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Denoma, a major consumer-electronics maker, had a sizeable

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Denoma, a major consumer-electronics maker, had a sizeable [#permalink] New post 26 Sep 2006, 07:16
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Denoma, a major consumer-electronics maker, had a sizeable decline in sales revenue for its most recent fiscal year. This result appears surprising, because electronics retailers report that although their overall sales were considerably lower than in the previous year, their sales revenue from Denoma models actually grew, largely thanks to some innovative and popular models that Denoma introduced.

Which of the following, if true, does most to explain the apparently surprising result?

A. Because of the need to educate the public about its new models’ capabilities, Denoma’s advertising spending was higher than normal over the period.
B. For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.
C. A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.
D. Unlike some of its major competitors, Denoma has no lines of business outside consumer electronics to provide revenue when retail sales of consumer electronics are weak.
E. During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices.
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 [#permalink] New post 26 Sep 2006, 07:27
C for me
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 [#permalink] New post 26 Sep 2006, 07:47
yeah going with C...

E is a trap.
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 [#permalink] New post 26 Sep 2006, 09:47
Both C and E appear right..Maybe if this were posed in the exam I would also go with C but why not E?
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 [#permalink] New post 26 Sep 2006, 09:54
E --- retailer gave discount but it doesn't say anything manufacturer. Obviously manufacturer may not have got a hit for these discounts.
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Re: CR-denoma paradox [#permalink] New post 26 Sep 2006, 10:04
C.

Argument says sales revenue from *Denoma models* grew, but their overall sales were considerably low. So if most of the revenue comes from sales were non-Denoma models manufacturers, then that explains the possible reason why the overall sales revenue declined.

E doesn't really explain this. Since the original argument says " sales revenue from Denoma models actually grew" whether they discounted at some time of the year doesn't really matter. Because the overall sales revenue did grew for Denoma models.
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 [#permalink] New post 26 Sep 2006, 10:38
C it is.

The trick was to notice the scope shift from sales revenue for the ntire of Denoma to sales revenue of just the Denoma models
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 [#permalink] New post 26 Sep 2006, 10:44
C explains the decline best.
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 [#permalink] New post 26 Sep 2006, 16:53
Fell for the Trap , went with E

Don't completely agree with C , coz the stem doesn't mention anything about decline component revenue . Based on the question stem "Which of the following, if true, does most to explain the apparently surprising result? " , we have to assume that component revenues could have declined.
Yeah, but , it does get a lttle close to the truth :)
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 [#permalink] New post 08 Oct 2006, 00:48
ivymba wrote:
Fell for the Trap , went with E



No, we both didn't fall for the trap ;)
OA is E http://www.gmatclub.com/phpbb/viewtopic ... aker#58687
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 [#permalink] New post 08 Oct 2006, 01:12
This is what Wilfred was saying in the thread posted above:

E: Here's the answer. The superseded models were selling well, but at a massive discount from the original price. If this is the case, it's no surprise sales revenus is down for Denoma. Also, since it's remaining models being sold, there's no sales of new models to retailers from Denoma.


I disagree with his conclusion :wink: . Reasons:

1. Why will revenue come down, when the models are sold at discounts?

Selling at discounted prices is often a strategy to bolster revenues in the real world.

2. If we assume that the models were selling well before, and because of discounts the sales of these selling models came down, it is contrary to any business logic. Why will some body reduce the price of a model, if it is selling well in the market? If we think that to phase out old models, the manufacturer is giving deep discounts, how often a company will forego its current revenues for future promised, but uncertain revenues?

3. Also going by consumers' nature in electronic goods market, we can say that "Also, since it's remaining models being sold, there's no sales of new models to retailers from Denoma" is not logical. In electronic goods, PC market, models get outdated very fast. Very few consumers will be willing to go for old models, even if they are getting goods at deep discounts. Thats one of the reasons, why lot of manufactures of this type of goods dump them for tax benefits.

Now I would go with C :-D . Components are sold as part of goods often. So I think we can assume that there was decline in components, when there was decline in electronic goods. The case is different in case of "automotive components industry". There the sale of components is very high. And there is a separate industry for components.

