Please rate my first argument

[hollysee]

Please please please rate. I am taking GRE taking Monday and apply for Economics. Thanks.

#53 Argument:
The following appeared in a memorandum from the owner of Armchair Video, a chain of video rental stores. "Because of declining profits, we must reduce operating expenses at Armchair Video's ten video rental stores. Raising prices is not a good option, since we are famous for our special bargains. 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 film released more than two years ago. Since we have received very few customer complaints about these new policies, we should now adopt them at all other Armchair Video stores as our best strategies for improving profits."

Before implementing such new policy changes to all of Armchair Video stores, I would advise the owner of the chain store to cogitate and investigate the issue further. The two strategies proposed by the owner don’t seem to be backed by any solid evidence. Furthermore, we should also analyze the competitor’s price strategy before making other strategy changes.

The first proposed strategy by the owner is to cut operating hours from 9:00 P.M. to 6:00 P.M., yet the owner failed to mention how much savings on cost such policy can bring, even in the Marston downtown store. Solely making the decision base on number of complaints is not a good of an indicator. The potential loss is that customers might simply turn away to near by stores after 6:00 PM instead of complaining. Furthermore, even if we assume that the customers in Marston downtown do not complain against such abrupt policy change, we should not assume that customers in all 9 other stores reacting exactly the same as the customers in Marston store, since the customer demographics of each store are different.

The second proposed strategy is to not stocking any film older than 2 years old. Again, we need to ask what is the potential savings in monetary term? Even in terms of space saving? There was not evidence on the effect of such policy change! There’s also no mention of plausible loss due to customer churning away to competitors. Finally, even if we assume there is indeed some savings in the Marston downtown store, we still cannot be sure such policy will be welcoming by other stores.

The owner also rejected the option of raising prices. While Armchair is famous for being a bargain video store, this should be in no way restricting the price increase. The key information not present is the competitor’s rental prices. As long as there is a gap between their price and Armchair’s price, there is room for price adjustment.

In conclusion, I believe there should be a more thorough study done on Armchair Video’s reduction of operating expenses. In order to conduct such study, we should either include a few more stores in the study or learn from the results of other video stores that had done such study. This study should also include competitor’s information. Finally, the magnitude of such policy changes should be included before implementing in all stores.