The Largo Piano Company has long been known for producing carefully h

Prompt

The following appeared in a memorandum from the development director of the Largo Piano Company:

“The Largo Piano Company has long been known for producing carefully handcrafted, expensive pianos used by leading concert pianists. During the past few years, however, our revenues have declined; meanwhile, the Allegro Musical Instrument Company introduced a line of inexpensive digital pianos and then saw its revenues increase. In order to increase Largo’s sales and in fact outsell Allegro, we should introduce a line of digital pianos in a variety of price ranges. Our digital pianos would be likely to find instant acceptance with customers, since they would be associated with the prestigious Largo name.”

Response:

The Largo Piano Company’s argument that introducing a new line of digital pianos at a variety of prices will definitely increase their revenues and outsell their competitor Allegro. This argument is based on the premise that customers are turning to more affordable options as well as turning away from handcrafted expensive pianos. This line of argumentation has a number of flaws that make the conclusion less than certain. Largo assumes that their public perception will remain intact after introducing their new line of pianos, they assume that their target market is the same as Allegro’s, and they assume that the change in their respective revenues is caused by the type of piano each company produces.

First, they reason that by adding a similar product as their competitor and associating it with their prestigious brand name they will definitely increase their total revenues but this fails to take into account the effect that adding a seemingly inferior product to their current offering can have on their brand name. It may as well be the case that by introducing an inexpensive digital alternative they may seem to have a decline in quality and therefore make customers weary of buying more from their more expensive products or their brand in general reducing their revenues.

Second, they believe that they have a perfect overlap in their target markets as Allegro so by introducing a similar product they will be able to compete directly with them. This discounts the possibility that the people buying Largo pianos are looking for a digital alternative but it can be that people that buy Allegro pianos are more focused on that type of pianos and are not considering buying Largo’s handcrafted expensive pianos. If this is true then it can have a negative effect in their sales since Largo’s main customers might not be looking for a digital alternative but just a less expensive handcrafted piano so they would not buy the new line while Allegro’s customers may not switch to buy Largo they have no association with Largo’s target market.

Last, the company’s memo assumes that the reason Largo’s revenues have declined and Allegro’s revenues increased is because of the type of pianos each company produces. This conflates correlation with causation and it is very possible that the reason Allegro has raised its revenues is because of other means such as more effective marketing or through sales of other instrument’s that it produces.

In conclusion, the development director makes a hasty conclusion based on superficial data without much analysis as to what might be the actual cause for each company’s change in revenue. By assuming that they share the same market, that their reputation will hold with the customers, and that the only possible cause for their respective revenue changes is the introduction of the digital pianos. The director makes a flawed argument to begin a new line of products that, in the end, might not have the desired effect.