GMAT - Graduate Management Admission Test

The following appeared in an Excelsior Company memorandum. �The Excelsior Company plans to introduce its own brand of coffee. Since coffee is an expensive food item, and since there are already many established brands of coffee, the best way to gain customers for the Excelsior brand is to do what Superior, the leading coffee company, did when it introduced the newest brand in its line of coffees: conduct a temporary sales promotion that offers free samples, price reductions, and discount coupons for the new brand.� Discuss how well reasoned... etc.

This company memorandum recommends that Excelsior conduct a temporary sales promotion for its new brand of coffee that includes offering free samples, price reductions, and discount coupons. This recommendation is based on the fact that Superior, the leading coffee company, used just such a promotion to introduce the newest brand in its line of coffees. This argument is unconvincing because it relies on three questionable assumptions.

First of all, the argument rests on the assumption that a promotional strategy that works for one company will work for another.

Page numbers AWA However, Excelsior and Superior may not be sufficiently similar to warrant this assumption. Promotional techniques that work for a leader with established name recognition for its brand of coffees may be ineffective for a company with no similar name recognition new to the brand coffee market. Accordingly, Excelsior might be better advised to employ some other strategy, such as a media advertising plan, to first attain broad name recognition.

The argument also depends on the assumption that Excelsior can afford a promotional plan similar to Superior�s. However, free samples, price reductions, and discounts all reduce profits and may actually result in temporary losses. While a leading company with other profitable products in the same line can absorb a temporary loss, for a fledgling competitor this strategy might be very risky and may even result in business failure.

Finally, the argument relies on the assumption that Superior�s promotional campaign for its newest coffee was successful. However, the memo provides no evidence that this was the case. It is possible that the promotion was entirely ineffective, and that Superior remains the leader in its field despite this small failure. If so, Excelsior may be ill-advised to follow Superior�s promotional strategy.

In conclusion, the two companies are too dissimilar to justify the recommendation that Excelsior model its promotional strategy on Superior�s. To strengthen the argument, the author of the memo must establish that Excelsior has sufficient operating capital to launch the recommended sales campaign, and that this strategy would be more effective than another strategy, such as using extensive media advertising.