A manufacturer of workstations for computer-aided design seeks

Because the buyers get bonuses for negotiating large discounts and since the list price is already low, instead of stimulating sales, buyers will be better off negotiating with other companies and purchase from them, and hence, sales of this company will not increase due to the lowered prices. Quite the opposite intended. Hence answer is E.

Remember that the strategy of the manufacturer is "to publish very low list prices for workstations in order to generate interest among the buyers for those corporations"--the manufacturer WANTS the prices to seem low to a typical buyer, so choice A is consistent with that strategy. True, we don't know for sure if that strategy will succeed, and if one of the answer choices were something like, "Most buyers are suspicious of very low prices...", that could certainly be a characteristic of the marketplace that would tend to cause the strategy to fail; however, without being given that information, we can't make assumptions about the thought process of the buyers.
As for choice E, again, we can only go by the information in the passage--all we know is that the buyers receive bonuses for negotiating large discounts from the list price. If the list prices are already low, then there is little to no room to negotiate discounts; thus, the buyers cannot earn those specific bonuses. This alone is a factor that works AGAINST the strategy (ie "would tend to cause the manufacture’s strategy to fail"). Yes, we can come up with scenarios in which the lost bonuses referred to in choice E are offset by other means of compensation, but we cannot assume that will happen if it is not included in the answer choice.

We only need to find an answer choice that would tend to cause the manufacturer's strategy to fail; we don't need it to be something that will DEFINITELY cause the strategy to fail. Solely based on the information in the passage and the answer choices, choice E is the best fit.

I hope that helps!

GMATNinja, GMATNinjaTwo - I got it wrong with choice C. I moved from choice E to choice C. While I agree what we discussed above fr choice E , I want to understand how choice C can not be the answer ? I analysis behind choice C is since buyers have expert who know better about rates then probably buyers expert know that low price is caused because of some intention and might not be straight forward deal.

Clear E.

Since buyers have a vested interest in negotiating on the LISTED price, it would be foolish to already list products for less. They have to face the bargain from the buyers anyway. Already low list price will definitely hinder the manufacturer's ability to discount further and thus cannot contribute to improved sales.

A is slightly relevant but fails to establish why a LOW price won't improve the sales.

Binit.

It's crucial here to differentiate between (1) the published prices (aka the "list prices") and (2) the prices that the buyers actually pay.

Imagine that these workstations are typically sold for about $1,000:

• The manufacturer creates a catalog with its most recent models, and that catalog contains the published (list) prices of each one.
• Now a buyer comes in and says, "Hey, I'd like to buy 50 of these $1,000 workstations. How about you sell them to me for $750 each?"
• The manufacturer agrees, and the buyer gets to brag to his boss about how he/she saved the company 25% off the list price.

Now let's move to an alternate dimension where that same manufacturer says, "You know what? Let's publish LOWER list prices in our catalog to generate interest among the buyers!"

• Now the LIST price for those same workstations is, say, $800 instead of $1,000.
• The same buyer comes in wanting to buy 50, but the manufacturer still isn't willing to sell them for less than $750 (to get the same profit as in the previous example).
• So the buyer in this dimension scores the same exact deal. But now the buyer only gets to brag about saving 6-7% off the list price.

If (E) is true, then the second situation doesn't bode well for the buyer. He/she would rather hunt for a manufacturer who publishes inflated list prices -- that way, there's more room for negotiation and more room for buyer bragging and bonuses! The key point is that we aren't talking about changing the actual purchase prices -- we're only changing the published (list) prices.

As for (C), you'd have to assume quite a bit to make this one work. Maybe those "very knowledgeable" buyers look at the price of 5 and say, "Wow, that's a great price for this kind of workstation! Let's buy a bunch while they are so cheap!" In that case, (C) could explain why the plan is likely to succeed.

(E) is a much better option. I hope that helps!

There are many subtitles of a bonus component that could affect the purchase decision. Some scenarios include - bonus from buyer or seller, bonus calculation method[a percentage of the sales or savings] and so on.

Since weighing so many options is not possible how is E the correct answer when A has very low scope of digressing from the point raised in the question?

Thanks.

Thanks for responding, however I still am not convinced.

Option A - "list prices would seem low to a typical buyer "-> Indicates that the typical buyer is aware of the fair prices so wouldn't anything lower arouse suspicion that other product attributes such as quality, warranty, post sale services and so on might have been compromised resulting in a purchase decision against the manufacturer?

Option E - How do we know that the buyers receive the bonus from their corporation?
Couldn't the buyers receive bonus from seller in a scenario where although a large discount was negotiated, a large volume purchase resulted in considerable profits for the seller in addition to making up for the discount offered?

I hope I am not stretching the reasoning to much !!

Thanks again.

Thanks GMATNinja. Keeping it simple is key here. Thanks.

wha if cusomer have no concern abou price.So D answer. Someone please explain D????

Question seen in GMAT Prep. Please help tag.

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Added the tag. Thank you!

I have a more fundamental question when i read the passage

How does "generating interest " lead to "Increased sales" exactly ?

I thought what was where the answer would focus on

Is my strategy itself wrong when I think this way ?




Per my understanding here is the sequence of events

Reduce price --> generate interest among buyers --> step 2 will somehow increase sales

The answer E is weakening between Reduce price --> generate interest among buyers

I get it why E is weakener, but why isnt option B as well?

Option B says that the workstations these manufacturers are making are similar, therefore other manufacturers can easily provide an alternative to buyers undercutting the low list price of the manufacturer in question.