The following appeared in a memo from the new vice president of Sartorian, a company that manufactures men’s clothing.
“Five years ago, at a time when we had difficulty obtaining reliable supplies of high-quality wool fabric, we discontinued production of our popular alpaca overcoat. Now that we have a new fabric supplier, we should resume production. Given the outcry from our customers when we discontinued this product and the fact that none of our competitors offers a comparable product, we can expect pent-up consumer demand for our alpaca coats. Due to this demand and the overall increase in clothing prices, we can predict that Sartorian’s alpaca overcoats will be more profitable than ever before.”
Write a response in which you discuss what questions would need to be answered in order to decide whether the prediction and the argument on which it is based are reasonable. Be sure to explain how the answers to these questions would help to evaluate the prediction.
In this memo, the vice president of Sartorian makes a number of predictions. He predicts that the company’s alpaca overcoats will generate more profit than in the past. He also predicts that its competitors’ products do not offer comparable products. Thus, Sartorian’s vice president of sales has concluded that if the alpaca coats are brought back into production, they will be more profitable than ever before. However, neither prediction can be supported solely on the basis of anecdotal evidence or subjective customer opinions; further empirical data is necessary. The vice president of sales may be correct that the alpaca coats will be more profitable, but there are a number of questions that need to be answered in order for this conclusion to be drawn.
First, before a company can consider bringing a product back into production, it must have a reliable supply of raw materials, especially fabric. The vice president of sales notes that Sartorian previously had a problem obtaining high-quality wool fabric. However, he makes no reference to how this was resolved. Perhaps the company found a new supplier, or perhaps it found an alternative fiber to use. In either case, the company’s ability to produce the alpaca coats must be reestablished. If the company cannot find the raw materials, it is foolish to invest in the production of the coats. Second, if the former vice president of the manufacturing division is correct, then Sartorian’s competition does not currently offer comparable products. If this is the case, then Sartorian’s alpaca coats are truly innovative. However, if not, then the company would be foolish to risk its own reputation by manufacturing a substandard version of an existing product. Third, before making any decisions such as this, the vice president of sales must review the past sales of the alpaca coats. If the company sold a limited number of coats, then it is unlikely that the coats were profitable. However, if the company sold a large number of coats, then it is likely that the product was profitable.
If the vice president of sales believes that consumer demand for alpaca coats has pent up, then he will need to investigate how widespread this demand is. Does the company sell alpaca coats only in the United States? If so, then the company must investigate whether demand exists in other countries. If other countries are experiencing the same high demand for the alpaca coats, then the company may want to consider producing the product in those countries as well. If Sartorian’s competitors sell alpaca coats in other countries, then the company may be losing sales to its competitors. Finally, the vice president of sales must consider other competition. Sartorian’s competitors likely manufacture similar products, and it is possible that consumers may be willing to purchase these products instead of the company’s alpaca coats. The company’s competitors may sell alpaca coats at a lower cost, or they may offer additional features that increase the value of the product. If the vice president of sales cannot answer these questions, then it is unwise to invest money in the construction of new manufacturing facilities for the alpaca coats.