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 o

The owner of Movies Galore proposes several methods of reversing the decline in profits for his chain of video rental stores. He suggest that by not raising prices, closing at an earlier timing of 6pm and removing movies released more than five years ago would raise the profits. Whilst this is a workable and proven method for one outlet, it would not be prudent to extrapolate this result towards the other outlets. Thought the methodology of achieving greater profit seems tenable at first glance, it is based on superficial and bombastic statements with many unanswered assumptions.

Firstly, the first question to be answered would be the similarity of demographics between outlets. Given that the video rental stores maybe held country-wide, it is difficult to generalize and assume that strategy use for all outlet should be similar. For example, the closure of store at an earlier timing of 6pm may work for a more dangerous or secluded city that are lesser customers in the evening. While Buffalo lies in New York, it is more secluded and has lesser people out in the evening in comparison to Manhatten. Thereby the earlier closure may work for Buffalo. On the other hand, Manhatten is known as for its nightlife, given that there are high concentration of people on the streets at night, it is only feasible that the outlet stays open later. Furthermore, demographics affects the types of movies that are rented. It is not wise to eliminate all movies released more than five years ago just because it worked for one outlet. A statistic should be drawn for each outlet to identify the preferred choices and eliminate the unwanteds ones. Thereby, demographics of each individual outlet should be questioned and accounted for.

Secondly, the second question to be answered would be how much money is lost and how much cost is save during the closure from 6pm – 9pm. There would definitely be a decreased in operating expenses, but it does not justify for the closure, unless there are no rental or less than substantial rental made during the period from 6pm – 9pm. No data is available to justify the statement and the supporting evidence given is insufficient. A saving in operating expenses does not equate to an increase in profit. This is a misunderstanding of concept that should be addressed.

Thirdly, the third question to be answered would be the elasticity of the products of the video rental stores. The owner argues that they are famous for their speical bargains, and that raising rental prices is not a vaiable way to improve profits. Firstly, the video rental industry mimicks a monopolistic market. Thereby, it should be adopting prices similar to that on the market to prevent a loss in profit. Given the current inflation worldwide due to the covid-19 pandamic, it is unwise that the prices are not rising. Secondly, the elasticity of the product is necessary to make proper pricing decision, instead of assuming the speciality.

It can be inferred from the above three questions that the method to which the owner has used to adopt pricing policy and method is highly flawed. The methods used are based on inaccurate assumptions and incorrect economical concepts. There is a need to review each claims and statements in the memorandum.

In conclusion, the over generalization of solutions to improve all outlets is not feasible. Many questions need to be addressed before extrapolating results of the current solutions. These questions include the demographics of various outlets, the profit loss or gain from 6pm to 9pm and the elasticity of product. Given that the sample size is small, substantial risk and stakes is involved should these questions be unaddressed. Furthermore, should these statements above be proven unwarranted, large profits would be lost. Given that there are high stakes, the stakeholders, employees, and investors should be sceptical towards the pompous and bombastic claims of the owner. One should hold off major decisions till evidences are provided to answer these questions.