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 author describes that there has been a dramatic increase in the sales of the energy drink. He attributes the success to the strategy of price reduction which has appealed to majority of the customers. Based on the current data, the author speculates that imitating the similar strategy to reduce prices would enhance the sales of other drinks produced by the firm thereby increasing company's profitability and improving the perception in the eyes of potential customers. Although the fact that the price reduction would have been a contributing factor in the increase in the sales of energy drink, it should bot be considered as the only factor for the same. Therefore, without any supporting data, the further reasoning to apply the similar approach is not so convincing. There are few lacuna in the approach suggested by author.
Firstly, attributing the increase in sales of energy drinks is not very appealing to me. There could be several other reasons that would have added to the sales of the energy drink. For example, it is highly probable that there is a large consumption of energy drinks in parties and concerts. It is possible that an increase in the number of live concerts or office parties or wedding seasons during the period of analysis of sales would have led to such an increase in the sales. Another thing, it is required to analyse the target consumers of any commodity before chalking out a plan for its marketing. Maybe the population consuming the other drinks manufactured by the company is very low as compared to the consumers of energy drink. In such a case, comparing both on any one ground would be similar to comparing apples to oranges. Therefore, it is required to analyse other contributing factors to the sale of a commodity before concluding the reason behind the change in the number of sales.
Secondly, the reduction in the prices offered for energy drinks might have cut the per-capita profit of the company. There is no data provided by the author in the argument that clearly defines the difference in the manufacturing and selling price of the other drinks. Therefore, it is quite possible that offering such discounts on other drinks is not evenly balanced with the money earned by the sales of the drinks in the market. In such a scenario, the discounts on the prices of drinks can very well lead to overall reduction in the profits.
Thirdly, the consumers today are very much concerned about the quality of the commodities that they buy for consumption. The materials used in preparation of the drinks may or may not be available at discounted prices. Therefore, it is possible that the company starts using materials of lower quality as compared to those used earlier. This can have health impacts too, in few rare cases, and the perception of the company in the eyes of the consumers changes in a negative manner. Hence, it is required to thoroughly analyse all the aspects before offering unreasonable discounts.
Hence, we see that concluding anything without crisp and solid data can leave behind many problems that might emerge sometime later and bring bad name to the company. To make the argument more convincing the author needs to address the above mentioned points. The marketing policy emerging thereafter would be more robust and hence, would actually help in increasing the company's profitability and improving the company's perception in the eyes of the potential customers.
GMAT Forum