65.
In this memorandum, the vice president of Road Food suggests that the company motivate its advertising agency to perform better by basing the agencys pay on the Road Foods profits. In support of this suggestion, the vice president points out that although Road Food initially thought the ad agency was following company recommendations, competitor-Street Eats earned higher profits last year. The vice president also notes that Street Eats has fewer restaurants than Road Food, and that Road Food spent nearly as much money on advertising as Street Eats did. This argument is unconvincing, since it relies on dubious assumptions and comparisons.
First, the vice president assumes that the ad campaign caused the low profits. However, the vice president ignores many other factors that contribute to profitability. In particular, the fact that Road Food has been spending less advertising money per restaurant than Street Eats suggests that its unwillingness to spend more may be the main reason for disappointing profits.
Second, the author implies that the ad agency failed to implement Road Foods guidelines, and that this failure was the reason for disappointing profits. However, it is equally possible that the ad agency faithfully followed all suggestions from Road Food, and that those suggestions were the cause of the disappointing profits. In this respect, the author unfairly shifts blame from Road Food to the ad agency.
Third, the authors comparison between Road Food and Street Eats is less relevant than a comparison between Road Foods own profits prior to its latest ad campaign and its profits during this campaign. Comparing its own profits during these time periods would more accurately reflect the ad agencys effectiveness than comparing profits of two different companies.
Finally, the author assumes that the ad agency will be more motivated if its fee is based on Road Food profits. However, the author does not support this claim. In fact, given that Road Foods profits have been lower than expected, it is just as likely that the ad agency would be less motivated by the suggested fee structure than by some other fee structure.
In conclusion, the argument is unconvincing as it stands. To strengthen it, the vice president must provide evidence that the ad campaign caused last years disappointing profits, and must examine and rule out other factors that may have contributed to disappointing profits.
66.
The companys marketing department recommends discontinuing a deluxe air filter and concentrating advertising efforts on an economy filter, which requires replacement more often than the deluxe model. This recommendation is based on reports showing that sales of economy filters, and company profits, have dropped significantly since the company began manufacturing and marketing the deluxe filter six months ago. The marketing departments argument is specious in three important respects.
First, the marketing department assumes that if the company discontinues the new deluxe air filter, customers will resume buying its economy filter. This assumption may not be correct. Customers who prefer the deluxe model may do so because it requires replacement less often. Thus, instead of buying the companys economy filters again, these customers may just as likely turn to a competitor for a product similar to the deluxe model. In this event, the result would be lower profits.
Secondly, the marketing department fails to recognize alternative strategies that might enhance profits more than discontinuing the deluxe filter would. It is possible that lowering the price of the economy model, raising the price of the deluxe model, or both, may actually maximize profits. A lower-priced economy filter might lure customers from competing products and retain current customers. At the same time, buyers of the deluxe model may place a premium value on its convenience and may be willing to pay an even higher price for the filter.
Thirdly, the marketing department unfairly assumes that the availability of its deluxe filter is the cause of decreasing profits. It is equally possible that other factors, such as increased competition or supply prices, or decreased demand for these kinds of filters generally, are responsible for the decrease in profits. If so, discontinuing the deluxe filter may not serve to maximize, or even enhance, the companys profits.
In conclusion, the departments argument for discontinuing the deluxe filter is weak because the department has not considered the possible adverse consequences of doing so, or the alternatives to doing so. Moreover, the department has failed to establish a clear causal connection between the availability of the deluxe filter and decreasing profits. To strengthen its argument, the department must consider and rule out pricing adjustments as a better strategy to maximize profits, and must provide better evidence that the deluxe filter is the cause of the decrease in profits.