topic:
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.
Response
Author has made a claim that to improve company's profitability and enhance the company's perception price reductions should be offered on all the drinks produced by the company. Key reason author used was that promotional price reduction on one of the drinks company produces resulted in dramatic sales increase and secondly customers reacted favorably to the promotion. I find this reasoning based on multiple assumptions and as a result I find the argument weak and not well substantiated.
Firstly, author assumes that increase in sales because of price reduction will increase profit. Result of any price reduction is net reduction in profit per unit sale. If the increase in sale was not sufficient to offset the loss of revenue because of reduced prices, it is entirely possible that net result of the promotion to reduce price was a net decrease in profitability of the company and replicating this scheme to all the drinks will reduce the company's profitability.
Secondly, even if we assume that dramatic increase in sale increased profitability of that drink, it's possible that one of the reasons of dramatic increase was started buying this promotional drink rather than other products of the company they would otherwise normally purchased. We dont know if this dramatic increase in sale of promotional drink was accompanied by corresponding decrease in sales of other drinks due to shift in customer focus from higher priced other drinks to this promotional drink. If that happened then also, replicating the promotion to all other drinks will not help company profitability.
Thirdly, author is interpreting favorable response to promotion by customers and increase in sale because of price reduction as a sign of enhancement of company's perception. This deduction is flawed.
Favorable response to promotion could be result of price reduction and may have nothing to do with increased customer perception. Also, As per the basic theory of economics even if the perception of a products remains same then reduction in price will result in increase in sales. And since it's entirely possible that this promotion did nothing to help company's perception improve, replicating it across all other drinks in no guarantee of success.
In conclusion authors argument has lot of gaps like if increase in sale was accompanied by increase in profit for that drink, if increase in sale of promotional drink caused decrease in sale of other drinks and whether favorable response of promotion really mean enhanced perception of the company. If author can substantiate his assumptions by giving data about these gaps and show the issues raised by these assumption does not exist then he can build a credible argument on whether replicating this promotion across all the drinks will result in increased profitability and enhanced perception for the company. However, till then I believe argument has lot of gaps because of which it is flawed and not credible.
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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.
Response
Author has made a claim that to improve company's profitability and enhance the company's perception price reductions should be offered on all the drinks produced by the company. Key reason author used was that promotional price reduction on one of the drinks company produces resulted in dramatic sales increase and secondly customers reacted favorably to the promotion. I find this reasoning based on multiple assumptions and as a result I find the argument weak and not well substantiated.
Firstly, author assumes that increase in sales because of price reduction will increase profit. Result of any price reduction is net reduction in profit per unit sale. If the increase in sale was not sufficient to offset the loss of revenue because of reduced prices, it is entirely possible that net result of the promotion to reduce price was a net decrease in profitability of the company and replicating this scheme to all the drinks will reduce the company's profitability.
Secondly, even if we assume that dramatic increase in sale increased profitability of that drink, it's possible that one of the reasons of dramatic increase was started buying this promotional drink rather than other products of the company they would otherwise normally purchased. We dont know if this dramatic increase in sale of promotional drink was accompanied by corresponding decrease in sales of other drinks due to shift in customer focus from higher priced other drinks to this promotional drink. If that happened then also, replicating the promotion to all other drinks will not help company profitability.
Thirdly, author is interpreting favorable response to promotion by customers and increase in sale because of price reduction as a sign of enhancement of company's perception. This deduction is flawed.
Favorable response to promotion could be result of price reduction and may have nothing to do with increased customer perception. Also, As per the basic theory of economics even if the perception of a products remains same then reduction in price will result in increase in sales. And since it's entirely possible that this promotion did nothing to help company's perception improve, replicating it across all other drinks in no guarantee of success.
In conclusion authors argument has lot of gaps like if increase in sale was accompanied by increase in profit for that drink, if increase in sale of promotional drink caused decrease in sale of other drinks and whether favorable response of promotion really mean enhanced perception of the company. If author can substantiate his assumptions by giving data about these gaps and show the issues raised by these assumption does not exist then he can build a credible argument on whether replicating this promotion across all the drinks will result in increased profitability and enhanced perception for the company. However, till then I believe argument has lot of gaps because of which it is flawed and not credible.
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