In this plan, manufacturer is planning to sell the product store at reduced wholesale price expecting that it will "Pass on" this reduced price to end customer.
For example:Current situation:
Wholesale price to store: $8
, Manufacturer Product: MRP- $12
Store Product: MRP- $10
In this case consumer is switching to Store brand as its cheaper (by $2)Proposed situation:
Wholesale price to store: $6 (note 20% reduction),
Manufacturer Product: MRP- $12, Expected Discounted consumer price: $10
Store Product: MRP- $10Explanation:
In this case the manufacturer assumes that the store will sell manufacturer's product at discounted price down to $10 from $12 (i.e. will "pass on these savings" to consumer)
With both the products priced same, it will eliminate the price incentive for consumers who are switching produces based on the price. However as the manufacturer is not reducing the price on MRP but wholesale prices, Store will not give discount to the customer and will still continue sell at MRP $12, making sure they continue to sell their store cereal product at cheaper price.D is the correct answer.
Tough RCs: Passage1 | Passage2 | Passage3 | Passage4 | Passage5 | Passage6 | Passage7