BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem

automobile manufacturer

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Legendary Member
Posts: 549
Joined: Wed Jan 06, 2010 7:00 am
Thanked: 16 times
Followed by:3 members

automobile manufacturer

by ssgmatter » Tue Jun 22, 2010 8:10 am
Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability. Which of the following, if true, most strongly supports an argument for the incentive programs?
A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.
E. If a manufacturer fails to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.
Best-
Amit
Top
Source: — Critical Reasoning |
Legendary Member
Posts: 2326
Joined: Mon Jul 28, 2008 3:54 am
Thanked: 173 times
Followed by:2 members
GMAT Score:710

by gmatmachoman » Tue Jun 22, 2010 8:26 am
Phil bhai,

I am going for E....it supports the benfits of Incentive programs

and D is actually weakens the idea of incentive programs...

E seems to be a logical fit...but the question was very very wierd..wat say?
Top
User avatar
Master | Next Rank: 500 Posts
Posts: 392
Joined: Sun May 16, 2010 2:42 am
Location: Bangalore, India
Thanked: 116 times
Followed by:10 members
GMAT Score:770

by albatross86 » Tue Jun 22, 2010 8:35 am
I would be interested to know the source of this question.

Incentive programs increase sales to the dealers but may hurt the manufacturer's profitability.

We need a choice that will justify the incentive program.


A. This suggests that the plan is carefully calculated to offer the least discount needed to increase consumer attention. Whether it is successful in increasing revenues or profitability is unclear, however this is close to a supporter. Hold on to it.

B. This actually weakens the program, saying that it wont run long enough to change consumer perception.

C. Again this argues against an incentive program more than for it.

D. This only affects the dealer's revenue and not the manufacturer's, since they have already sold the cars to the dealers at the discounted price during the incentive.

E. This says that if one manufacturer doesn't implement an incentive program, a competitor who does may take over some of the market share. Though this may seem to suggest that the plan is therefore necessary, it doesn't specifically say how much of the market the competitor may acquire, or whether the plan is profitable or not.


I am therefore a bit torn between A and E, since they both seem to be possible strengtheners for the argument for such programs.

I would have gone with A, since it clearly states that the discount is as low as possible and yet draws attention, thus suggesting that the profitability is being optimized.

OA?
Top
User avatar
Legendary Member
Posts: 1460
Joined: Tue Dec 29, 2009 1:28 am
Thanked: 135 times
Followed by:7 members

by selango » Wed Jun 23, 2010 1:15 am
From the argument we know that incentive programs does the following,

increase the amount of products sold by auto manufactures to dealers

affect the manufactures profitability

IMO option D

The manufacturer already sold the cars to dealers at discount price.Since there is an discount dealers buy more cars from thus increasing the amount of cars.

But after some time dealers tends to sell the cars at regular price thus increasing the dealers profitability.
Manufacturers profitability got affected bcoz they sold more cars at discounted price rather than regular price.
Top
User avatar
Master | Next Rank: 500 Posts
Posts: 392
Joined: Sun May 16, 2010 2:42 am
Location: Bangalore, India
Thanked: 116 times
Followed by:10 members
GMAT Score:770

by albatross86 » Wed Jun 23, 2010 1:21 am
selango wrote:From the argument we know that incentive programs does the following,

increase the amount of products sold by auto manufactures to dealers

affect the manufactures profitability

IMO option D

The manufacturer already sold the cars to dealers at discount price.Since there is an discount dealers buy more cars from thus increasing the amount of cars.

But after some time dealers tends to sell the cars at regular price thus increasing the dealers profitability.
Manufacturers profitability got affected bcoz they sold more cars at discounted price rather than regular price.
Wouldn't that work against the argument for such a program?
Top
GMAT Instructor
Posts: 1302
Joined: Mon Oct 19, 2009 2:13 pm
Location: Toronto
Thanked: 539 times
Followed by:164 members
GMAT Score:800

by Testluv » Wed Jun 23, 2010 5:14 pm
received a pm.

Think there might be an issue with this question.

Phil, can you tell me the source? If it is a good source, then I will post an explanation.
Kaplan Teacher in Toronto
Top
Legendary Member
Posts: 1119
Joined: Fri May 07, 2010 8:50 am
Thanked: 29 times
Followed by:3 members

by diebeatsthegmat » Thu Jul 01, 2010 11:06 am
ssgmatter wrote:Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability. Which of the following, if true, most strongly supports an argument for the incentive programs?
A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.
E. If a manufacturer fails to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.
E here too
Top
Master | Next Rank: 500 Posts
Posts: 107
Joined: Sat Feb 27, 2010 11:10 am
GMAT Score:690

by singhsa » Thu Aug 19, 2010 2:20 pm
Came across the same question in GMATPrep. Absolutely stumped
Top
Master | Next Rank: 500 Posts
Posts: 385
Joined: Sun Jul 12, 2009 10:16 pm
Thanked: 29 times
Followed by:2 members
GMAT Score:710

by debmalya_dutta » Thu Aug 19, 2010 7:55 pm
my pick is D
final conclusion is - Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability.

During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.

because

this proves that the dealers just stock the material and sell it at a later time at the regular price. So , there is no point in running the promotion which provides a discount to the dealers. The automobile manufacturer might as well sell it directly at the regular price and not loose the discount amount .
@Deb
Top
Senior | Next Rank: 100 Posts
Posts: 84
Joined: Mon Apr 26, 2010 2:51 am
Thanked: 6 times
Followed by:1 members

by brijesh » Thu Aug 19, 2010 11:10 pm
ssgmatter wrote:
Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability.

