally on the pay-per-click advertising then it was saving on TV advertising. For example maybe before they spent $4 on TV advertising, $20 on pay-per-click advertising, and had sales revenue of $10, in the period referenced above. If that was the case it would mean that 18 months later they are spending $2 on TV, $40 on pay-per-click and bringing in $13 in sales revenue, in the period referenced above. Assuming advertising is the only expense, the company was losing less money before they shifted advertising to pay-per-click, and they are in a worse situation because of pay-per-click advertising expenses.
Additionally later in the argument the author makes the conclusion that, because pay-per-click advertising was more effective for MacDowell it means that television advertising is on the way out and will be replaced by the online advertising. This is a huge assumption to make based of of one case. Maybe the customers of MacDowell are much more influenced by the online advertising, but that does not mean that all customers of products from all industries will be similarly drawn to the pay-per-click advertisements. Maybe only the high tech products that MacDowell sells draws the more tech savvy customers that are online and don't watch TV.
This argument is deeply flawed, because it jumps to a conclusion, assumes causation is correlation, and generalizes an entire market based on one case. To strengthen the argument the author should provide details about any changes on the part of the company and the market in general that could have affect profit and sales during the time period discussed. The authors should also provide information of similar cases from different industries and different products. Finally the author should provide more information about the total financial pictures including income, expense, and profit reports.
I'll be super duper grateful for any ratings/ feedback that your GMAT KILLA'S are able to provide!
The following appeared in an advertising brochure carried by ChromeChannel Communication salespeople:
Pay-per-click web advertising is the best investment an advertiser can make. In the eighteen months since MacDowell's halved its television advertising and doubled its web advertising, its sales have grown by nearly 30% and it has opened forty more stores to keep up with demand. This is just one example of the fact that television advertising is on its way out, and smart businesses will continue to up their investment in pay-per-click ads.
My Essay
This argument draws on the case of MacDowell's reallocation of advertising budget, from television to pay-per-click to convince potential customers that they should invest in pay-per-click advertising instead of television advertising. The argument is deeply flawed for a number of reasons and fails to provide all the details necessary regarding the case to make it a convincing argument.
This argument makes the jump from correlation to assuming causation. We are told sales grew by 30% at the same time that advertising spend was switched from television advertising to pay-per-click advertising, however we are not told about other factors that could have increased sales during that same time period. For example maybe the sales force was doubled at the same time and this more than made up for the lack of awareness caused by cutting out the more effective television advertising.
A second issue with this argument is that we do not have enough information on the financial picture to understand if doubling the investment on pay-per-click and halving the TV investment actually led to higher profit. We know that sales increased, but it could be that MacDowell was spending a lot more incrementally on the pay-per-click advertising then it was saving on TV advertising. For example maybe before they spent $4 on TV advertising, $20 on pay-per-click advertising, and had sales revenue of $10, in the period referenced above. If that was the case it would mean that 18 months later they are spending $2 on TV, $40 on pay-per-click and bringing in $13 in sales revenue, in the period referenced above. Assuming advertising is the only expense, the company was losing less money before they shifted advertising to pay-per-click, and they are in a worse situation because of pay-per-click advertising expenses.
Additionally later in the argument the author makes the conclusion that, because pay-per-click advertising was more effective for MacDowell it means that television advertising is on the way out and will be replaced by the online advertising. This is a huge assumption to make based of of one case. Maybe the customers of MacDowell are much more influenced by the online advertising, but that does not mean that all customers of products from all industries will be similarly drawn to the pay-per-click advertisements. Maybe only the high tech products that MacDowell sells draws the more tech savvy customers that are online and don't watch TV.
This argument is deeply flawed, because it jumps to a conclusion, assumes causation is correlation, and generalizes an entire market based on one case. To strengthen the argument the author should provide details about any changes on the part of the company and the market in general that could have affect profit and sales during the time period discussed. The authors should also provide information of similar cases from different industries and different products. Finally the author should provide more information about the total financial pictures including income, expense, and profit reports.
I'll be super duper grateful for any ratings/ feedback that your GMAT KILLA'S are able to provide!
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