GMAT Essays (AWA)

"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."

There are many fundamental flaws that befall the author's logic behind this memo. The author claims that because a promotional price of energy drinks increased the number of units sold, the same promotional price should be extended to all of the firms drinks in order to increase profitability and perception of the company.

Firstly, profitability is often measured by profit margin. If a product is consistently sold at a promotional price, the margin is will be consistently lower than if the product were sold at the original price. The author makes no mention of how many units of the product would need to be sold in order to have net profit at the promotional price equal the net profit at the retail price. Without this data, the author's argument for increased profitability becomes suspect at best.

In addition to claiming increased profitability, the author also notes that the firm can "enhance the [consumer's] perception" of the product by extending the promotional price to all of the firm's drink products. The author does not describe the nature of how this change in perception would occur. Such a landmark statement should be supported by logical evidence; the only evidence the author presents is a survey indicating that consumers favor paying less for the firm's energy drink product. The survey does not take into account how customers enjoyed the product sold at retail price nor make any mention of their shifting perceptions.

The author of this memo has made some grand statements regarding the effect of having a promotional price - however, there are many stones left unturned when the logic behind the author's recommendation is scrutinized. The author has not provided a solid argument for their case.