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."
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The beverage manufacturer, in the memorandum, has used the positive sales results of one promotional offer on one particular drink category, to conclude that such promotional offers on their other products would also result in a similar sales boost. Such an argument needs to be viewed with some caution.
Let us examine the conditions under which such a conclusion is warranted. If the consumer perception of the quality of the manufacturer's products across the spectrum is exceptional, and if any occurrence of poor sales of the firm is only because of the high price of its products, then we might be able to say that a reduction in prices of its products might attract more customers into buying the products. We could then explain the positive results of the promotional price reductions on the energy drinks. This information, however, has not been provided.
On the other hand, if the consumer perception of the firm's products is not very positive in general, then the only way that one can explain the results of the promotion is the high demand for energy drinks in the lower price category and concomitant dearth of supply. If such a high demand is not prevalent for other beverages, then the firm is highly unlikely to improve its profitability through sales of those beverages owing to a price reduction.
There is no comment made on the simultaneous improvement in the quality or change in formulation of the energy drinks prior to its promotional launch - one might then be able to attribute the dramatic increase in sales to this betterment of quality. We also need to know the historical promotional spend on the firm's products - on commercials in the media, for instance - to ascertain if a particular boost to the spend on the energy drinks promotion causing a much greater publicity for the product is the cause of the dramatic increase in sales.
In sum, to conclude without information and thereby evidence based other indicators such as demand, supply, promotion budgets and quality, the beverage manufacturer is perhaps not being pragmatic in their evaluation of the results of the energy drinks promotion, towards decision-making and future sales strategy of their other products.
"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."
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The beverage manufacturer, in the memorandum, has used the positive sales results of one promotional offer on one particular drink category, to conclude that such promotional offers on their other products would also result in a similar sales boost. Such an argument needs to be viewed with some caution.
Let us examine the conditions under which such a conclusion is warranted. If the consumer perception of the quality of the manufacturer's products across the spectrum is exceptional, and if any occurrence of poor sales of the firm is only because of the high price of its products, then we might be able to say that a reduction in prices of its products might attract more customers into buying the products. We could then explain the positive results of the promotional price reductions on the energy drinks. This information, however, has not been provided.
On the other hand, if the consumer perception of the firm's products is not very positive in general, then the only way that one can explain the results of the promotion is the high demand for energy drinks in the lower price category and concomitant dearth of supply. If such a high demand is not prevalent for other beverages, then the firm is highly unlikely to improve its profitability through sales of those beverages owing to a price reduction.
There is no comment made on the simultaneous improvement in the quality or change in formulation of the energy drinks prior to its promotional launch - one might then be able to attribute the dramatic increase in sales to this betterment of quality. We also need to know the historical promotional spend on the firm's products - on commercials in the media, for instance - to ascertain if a particular boost to the spend on the energy drinks promotion causing a much greater publicity for the product is the cause of the dramatic increase in sales.
In sum, to conclude without information and thereby evidence based other indicators such as demand, supply, promotion budgets and quality, the beverage manufacturer is perhaps not being pragmatic in their evaluation of the results of the energy drinks promotion, towards decision-making and future sales strategy of their other products.
