Again, I exceeded the 30-minute time limit. It took 33 minutes.
The following appeared in a memorandum from the owner of Movies Galore, a chain of video rental stores.
"In order to reverse the recent decline in our profits, we must reduce operating expenses at Movies Galore's ten video 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. Therefore, in order to increase profits without jeopardizing our reputation for offering great movies at low prices, we recommend implementing similar changes in our other nine Movies Galore stores."
Write a response in which you discuss what questions would need to be answered in order to decide whether the recommendation is likely to have the predicted result. Be sure to explain how the answers to these questions would help to evaluate the recommendation.
The owner of Movies Galore, in an attempt to reverse the recent decline in their profit while maintaining reputation for offering great movies at low prices, recommended a reduction in operating expenses by closing the stores earlier and eliminating old movies from the stores. The recommendation comes from an observation: one of it's stores significantly decreased its operating expenses by closing at 6:00 P.M. rather than at 9:00 P.M. and by reducing its stock by eliminating all movies released more than five years ago. However, while the observation talks about the reduced operating cost, it gives us no information about reversing the decline in profits. If the point is to increase the profits, the owner of Movies Galore should be more analytical about the observation he/she makes from the the changed operation policy of the downtown Marston store.
The Movies Galore video rental store is famous for offering great movies at low prices and it wishes to maintain this reputation. That's why, it is unwilling to raise the prices. Since there are no data regarding comparative prices of other similar stores, it is difficult to support the decision of not raising prices by Movies Galore. Does the purchase of videos from other similar stores cost slightly more than that of Movies Galore? Or, is it considerably higher? If the answer to the second question is a yes, then raising the price of videos would not harm the sales by Movies Galore. By raising the price slightly, it can compensate the operating expenses and start to make profits thereby.
The downtown store reduced its expenses by reducing it's operating time. A question can be raised here. Did this reduction reverse the decline in profit? Reducing operating time by 3 hours is significant. This is very probable that it also reduced the amount of sales while it reduced the expenses. Does these two reduction result in increased profits? If not, there is no point in reducing the operating time and closing the store earlier.
Another method that the particular store followed to reduce expenses was to eliminate older videos. This act is not much rational in the sense that the demand of old classical movies is always high. People will always like to watch the oldies such as 'The Godfather', 'The good, the bad and the ugly', 'Twelve angry men' and so on. Eliminating these classics from store would do no good in terms of reversing decline in profits because people would go for other stores to collect these movies.
The owner of the Movies Galore was not much careful when he/she suggested the the similar policy, taken by downtown Marston store, should be applied to all other stores. There are some assumptions taken as true without proof, and lack of relevant data in the argument make the suggestion by the owner not worth following.