-
piyush.shah901
- Newbie | Next Rank: 10 Posts
- Posts: 2
- Joined: Sat Jul 11, 2015 5:08 pm
AWA ESSAYS: Analyze Argument
ESSAY 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."
Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.
YOUR RESPONSE:
The argument here is about the price reductions that the beverage manufacturer is keen on taking in order to increase the profitability of the company and to enhance it's perception in the eyes of the customer.
Firstly, giving an economic point of view, the law of demand says that lowering the price of a product will increase the demand (and hence the sale) of the product in question. Although, decreasing the price of the product would increase the demand of it, considering it is a normal good, it does not guarantee that it would increase the profitability of the company. The policy makers of the firm should first measure the cost of manufacturing the beverage. Simply decreasing the price, without considering how much it costs to actually produce it, on the contrary would have a negative effect on the profitability of the company.
Secondly, in economics, there's a term called the Snob Appeal. Some consumers have an affiliation towards costly products or let's say they do not take well with the products that are cheap. And certainly, they would despise a product that was priced higher and now "because they aren't selling enough, they've reduced the prices". This would be like a negative propaganda towards a certain class of people.
Thirdly, the company should have also thought about the long term viability of the proposal. Reducing the prices might have a positive effect on the revenue of the firm, but would the company be able to continue this pricing policy?
The answer is, the company should evaluate their pricing position. Now, since it is a beverage manufacturing company, there must be other beverage manufacturing companies and that would essentially make the beverage market an Oligopoly market. Now, a price reduction by this company should also lead to price reduction in other companies due to the tough competition. The company should evaluate their market position and make sure that other companies' price reductions wouldn't actually affect their sales in the LONG TERM.
To conclude, the company should first and foremost take a look at costs. The main motive of any company is to enhance profits and by first going over the costs of the company, the company could then adopt a reduction in pricing policy to go in that direction. It should also consider whether it is actually increasing the perception of the company in the eyes of the consumers or not. For this, the company should go over their customer base and the markets in which it holds the maximum position and evaluate that whether decreasing prices of it's beverages would have a negative impact. Lastly, no company is said to be a good company if it doesn't have a vision for future. For it to be maintain a going concern status, the company should evaluate whether this strategy adopted by them would be viable in the future or not.
ESSAY 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."
Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.
YOUR RESPONSE:
The argument here is about the price reductions that the beverage manufacturer is keen on taking in order to increase the profitability of the company and to enhance it's perception in the eyes of the customer.
Firstly, giving an economic point of view, the law of demand says that lowering the price of a product will increase the demand (and hence the sale) of the product in question. Although, decreasing the price of the product would increase the demand of it, considering it is a normal good, it does not guarantee that it would increase the profitability of the company. The policy makers of the firm should first measure the cost of manufacturing the beverage. Simply decreasing the price, without considering how much it costs to actually produce it, on the contrary would have a negative effect on the profitability of the company.
Secondly, in economics, there's a term called the Snob Appeal. Some consumers have an affiliation towards costly products or let's say they do not take well with the products that are cheap. And certainly, they would despise a product that was priced higher and now "because they aren't selling enough, they've reduced the prices". This would be like a negative propaganda towards a certain class of people.
Thirdly, the company should have also thought about the long term viability of the proposal. Reducing the prices might have a positive effect on the revenue of the firm, but would the company be able to continue this pricing policy?
The answer is, the company should evaluate their pricing position. Now, since it is a beverage manufacturing company, there must be other beverage manufacturing companies and that would essentially make the beverage market an Oligopoly market. Now, a price reduction by this company should also lead to price reduction in other companies due to the tough competition. The company should evaluate their market position and make sure that other companies' price reductions wouldn't actually affect their sales in the LONG TERM.
To conclude, the company should first and foremost take a look at costs. The main motive of any company is to enhance profits and by first going over the costs of the company, the company could then adopt a reduction in pricing policy to go in that direction. It should also consider whether it is actually increasing the perception of the company in the eyes of the consumers or not. For this, the company should go over their customer base and the markets in which it holds the maximum position and evaluate that whether decreasing prices of it's beverages would have a negative impact. Lastly, no company is said to be a good company if it doesn't have a vision for future. For it to be maintain a going concern status, the company should evaluate whether this strategy adopted by them would be viable in the future or not.
