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 PM rather than 9:00 PM 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 addressed in order to decide whether implementing the recommendation is likely to have the predicted result and explain how the answers to those questions would help to evaluate the recommendation.


This argument is built upon the belief that closing early and reducing the movie stock helped cutting back the operating costs. Is this really true? Sure it sounds like a reasonable cut back. Did it actually help in increasing the profit? It may be true that they have been successful reducing the operating costs, but because of the shorter operating hours, they may have much less profit than before. Similarly, because they have much less movie selection, people may have stopped renting a movie there as they can no longer find the movies they are interested.
This argument recommends for all the MG stores to close 3 hours earlier than the store’s current closing time. This recommendation is only based on the fact that the single store in downtown location was successful in cutting back the operating expenses by taking this action. The question is, does this particular case apply to all the other stores? Why was it successful in this particular location? Perhaps it was in industrial district. Most people usually hurry home at 5pm. If this is the case, indeed closing at 6pm makes sense. However, other 9 location could be in the suburbs or residential area. In such neighborhood, people who came back home from work probably want to stop by and rent a movie after 6pm. Taking a statistics on the total sales by the hour, also by the date in the week would provide a beneficial information on the slowest times and date that could help MG to figure out how to cut back business hours.
In addition, this argument recommends for all the MG stores to eliminate the movie stock older than five years ago. This is also based on the experience of one single store in downtown district. Again, younger working generations who are majority of the particular district may prefer cutting edge, blockbuster movies, while communities that are consisted of older, retired people may seek for classics. It all depends on the location. If MG needs to cut back the movie stock, then taking a customer survey at each MG store before doing so should provide them with much more precise and specific customer preference based on the location and the type of people who live nearby.
Moreover, this argument believes that they cannot raise the rental price, because they are “famous for the special bargains”. The special bargains are bulk deals such as “rent one get one free”. Raising a single rental price should not negatively impact their famous special bargains. In fact, if they raise the single price, customers may be more attracted for the bulk deal, hence increasing the profit.
Whether changing the price, hours, or the amount of stock, MG should evaluate what type of customers they hold at each location, and get to know them better before making a dramatic change in their operation in an effort to increase the profit.