Market Research or Gut Feeling?
A small business sells reusable coffee cups online. Sales have fallen 18% over two quarters. The owner, Sam, believes the cause is price: competitors sell similar cups $4 cheaper. Sam wants to cut the price by $5 and run a $3,000 social media campaign. A staff member surveyed 60 recent customers and found 41 said they had stopped buying because the cups 'leaked' and 12 cited price. Only 7 mentioned delivery speed. Sam says 60 people is 'too small to matter' and the survey was 'just staff opinion'. The business has $6,000 cash and a $5,000 loan repayment due in eight weeks.
1. Evaluate the quality of the survey evidence and Sam's dismissal of it. What does the evidence suggest about the likely cause of the sales decline?
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Survey quality: 60 respondents is a small sample and may not be representative - it covers only recent customers, so it misses people who never bought or who left without contact. Self-reported reasons can also be unreliable. So Sam is partly right that the sample is limited.
But 'too small to matter' is the wrong conclusion. A sample of 60 with 41 citing leaks (68%) is a strong signal, not noise. The pattern is lopsided enough that it is unlikely to be coincidence. The survey is directional evidence that should trigger further investigation, not be discarded.
What it suggests: Leaks are the dominant complaint (41/60), price is minor (12/60), delivery speed negligible (7/60). Sam's price theory is contradicted by the data. A price cut would likely reduce margin without fixing the real problem.
Judgement: Sam should treat the survey as a hypothesis to test, not proof - but the burden has shifted to Sam to show price is the issue, and no such evidence exists.
2. Given the $6,000 cash balance and $5,000 loan repayment in eight weeks, recommend what Sam should do and justify the recommendation.
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Constraint: $6,000 cash, $5,000 due in eight weeks. Sam has only $1,000 of headroom. A $3,000 campaign plus a $5 price cut is unaffordable and risky - it consumes half the cash buffer before the repayment.
Recommendation: Do not cut price and do not launch the $3,000 campaign now.
- Fix the product first. Investigate the leak complaint - a design or supplier fix addresses the cause the evidence points to, and is likely cheaper than a price war.
- Run a low-cost test. A small sample of customers (e.g., a short follow-up email to the 41 complainants) can confirm the leak issue at near-zero cost.
- Protect the repayment. Ring-fence $5,000. Any spending must come from the remaining $1,000 or from new sales.
- Revisit price later only if evidence shows price sensitivity.
Justification: The evidence points to product quality, not price, so a price cut attacks the wrong problem and drains cash needed for a fixed obligation. Prioritising the loan repayment protects solvency; fixing leaks protects the brand. A price cut now could permanently lower margin while sales stay flat because the cups still leak.