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Extensive research has shown that the effects of short-term

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Director
Director
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Joined: 10 Sep 2007
Posts: 950
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Kudos [?]: 189 [0], given: 0

Extensive research has shown that the effects of short-term [#permalink] New post 15 Jul 2008, 17:09
Extensive research has shown
that the effects of short-term price
promotions on sales are themselves
Line short-term. Companies’ hopes that
(5) promotions might have a positive
aftereffect have not been borne
out for reasons that researchers
have been able to identify.

A price promotion entices only a brand’s
(10) long-term or “loyal” customers;
people seldom buy an unfamiliar
brand merely because the price is
reduced. They simply avoid paying
more than they have to when one of
(15) their customary brands is temporar-
ily available at a reduced price. A
price promotion does not increase
the number of long-term customers
of a brand, as it attracts virtually
(20) no new customers in the first place.
Nor do price promotions have linger-
ing aftereffects for a brand, even
negative ones such as damage to
a brand’s reputation or erosion of
(25) customer loyalty, as is often feared.
So why do companies spend so
much on price promotions? Clearly
price promotions are generally run
at a loss, otherwise there would
(30) be more of them. And the bigger
the increase in sales at promotion
prices, the bigger the loss. While
short-term price promotions can
have legitimate uses, such as
(35) reducing excess inventory, it is the
recognizable increase in sales that
is their main attraction to manage-
ment, which is therefore reluctant
to abandon this strategy despite
its effect on the bottom line.
--------------------------------------------------------------------------------
Q3:
The primary purpose of the passage is to

* compare the arguments in favor of a certain strategy with those against it
* attack a certain strategy by enumerating its negative consequences
* justify the use of a certain strategy in light of certain criticisms that have been made against it
* advocate a particular strategy by arguing against an alternative
* explain the effects of a certain strategy and the primary motivations for adopting it
--------------------------------------------------------------------------------
Q4:
According to the passage, which of the following is the reason why short-term price promotions do not attract new long-term customers to a brand?

* Short-term price promotions do not produce an increase in sales.
* Customers come to regard the promotional price as the fair price and the regular price as excessive.
* Most customers select among competing products largely on the basis of price and very few are loyal to any particular brand.
* Customers who have not previously bought the promoted brand are almost never persuaded to do so by the short-term price promotions.
* Any customers that a brand gains by means of a short-term price promotion are liable to be lost when a competing brand has a similar promotion.
--------------------------------------------------------------------------------
Q5:
The passage suggests that evidence for price promotions’ “effect on the bottom line” (line 40) is provided by

* the lack of lingering aftereffects from price promotions
* the frequency with which price promotions occur
* price promotions’ inability to attract new customers
* price promotions’ recognizable effect on sales
* the legitimate uses to which management can put price promotions
Director
Director
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Joined: 14 Aug 2007
Posts: 735
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Kudos [?]: 104 [0], given: 0

Re: Good RC. Please Explain. [#permalink] New post 15 Jul 2008, 17:37
abhijit_sen wrote:
Extensive research has shown
that the effects of short-term price
promotions on sales are themselves
Line short-term. Companies’ hopes that
(5) promotions might have a positive
aftereffect have not been borne
out for reasons that researchers
have been able to identify.

A price promotion entices only a brand’s
(10) long-term or “loyal” customers;
people seldom buy an unfamiliar
brand merely because the price is
reduced. They simply avoid paying
more than they have to when one of
(15) their customary brands is temporar-
ily available at a reduced price. A
price promotion does not increase
the number of long-term customers
of a brand, as it attracts virtually
(20) no new customers in the first place.
Nor do price promotions have linger-
ing aftereffects for a brand, even
negative ones such as damage to
a brand’s reputation or erosion of
(25) customer loyalty, as is often feared.
So why do companies spend so
much on price promotions? Clearly
price promotions are generally run
at a loss, otherwise there would
(30) be more of them. And the bigger
the increase in sales at promotion
prices, the bigger the loss. While
short-term price promotions can
have legitimate uses, such as
(35) reducing excess inventory, it is the
recognizable increase in sales that
is their main attraction to manage-
ment, which is therefore reluctant
to abandon this strategy despite
its effect on the bottom line.
--------------------------------------------------------------------------------
Q3:
The primary purpose of the passage is to

* compare the arguments in favor of a certain strategy with those against it
* attack a certain strategy by enumerating its negative consequences
* justify the use of a certain strategy in light of certain criticisms that have been made against it
* advocate a particular strategy by arguing against an alternative
* explain the effects of a certain strategy and the primary motivations for adopting it
--------------------------------------------------------------------------------
Q4:
According to the passage, which of the following is the reason why short-term price promotions do not attract new long-term customers to a brand?

* Short-term price promotions do not produce an increase in sales.
* Customers come to regard the promotional price as the fair price and the regular price as excessive.
* Most customers select among competing products largely on the basis of price and very few are loyal to any particular brand.
* Customers who have not previously bought the promoted brand are almost never persuaded to do so by the short-term price promotions.
* Any customers that a brand gains by means of a short-term price promotion are liable to be lost when a competing brand has a similar promotion.
--------------------------------------------------------------------------------
Q5:
The passage suggests that evidence for price promotions’ “effect on the bottom line” (line 40) is provided by

* the lack of lingering aftereffects from price promotions
* the frequency with which price promotions occur
* price promotions’ inability to attract new customers
* price promotions’ recognizable effect on sales
* the legitimate uses to which management can put price promotions


E
D
C

Will explain if correct :)
Current Student
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Joined: 28 Dec 2004
Posts: 3403
Location: New York City
Schools: Wharton'11 HBS'12
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Re: Good RC. Please Explain. [#permalink] New post 15 Jul 2008, 18:17
i get
B<-- E was debatable..i feel the author is attacking rather than explaining
D
B
Director
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Re: Good RC. Please Explain. [#permalink] New post 15 Jul 2008, 18:38
fresinha12 wrote:
i get
B<-- E was debatable..i feel the author is attacking rather than explaining
D
B


For Q.1 though I thought of B as an option, the following lines from the passage made me
consider E

>>While short-term price promotions can have legitimate uses, such as reducing excess >>inventory,

IMO If author were attacking, he would not have written the above part

For Question 3, can you explain your reasoning?
Director
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Re: Good RC. Please Explain. [#permalink] New post 16 Jul 2008, 05:43
OAs are E, D, and B.
Current Student
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Re: Good RC. Please Explain. [#permalink] New post 16 Jul 2008, 06:48
how can 1 be E???

i debated this for a bit..a whole 1.5 minutes..i felt the author throughout is attacking this strategy??? what do you all think?
Senior Manager
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Re: Good RC. Please Explain. [#permalink] New post 16 Jul 2008, 11:09
I'll go with B, C, D.
Senior Manager
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Re: Good RC. Please Explain. [#permalink] New post 16 Jul 2008, 11:12
Damn, I totally blew this one up.

For the first one, I was stuck between B and E. It is too close though.


What is the source of this RC? Do you have OE? Please let me know
Intern
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Re: Good RC. Please Explain. [#permalink] New post 17 Jul 2008, 20:31
I think it's E D C
Re: Good RC. Please Explain.   [#permalink] 17 Jul 2008, 20:31
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