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.”
RESPONSE:
The argument above concludes by suggesting that in order to improve the comnapny's profitability & enhance the perception of any product in the eyes of the customer, all that needs to be done is run a promotion that will reduce the price. This argument however fails to recognize other factors which are important for the sales & solely concentrates upon the pricing factor.
When a customer goes to buy a product, not only he evaluates the price of the product but also the corresponding quality. If the company A produces the energy drink which is similar in quality of its competitor's drink quality but higher in price, people will prefer to buy the competitor's drink. So when A ran the promotion, it might have made it's drink's price lesser than the competitor's drink's price. This prompted the people to choose A's drink as both the drinks offered the same quality, with A offerning it at a lower cost now. This might not be the case with A's other drinks as there is no information on those product's quality.
Also, the energy drinks are seasonal products. The sales figures are bound to increase in the months of summer when there are more outside activities as compared to the winter months. As the corresponding figure for A's competitor & the monthly sales figures are not given, there is no way we can safely assume that the sales for a's energy drink increased just because of promotional price reduction. These figures will tell us about the pattern, that would help in homing on the reasons for sales increase during promotion.
The author would do well to provide the data for the monthly sales & the corrsponding details for the competitor. We might also be benefitted with the details, price & quality, of other products of the company. That will enable us to decide if the price reduction for those products will increase the sales or not. We can not really apply the strategies for drink A, even if they worked, to drink B.
Provided with the additional details, we can make a more informed decision about the effectiveness of the price reduction promotional program for other products of the comapny.