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."
The argument suggests that if ElectroWares stops its production of deluxe light bulbs, than its profits will go up as the result of increase of repeat purchases. This argument is flawed in several ways. It not only fails to consider overall revenue for two types of product, but also does not take costs patterns into account. Furthermore, it is assumed that start of production of deluxe light bulbs is the only reason for profits decline.
First of all, the author only provides information on sales of economy light bulbs, so he tells nothing about ElectroWares' new product sales. For example, it could be the case that deluxe bulbs account for the most of company's sales in current situation. Therefore, the author makes claim about overall company performance, taking into account only one of its products.
Secondly, the author states nothing about costs for two product types. It is stated that deluxe light bulbs are relatively cheaper, considering the frequency of purchase. However, profits are calculated by subtraction of costs from revenues, so it is possible that deluxe bulb can be much more profitable for the company if costs for its production are relatively lower. Subsequently, the author fails to provide information on costs, which also contribute to profit levels.
Thirdly, it is stated that company's profits decreased since ElectroWares has started to manufacture deluxe light bulbs. The author reaches the conclusion that the introduction of the new product was the reason for profit decline. However, there are plenty of other reasons that could affect profitability. For example, increased competition or downturn of the market cycle can be the reasons. So, it is ill-founded to assume that manufacture of deluxe light bulbs is the key reason.
To make argument more sound, the author could provide more information regarding costs and revenues of all product groups. Another way to strengthen the argument is to provide comprehensive information on the competitive environment. For example, it could be stated that ElectroWares is the only company producing deluxe light bulbs, and it will not lose any customers if it terminates the production. However, in the current form the argument is flawed.
"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."
The argument suggests that if ElectroWares stops its production of deluxe light bulbs, than its profits will go up as the result of increase of repeat purchases. This argument is flawed in several ways. It not only fails to consider overall revenue for two types of product, but also does not take costs patterns into account. Furthermore, it is assumed that start of production of deluxe light bulbs is the only reason for profits decline.
First of all, the author only provides information on sales of economy light bulbs, so he tells nothing about ElectroWares' new product sales. For example, it could be the case that deluxe bulbs account for the most of company's sales in current situation. Therefore, the author makes claim about overall company performance, taking into account only one of its products.
Secondly, the author states nothing about costs for two product types. It is stated that deluxe light bulbs are relatively cheaper, considering the frequency of purchase. However, profits are calculated by subtraction of costs from revenues, so it is possible that deluxe bulb can be much more profitable for the company if costs for its production are relatively lower. Subsequently, the author fails to provide information on costs, which also contribute to profit levels.
Thirdly, it is stated that company's profits decreased since ElectroWares has started to manufacture deluxe light bulbs. The author reaches the conclusion that the introduction of the new product was the reason for profit decline. However, there are plenty of other reasons that could affect profitability. For example, increased competition or downturn of the market cycle can be the reasons. So, it is ill-founded to assume that manufacture of deluxe light bulbs is the key reason.
To make argument more sound, the author could provide more information regarding costs and revenues of all product groups. Another way to strengthen the argument is to provide comprehensive information on the competitive environment. For example, it could be stated that ElectroWares is the only company producing deluxe light bulbs, and it will not lose any customers if it terminates the production. However, in the current form the argument is flawed.
