The following appeared in a memorandum from the owner of Movies Galore, a chain of movie-rental stores.
“Because of declining profits, we must reduce operating expenses at Movies Galore’s ten movie-rental stores. Raising prices is not a good option, since we are famous for our low prices. Instead, we should reduce our operating hours. Last month our store in downtown Marston reduced its hours by closing at 6:00 p.m. rather than 9:00 p.m. and reduced its overall inventory by no longer stocking any DVD released more than five years ago. Since we have received very few customer complaints about these new policies, we should now adopt them at all other Movies Galore stores as our best strategies for improving profits.”
Write a response in which you discuss what specific evidence is needed to evaluate the argument and explain how the evidence would weaken or strengthen the argument.
The owner of Movies Galore is in the business of renting videos. He has noticed that his stores are losing money, and he wants to reduce costs by closing them earlier in the evening and reducing the inventory of older titles. His proposal has several flaws, however, and he should reconsider his course of action. First, the closing time of 9:00 p.
m. is too late for the area’s patrons. Second, he should not expect his stores to be profitable if they stock only movies that are five years and older. Third, his stores are losing profits because too many people are ignoring the closing time, not staying late to watch a movie they have rented. To correct these flaws, he should reconsider his strategy.
The owner states that his stores are losing profits. Since his stores are ten in number, he must be making a serious amount of money. He should compare his profits with those at nearby video stores. If his stores are losing more money than their competitors, he should invest in making improvements. For example, he might consider increasing the size of his retail floor space, adding movies to his inventory, and offering additional services such as snacks and drinks. If his stores are more profitable, he should keep them open later. He should also reduce the hours that he is open for business.
A video store’s inventory should be stocked with movies that appeal to a wide range of customers. If his stores only stock movies released in the past five years, he can expect to lose business to video stores that carry a wider variety of titles. One tactic that he uses to attract customers is to offer prices lower than those of competitors. If he chooses to follow the advice of his manager, however, he will lose customers.
If his stores are losing customers because they are open too late, he should reconsider the closing time. Like many businesses, his stores are competing with the entertainment options that consumers have in their neighborhoods. People can spend hundreds of dollars on dinner and a movie, but they cannot spend that money on a video rental. Instead, they visit video stores for movies they have seen recently on television, movies that are not very expensive, or movies that have a long shelf-life. He should develop a strategy for attracting customers, such as offering free movies and discounts, that might encourage them to visit his stores.
He could also benefit from limiting the number of hours that he is open for business, but this strategy could backfire. If his customers find that he closes his stores early, they may stop renting videos. And, if his stores are profitable, he should keep them open later. If he closes his stores early, he will not make as much money.
People use the term ‘low-cost leader’ to refer to companies that price their products so low that competitors cannot match them. Movie rental stores are no different. A low-cost leader should charge low prices, but he should not expect to make a profit. If his stores are losing profits instead of earning them, he should reconsider his strategy. He might consider closing one store or closing it altogether.