ARG-084

The following appeared in a memorandum from the owner of Movies Galore, a chain of movie-rental stores.

"In order to stop the recent decline in our profits, we must reduce operating expenses at Movies Galore's ten movie-rental stores. Since we are famous for our special bargains, raising our rental prices is not a viable way to improve profits. Last month our store in downtown Marston significantly decreased its operating expenses by closing at 6:00 P.M. rather than 9:00 P.M. and by reducing its stock by eliminating all movies released more than five years ago. By implementing similar changes in our other stores, Movies Galore can increase profits without jeopardizing our reputation for offering great movies at low prices."


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.


In this memorandum, the proprietor of Movies Galore (referred to as MG hereafter) recommended that the expense reduction practice of the Marston store be carried out in all chain store locations. However, before the implementation of this decision, the following questions need to be deliberated. The answers to these questions will affect whether or not the proprietor’s final recommendation should be implemented.


First, the author subjectively states in this memorandum that MG is famous for its inexpensive prices. But is MG really famous for its reasonable prices? We need sufficient evidence to prove this claim. If the market research reveals that economical prices are indeed at the core of competitiveness in relation to MG's survival, then MG should not raise prices without careful consideration. However, if consumers choose MG based on factors other than price advantage, the author's views in the memorandum would be invalid. Of course, even if the company is truly famous for its prices, do we really have to exclude price augmentation as a means of increasing profit? If consumers aren’t bothered by a small increase in price, an almost inconspicuous increase that would simply match prices of other companies in the same industry, then raising prices would be an appropriate way to increase profits.


Additionally, even if MG is really famous for its low prices, is reducing the cost of operation the sole means of increasing profit? It is clearly not, as there are myriad ways to raise the profits of a video rental store; for example, the store could organize a “rent two get one free” event or promote sales around Christmas, Thanksgiving, and other holidays. Even though there are only two methods mentioned concerning profit increase in the memorandum, we still want to know whether or not Marston can truly earn more profit via the two aforementioned methods? If consumers are more inclined to visit the video rental store from 6pm to 9pm after they get off from work, or if they prefer classic movies, then MG’s initiative to reduce costs will counterintuitively lead to reduction in store revenue, and even a decrease in profit. Even if the store manages to increase profit at the beginning of operation, we must ask whether said profit is long-lasting or not? It is likely that this policy, in the short term, will not have a major impact on income, but, in the future, it could present the company with development consequences, such as massive loss after customer awareness of policy adjustment. Therefore, store proprietors must examine fluctuations in the company's costs and income for a period of time after policy implementation.


Lastly, even if the above assumptions are established, which is to say that MG cannot raise rental prices and can, through implementation of the aforementioned policies, achieve profit gains, we still can't implement the method exactly at the other nine store locations. What we have to consider is whether the situation in these stores is similar to that of MG, which would make this cost saving method work. For example, if the main consumer groups are different in the other stores, then there should be different methods implemented. Eliminating nighttime business hours would greatly reduce the renting desire of workers who want to visit the video rental store to decompress after work.


Therefore, in the above argument, we found that the suggestions mentioned in the memorandum are not necessarily logical. It is through the proposing and answering of questions about the provided text that the proprietor of MG can make wiser decisions.



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