essay - GMAT: Argument5

Question:
The following appeared in an announcement issued by the publisher of The Mercury, a weekly newspaper.

"Since a competing lower-priced newspaper, The Bugle, was started five years ago, The Mercury's circulation has declined by 10,000 readers. The best way to get more people to read The Mercury is to reduce its price below that of The Bugle, at least until circulation increases to former levels. The increased circulation of The Mercury will attract more businesses to buy advertising space in the paper."

Discuss how well reasoned ... etc.

Answer:
According to a theory advocated by a famous business scholar, Micheal Porter, a corporation needs to focus on either cost leadership strategy or differentiate strategy. The former one is to build superiority against competitors through lower-price products. The latter one is to create a strong entry barrier through valued products coming from technological excellence or brand image.

The Mercury is trying to adapt cost leadership strategy, which was also being adapted by the rival newspaper, The Bugle. In general, this strategy will cause disastrous low profitability through intensive competitiveness with competitors. To avoid that, a corporation should come up with a clear solution giving the corporation unique sources of low costs, like a considerable market share, which strengths economies of scale, or preferential access to raw materials.

The argument says that The Mercury just intends to lower its price, which results in merely lower profitability. More terribly, if The Bugle has an advantage of low prices, it will reduce its prices in proportion to The Mercury's ones. This might make The Mercury very weak, which might lead to bankruptcy. Therefore, The Mercury needs to first research the rival's strategy and cost structure, and then if The Bugle doesn't have any particular strengths in a cost aspect, The Mercury will first be able to move forward to challenge The Bugle with cost reduction.

In summary, the strategy that The Mercury is taking is not appropriate in this circumstance because of the reasons I mentioned above. If The Mercury can come up with a reasonable competitive strategy, then first The Mercury will be able to proceed with either cost leadership strategy or differentiation strategy, while it remains its profitability.