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# A coffee manufacturer wants more restaurant chains to serve its brands

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Retired Moderator
Joined: 06 Jul 2014
Posts: 1231
Location: Ukraine
Concentration: Entrepreneurship, Technology
GMAT 1: 660 Q48 V33
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A coffee manufacturer wants more restaurant chains to serve its brands  [#permalink]

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16 Sep 2015, 02:58
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Difficulty:

5% (low)

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87% (01:34) correct 13% (01:41) wrong based on 139 sessions

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A coffee manufacturer wants more restaurant chains to serve its brands of coffee. The manufacturer is considering a plan to offer its coffee to large chains at a significantly lower price, at least for a certain period. This lower price initially will reduce the manufacturer's profits, but they hope to get into enough nationwide restaurant chains that their volume increases significantly. Once they have a much higher volume, even a small increase in their price would have an enormous effect on their profits.

In evaluating the plan's chances of success, it would be most helpful to know which of the following?

A) Whether their discounted price is lower than the prices of the coffee manufacturers who currently provide coffee to these nationwide restaurant chains.
B) Whether the manufacturer will use the same shipping system as it has been using to ship coffee to restaurants across the country.
C) Whether the prices of some mixes of coffee will be discounted more than the prices of others.
D) Whether the coffee manufacturer will be able to cut costs associated with advertising to maintain a strong profit margin even with the lower prices.
E) Whether an alternate plan would allow the coffee manufacturer to take greater profits from the restaurant chains to which it currently provides coffee.

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A coffee manufacturer wants more restaurant chains to serve its brands  [#permalink]

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16 Sep 2015, 09:16
A coffee manufacturer wants to expand more restaurant chains.
The manufacturer plans to offer its coffee at a lower price for a certain period.
This lower price initially will reduce the manufacturer's profits, but they hope to get into enough nationwide restaurant chains that their volume increases significantly.
Once they have a much higher volume, even a small increase in their price would have an enormous effect on their profits.

In evaluating the plan's chances of success, it would be most helpful to know which of the following?

A) Whether their discounted price is lower than the prices of the coffee manufacturers who currently provide coffee to these nationwide restaurant chains.
(If yes then the restaurants may prefer this manufacturer and he can reap the profits. If no, the case may be opposite.This evaluates the argument.)
B) Whether the manufacturer will use the same shipping system as it has been using to ship coffee to restaurants across the country.(Same or the other shipping system can result in lower or same or higher costs. But this cannot affect the plan anyway. OFS)
C) Whether the prices of some mixes of coffee will be discounted more than the prices of others.
(argument is whether its brands of coffee are discounted not some against other. OFS)
D) Whether the coffee manufacturer will be able to cut costs associated with advertising to maintain a strong profit margin even with the lower prices.
(whether adv costs are same or less cannot decide whether plan meets success although they may affect the profits a bit.)
E) Whether an alternate plan would allow the coffee manufacturer to take greater profits from the restaurant chains to which it currently provides coffee.
(plan is to expand not greater profits in current restaurant chains)

Both options A and D are related to price reduction where A compares with prices of its competitors and D brings in the aspect of advertisement costs.
Harley1980 Can you please clarify in between these two options?
Retired Moderator
Joined: 06 Jul 2014
Posts: 1231
Location: Ukraine
Concentration: Entrepreneurship, Technology
GMAT 1: 660 Q48 V33
GMAT 2: 740 Q50 V40
Re: A coffee manufacturer wants more restaurant chains to serve its brands  [#permalink]

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16 Sep 2015, 09:45
1
Mechmeera wrote:
A coffee manufacturer wants to expand more restaurant chains.
The manufacturer plans to offer its coffee at a lower price for a certain period.
This lower price initially will reduce the manufacturer's profits, but they hope to get into enough nationwide restaurant chains that their volume increases significantly.
Once they have a much higher volume, even a small increase in their price would have an enormous effect on their profits.

In evaluating the plan's chances of success, it would be most helpful to know which of the following?

A) Whether their discounted price is lower than the prices of the coffee manufacturers who currently provide coffee to these nationwide restaurant chains.
(If yes then the restaurants may prefer this manufacturer and he can reap the profits. If no, the case may be opposite.This evaluates the argument.)
B) Whether the manufacturer will use the same shipping system as it has been using to ship coffee to restaurants across the country.(Same or the other shipping system can result in lower or same or higher costs. But this cannot affect the plan anyway. OFS)
C) Whether the prices of some mixes of coffee will be discounted more than the prices of others.
(argument is whether its brands of coffee are discounted not some against other. OFS)
D) Whether the coffee manufacturer will be able to cut costs associated with advertising to maintain a strong profit margin even with the lower prices.
(whether adv costs are same or less cannot decide whether plan meets success although they may affect the profits a bit.)
E) Whether an alternate plan would allow the coffee manufacturer to take greater profits from the restaurant chains to which it currently provides coffee.
(plan is to expand not greater profits in current restaurant chains)

Both options A and D are related to price reduction where A compares with prices of its competitors and D brings in the aspect of advertisement costs.
Harley1980 Can you please clarify in between these two options?

Hello Mechmeera

In this question we should evaluate the plan. The plan is to cut the prices and gain new customers who want cheaper coffee.
Answer A asks correct question: whether these new prices will be lower than competitors prices.
If answer is yes then we will gain new customers and plan is successful
If no then we will not gain new customers and plan is wrong

D proposes to improve the plan and make profits even with lower prices. But in such questions we should not improve the plan but only evaluate the current plan.
If answer yes then plan is maybe super successfull: we can gain new customers and make profits
If answer no then we will not make profits but still can gain new customers and plan will be successfull.

That is why D do not clarify the situation.
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Re: A coffee manufacturer wants more restaurant chains to serve its brands  [#permalink]

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04 Aug 2018, 02:31

Official Explanation

A coffee manufacturer wants to expand its volume, so it is going to lower its price, at least temporarily, with the hope that the lower price will induce more restaurant chains to choose it. In order to judge whether this plan will succeed, we need to know what?

(A) is the credited answer. If this coffee manufacturer's discounted price is lower than that of the coffee brand currently served in nationwide chains, then this manufacturer's coffee will look cheap by comparison. But, if this coffee manufacturer's discounted price is about the same or higher than that of the coffee brand currently served in nationwide chains, then it's not clear that any nationwide chain would have any reason to switch the brand of coffee it carries. This issue is absolutely crucial for the success of the coffee manufacturer's plan.

(B) is not relevant. If this coffee manufacturer acquires new customers nationwide, then of course, it will have to ship its coffee to them. Presumably, the coffee manufacturer will evaluate shipping options and choose one of the more inexpensive options for shipping. Whether they stay with their current shippers or not has little if any bearing on the success of this plan.

(C) is not a crucial issue. What's crucial is that this manufacturer's coffee is cheaper than the competitor's coffee. How much each kind of coffee is discounted doesn't matter, as long as they are all lower than the similar coffees of competitors.

(D) is not clearly related. Part of this plan involves spreading their business and gaining new customers, so presumably, that would entail more advertising. It's true that their profits will temporarily decline when the coffee's price is discounted, but it's not at all clear that cutting advertising would be at all an advisable cost-cutting strategy.

(E) is completely irrelevant. This question is asking us: what would we need to evaluate the chances of success of this plan. If there's another plan, that's an entirely separate issue. It's beyond the scope of this particular question
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Re: A coffee manufacturer wants more restaurant chains to serve its brands &nbs [#permalink] 04 Aug 2018, 02:31
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# A coffee manufacturer wants more restaurant chains to serve its brands

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