Sorry for the long post :wink:
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Last edited by ak_idc on 08 Oct 2006, 02:11, edited 1 time in total.
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 [#permalink] New post 08 Oct 2006, 01:27
It's a great business lesson. Thank you!!;)

This result appears surprising, because electronics retailers report that although their overall sales were considerably lower than in the previous year, their sales revenue from Denoma models actually grew, largely thanks to some innovative and popular models that Denoma introduced.

Yes, the bold part indicates that big sales from retailers should improve sale of Denoma ----> strategies served best for retailers also serve Denoma ---> your biz lesson is correct :)

I was thinking of C as well but it looks somewhat simple, thus making me doubtful and switch to E :roll:
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Re: CR-denoma paradox [#permalink] New post 08 Oct 2006, 01:45
jerrywu wrote:

C. A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.

E. During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices.


1st was going for C, then reading the first answers, was convinced C was correct. Then read E's defenders, believed they were wrong. Finally I don't know what the correct answer is!

However, while writing, think C is the answer because it explains the contradiction by considering both sides. 1. Why the overall revenue of Denoma declined and 2. why the revenue of Denoma's model continues to sell well and thus, gives the reason why the revenue of retailers selling denomas modell grew.

E. Just gives one part of the explanation. 2. Why retailers' revenue grew.

C. is my answer :?
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 [#permalink] New post 08 Oct 2006, 22:09
laxieqv wrote:
ivymba wrote:
Fell for the Trap , went with E



No, we both didn't fall for the trap ;)
OA is E http://www.gmatclub.com/phpbb/viewtopic ... aker#58687


It can't be E because: The price at which retailers sell does not matter to Denoma. If retailers sold at a discounted price, their revenues would be lower, not the company's.

C on the other hand clearly states why Denoma's revenues would be lower.
1. Premise states that overall sales for retailers were low.
2. Choice C states that a major portion of Denoma's revenues comes from making components for other consumer-electronics manufacturers.

So the other manufacturers themselves would not have bought as much from Denoma as they normally would have leading to the decrease in Denoma's sales revenues.
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 [#permalink] New post 09 Oct 2006, 00:01
E for me.
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 [#permalink] New post 09 Oct 2006, 06:38
E 2.
don't think too much. lol
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 [#permalink] New post 09 Oct 2006, 09:12
Good discussion.
jerrywu - What's the OA ?
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Re: CR-denoma paradox [#permalink] New post 09 Oct 2006, 11:04
Fact: Denoma sales revenue has a sizeable decline.
Fact: Electronics retailers reported increase in sales revenue for Denoma models.

Ask for explanation for the apparant contradiction.

We need to make sure we know what the surprise is, before we can explain. The surprise is that retailers have reported increased revenue for Denoma models while Denoma revenue has decreased.

Quote:
A. Because of the need to educate the public about its new models’ capabilities, Denoma’s advertising spending was higher than normal over the period.

Talks about expense. Cannot explain decline of revenue.

Quote:
B. For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.

Competitors are irrelevant here.

Quote:
C. A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.

Very good point. If Denoma's revenue source includes both revenue from direct sales of its own models, as well as the revenue from parts for other models, then the decline from the latter may be greater than the increase of the former, and result in a decrease in total revenue.

Quote:
D. Unlike some of its major competitors, Denoma has no lines of business outside consumer electronics to provide revenue when retail sales of consumer electronics are weak.

The fact that the market is weak does not matter since Denoma models retail revenue has actually increased. This does not explain why Denoma total revenue has decreased.

Quote:
E. During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices.

There is no way E can be the correct answer. Lower price or not, the retail revenue of Denoma models has increased. It does not offer explanation why total revenue has decreased.

The correct answer is C. If OA is E, then the OA is WRONG.
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 [#permalink] New post 09 Oct 2006, 12:10
C

Retail sales of Denoma products increased. Sales of products from other manufacturer's declined more sharply than the overall price drop. Components for other manufacturers forms a significant portion of Denoma's sales revenue.
So, loss in revenue from components sale overshadowed gain in revenue from retail sales.
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 [#permalink] New post 09 Oct 2006, 12:29
mukeshnathani wrote:
Good discussion.
jerrywu - What's the OA ?


OA is C
  [#permalink] 09 Oct 2006, 12:29
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