Which of the following, if true, most strongly supports an argument for the incentive programs?

if the question is like : Which of the following, if true, most strongly supports a need for the incentive programs?

then i think, without ambiguity the answer is E.

here the word "argument", creates little confusion but still i think , in this case also E is an better option. (The incentive programme is market driven , relative phenomenon)

Experts comments plz!!

A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.
E. If a manufacturer fails to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.
Top
Master | Next Rank: 500 Posts
Posts: 364
Joined: Tue Apr 20, 2010 5:13 am
Thanked: 31 times
Followed by:3 members

by FightWithGMAT » Thu Aug 19, 2010 11:12 pm
ssgmatter wrote:Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability. Which of the following, if true, most strongly supports an argument for the incentive programs?
A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.
E. If a manufacturer fails to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.
IMO D

A actually hurts the argument, saying that the discount is bare minimum and would not hurt the profitability of the manufacturer (Discount is not maximum what a manufacture can afford)

E is a hypothetical situation, but the passage already mentions that such situation could hurt the profitability.

D looks good.

A manufacturer supplies 1000 cars to a dealer in a month and earns 10% on each car. During the incentive program, it supplies 1000 cars in just a week and earns only 3% on each car. All the 1000 cars do not get consumed by consumers. Dealer stores 800 cars and sells after the incentive program is over. He can sell the car at normal price and earn more profit.

This situation is weird for manufacturer even through they sold more cars in a week they earned very less profit on these cars. They could have earned a normal profit by selling the cars normally.
Top
Newbie | Next Rank: 10 Posts
Posts: 9
Joined: Sat Apr 03, 2010 4:16 am
GMAT Score:500

by vijayantj » Fri Aug 20, 2010 12:42 am
OA - A talks about discounts are pre calculated considering profitability
Top
Senior | Next Rank: 100 Posts
Posts: 32
Joined: Mon Jul 26, 2010 11:51 pm
Thanked: 2 times

by ssp » Fri Aug 20, 2010 4:27 pm
First, please note that the source of this question is not reliable. This problem is a slightly altered version of question #69 in the OG Verbal supplement. If you do not believe me, feel free to google this problem and look at Ron's response on the MGMAT forum.

The official answer to this question is definitely E. The question is a STRENGTHEN question asking one to support the conclusion that the incentives are a good idea. I have a feeling that everyone is picking D because this is a copy cat problem and in another version, the question is asking you to weaken the problem. Anyways, you want to say that the incentives are good.

D is saying that retailers accumulate the inventory and sell it at higher price later. This negatively affects the profitability of the manufacturer. Manufacturer is selling it to the reseller at a lower price, and the reseller is turning around and selling it at the same retail price to consumers. This says that the reseller makes money, but the manufacturer in fact reduces its margin on the sale --> bad.

How could we support the need for this incentive? Well, if the manufacturer does not offer this promotion and its competitors does, then it's possible that consumers will start buying a competitor's product which will negatively affect the manufacturer's profitability in the future. This is a necessary step for them in order to remain competitive. Therefore, this is an argument for the incentive program.
Top
Senior | Next Rank: 100 Posts
Posts: 32
Joined: Mon Jul 26, 2010 11:51 pm
Thanked: 2 times

by ssp » Fri Aug 20, 2010 4:31 pm
FightWithGMAT wrote:
ssgmatter wrote:
IMO D
D looks good.

A manufacturer supplies 1000 cars to a dealer in a month and earns 10% on each car. During the incentive program, it supplies 1000 cars in just a week and earns only 3% on each car. All the 1000 cars do not get consumed by consumers. Dealer stores 800 cars and sells after the incentive program is over. He can sell the car at normal price and earn more profit.

This situation is weird for manufacturer even through they sold more cars in a week they earned very less profit on these cars. They could have earned a normal profit by selling the cars normally.
Your analysis in the two lines above actually is exactly why you would NOT Want to choose D. I think you are blurring the lines between the reseller and the manufacturer. The stimulus is centered around the manufacturer and NOT the reseller. EXACTLY - "They could have earned a normal profit by selling the cars normally." Why did they not just sell the cars normally? Because they had to maintain competitive pricing with their competitors. If they did not do this, they might lose consumers which would be bad in the long run.
Top
User avatar
Senior | Next Rank: 100 Posts
Posts: 74
Joined: Fri Jun 25, 2010 6:33 pm
Thanked: 3 times

by vijaynaik » Fri Aug 20, 2010 5:52 pm
ssp wrote:
FightWithGMAT wrote:
ssgmatter wrote:
IMO D
D looks good.

A manufacturer supplies 1000 cars to a dealer in a month and earns 10% on each car. During the incentive program, it supplies 1000 cars in just a week and earns only 3% on each car. All the 1000 cars do not get consumed by consumers. Dealer stores 800 cars and sells after the incentive program is over. He can sell the car at normal price and earn more profit.

This situation is weird for manufacturer even through they sold more cars in a week they earned very less profit on these cars. They could have earned a normal profit by selling the cars normally.
Your analysis in the two lines above actually is exactly why you would NOT Want to choose D. I think you are blurring the lines between the reseller and the manufacturer. The stimulus is centered around the manufacturer and NOT the reseller. EXACTLY - "They could have earned a normal profit by selling the cars normally." Why did they not just sell the cars normally? Because they had to maintain competitive pricing with their competitors. If they did not do this, they might lose consumers which would be bad in the long run.
Question is about the cars sold to dealers as part of the incentive program not to the consumers. So competition with other manufacturers is out of scope. We should look within the incentive program to the dealers and see how this could result in less profit for the manufacturer?
D answers that.
Top
Post new topic Post Reply