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.
According to the memo, given the past success of Bargain Brand Cereals (BBC) in low-priced breakfast cereal, the author recommends that Bargain Brand now expand its business and begin marketing other low-priced food products as quickly as possible. Although the author's conclusion is somewhat reasonable, they are based on several assumptions that, if proven wrong, would seriously challenge the author's conclusion.
First, the author assumes that the BBC's breakfast cereals captured a large percentage of the market a year ago. But this assumption is flawed. Although the author mentions that the BBC's low prices quickly drove out many competitors, they do not specify how many competitors were defeated. In this case, the author's assumption is challenged, and the author's conclusion is weakened. In addition, the author also assumes that the BBC's low-price strategy is the reason for the reduction of competitive pairs. However, this assumption is potentially problematic because the author may ignore other factors that may also reduce competitors. For example, the market for breakfast cereals may be shrinking, and those companies are pessimistic about the future of the breakfast cereals market and thus withdraw from the market voluntarily. In this case, the author cannot attribute the withdrawal of competitors to BBC's low-price strategy. Therefore, the author's conclusion would be overturned.
Second, the author illustrates the success of BBC's low-price strategy by showing that it does not need to raise prices to maintain profits. Here, the author implicitly assumes that the low-price strategy is sustainable for maintaining profits. But this assumption may be incorrect. For example, for local consumers, BBC's low prices are all it has to offer, and once prices are raised a little, consumers will quickly leave. In this case, BBC's failure to raise prices is actually a compulsion rather than an active choice. And again, the profits from maintaining low prices may be limited and unsustainable. If any of the above scenarios were true, the author's assumption would be challenged, and thus the author's conclusion would be untenable.
Third, even if all of the above assumptions are true, the author's conclusion may still be challenged because of another doubtful assumption that other products can replicate low-priced breakfast cereals' strategy. The author is overly optimistic in assuming that the success of low-priced cereals can be directly replicated to other inexpensive products. First, it is possible that BBC's success with low-priced cereals is not due to its low price, but to its taste, quality, and other characteristics, and it is possible that BBC cannot directly replicate these good characteristics to other products. In addition, there is a possibility that BBC's breakfast cereals succeeded through cheapness because there are few cheap products in this market, and BBC fully seized the market opportunity; however, other product areas are already full of similar products that win by low price, so even if BBC enters these markets, it is difficult to win. If this were to happen, then the author's assumption would be challenged, and the conclusion would be invalid.
Finally, even if the BBC could enter other cheap food areas, we still need to be careful of the author's another assumption that the BBC can expand into other businesses. But this assumption may also be incorrect. The author cannot easily assume that the BBC is ready to expand into new markets in terms of capital, technology, and talent. If BBC's cash flow is not sufficient to expand into new markets because of its cheap strategy in the past, or if the technology needed for other food products is very different from BBC's existing equipment, or if BBC has a shortage of talent, then the author's assumption will be challenged, and the author's proposal should not be implemented.
In summary, the author's conclusion relies heavily on the above assumptions, and they are seriously challenged if they are proven wrong.