Response/comments/rating required

[ameya]

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 stated argument that based on the response received for the promotional price reduction on energy drinks, price reductions on all the drinks produced by the firm would be beneficial is marred by assumptions and would require indepth analysis before a sign-off.

Firstly, the argument considers the energy drinks market equivalent to the complete drinks market. However, this premise is assumed. Energy drinks market is a specialized drinks market and has its own niche customer segment which forms a subset of the whole drinks market. The behavior of the special set of customers cannot be equivalent to the behavior of the regular drinks customer. A market survey of consumers of all kinds of drinks which the firm produces is needed. This survey should also include what the consumers think of the current prices of these drinks.

Secondly, it is assumed that reductions in prices would lead to increase in sales which will lead to increase in overall profits. But there is no data mentioned to support this statement. Data which shows the sales volumes alongwith the profits is needed to support the statement. Usually a promotional price reduction serves the purpose of enabling customers to try out a new product whereas a good profit takes a back seat. In the stated premise, it is not mentioned if the drinks apart from the energy drinks are also new entrants and hence require a price reduction or they are established brands.

Lastly, price reductions do not always lead to betterment of perception in the eyes of the customers. Without proper research it is incorrect to say that increased sales due to price reductions will enhance perceptions. Customers might sometimes buy a product because of its higher price since they relate high price to a better quality. Established beverage brands like Pepsi, Coke have a higher price on the high street than most of the local brands but still these are preferred brands because people know that they are guaranteed of the quality.

The argument is therefore not strong enough to be accepted. A good market research and the necesaary supporting data is required before the company makes any decision on price reductions.

[StaceyKoprince]

Hi - I just want to make sure you know that instructors don't rate or review essays - see the sticky for this folder if you have any questions. But, of course, you are more than welcome to post and ask for feedback from your peers!