Please review my AWA essay and provide feedback

Question:

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.”


My response:

The argument states that to improve the profitability of the beverage manufacturer and enhance its perception in the eyes of the consumers, it should resort to price reductions on all its products. This claim is based on the success of a similar price reduction campaign of one of its products. The argument is weak and suffers from three critical flaws.

Firstly, the author has linked the price reduction of the energy drinks to the increase in unit sales. This correlation fails to factor in other possible causes for increase in the sales. For example, the energy drink may be providing a unique health benefit, unlike its competitors, which attracts the target market more than does the reduction in price. Moreover, to support this claim, the argument relies on a customer survey in which the promotion was favorably received by majority of the customers. There are no details provided of this survey, and without more data, there is no way of confirming whether or not the results of the survey are skewed.

Secondly, even if we were to grant that the promotional prices did in fact increase the sales, there is no proof that the same tactic will be successful for all other products of the company. For instance, the falling prices may lead a customer to believe that the quality of the product is being compromised. This would lead to a decrease in sales rather than an increase. Further, the perception of the product in the eyes of the customer will also fall.

Lastly, the argument implies a direct correlation between an increase in unit sales and profitability. This may not always hold true. To illustrate, say the company is selling 10 units for $50, the revenue will be $500. Let's assume the price is $20 per unit. The profit of the company, therefore, is $300. Say the company decided to offer a promotional price of $30. The number of units sold at the new price increase by 50%, to 15. The profit made will be, 15(30-20) = $150. Thus, while the unit sales increased, the profitability declined.

In conclusion, the argument is not valid on the grounds stated above. The argument can be strengthened by substantiating the claim that the increase in unit sales is a direct result of the promotion and providing details of the survey on which this claim relies. Concrete data to demonstrate how the price reduction strategy will have the same impact the other products of the firm will further support the argument. Finally, statistical data to ensure that the increase in unit sales will be sufficiently high so as to set-off the loss in revenue should also be provided.


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Thank you in advance.