The following appeared in a memo to the board of directors of Bargain Brand Cereals.
“One year ago we introduced our first product, Bargain Brand breakfast cereal. Our very low prices quickly drew many customers away from the top-selling cereal companies. Although the companies producing the top brands have since tried to compete with us by lowering their prices and although several plan to introduce their own budget brands, not once have we needed to raise our prices to continue making a profit. Given our success in selling cereal, we recommend that Bargain Brand now expand its business and begin marketing other low-priced food products as quickly as possible.”
Write a response in which you examine the stated and/or unstated assumptions of the argument. Be sure to explain how the argument depends on these assumptions and what the implications are for the argument if the assumptions prove unwarranted.
After an exhaustive selection process, Bargain Brand Cereals (BBC) is pleased to announce the launch and distribution of its newest product, Bargain Brand Breakfast Cereals. After only one year of operation, BBC has managed to rapidly gain the attention of many health-conscious consumers, and has effectively displaced several of the more popular cereal brands. Indeed, BBC has enjoyed such success that management now recommends that BBC expand its product lines to include other low-priced food products, such as canned fruits and vegetables. By seeking to diversify its business, BBC will be able to capitalize on its established market position while reducing its exposure to fluctuations in demand for certain product lines.
The argument that BBC’s success proves that the company does not need to raise its prices to compete with the top-selling cereal brands is flawed on several grounds.
As with any new product, Bargain Brand Breakfast Cereals (BBC) had its share of problems at first. Consumers were skeptical that the new cereal would live up to the high standards set by BBC’s competitors, and many were unwilling to buy the new cereal initially. However, after only a few weeks of sales, BBC began to enjoy considerable success, as evidenced by the sales figures. As time passed, consumers began to realize that the new cereal was every bit as good, if not better, than its more expensive competitors. Furthermore, just as they had become accustomed to the idea of buying Bargain Brand Breakfast Cereals, they learned to adjust to the idea of buying other low-priced products offered by BBC. The simple fact that consumers did not have to be convinced that BBC’s cereal was good was enough to convince them to buy more of it.
As a result, BBC quickly began to outsell its competition, and this forced management to rethink the company’s strategy. Rather than continuing to market Bargain Brand Breakfast Cereals, management decided that BBC would remain a cereal company, but would seek to expand its product lines to include other low-priced products. On the surface, this strategy seems logical. If consumers like Bargain Brand Breakfast Cereals, then they will be willing to buy other low-priced products from the company. However, this assumption is flawed. While consumers may be willing to buy other low-priced products from BBC, it is unlikely that they will choose to buy them in the same quantities that they purchase Bargain Brand Breakfast Cereals. Rather, they will likely buy these other low-priced products when the need arises, such as when they are low on groceries.
Thus, while it is true that BBC can prosper by marketing low-priced products, this does not mean that it can do so by marketing only low-priced products. While it is arguably true that BBC can prosper by selling low-priced products, this does not necessarily imply that it will sell more low-priced products than high-priced products. Therefore, management’s recommendation that BBC expand its product lines to include other low-priced products is ill-advised, as the company would likely find that it sells fewer of such products than it would if it were to continue marketing Bargain Brand Breakfast Cereals alone.