Alliances between service businesses fall into two broad categories.

Question

Alliances between service businesses fall into two broad categories. Brand-sharing alliances involve some joint service offering but limited operational integration, as when an airline serves the coffee of a famous chain of coffeehouses on its flights to increase its appeal to customers while the coffeehouse company enjoys enhanced brand recognition. Asset-sharing is a more complicated form of alliance in which partners maintain distinct product offerings but share some assets such as real estate or technology. Brand-sharing alliances seek to increase customer benefits, while usually delivering only minor cost savings; asset-sharing alliances aim at cost efficiencies. An alliance between a convenience store chain and a video rental chain allows the two companies to share retail space costs while encouraging cross-buying among customers.

Service alliances should be entered into cautiously, however. In a brand-sharing alliance, partners' relative risks and benefits are often disproportionate. In the example cited above, passengers are unlikely to switch airlines if the coffee on a flight is poorly brewed, but the coffeehouse chain's reputation could be seriously damaged. Asset-sharing alliances require careful matching to ensure compatibility of the businesses' target markets:  an alliance between a budget restaurant and a luxury hotel  would likely be less successful than an alliance between two budget-oriented businesses. Asset-sharing alliances also require time-consuming negotiations to determine how the two companies will share decision-making and operations costs.   1 
 1. The primary purpose of the passage is to

A. explain why one kind of service alliance tends to be more profitable than another
B. classify several kinds of service alliances and describe how they improve a company's chances of success
C. identify some of the primary reasons why companies dissolve service alliances
D. explain why brand-sharing alliances have been more frequent than asset-sharing alliances and suggest that the benefits of asset-sharing alliances have been underestimated
E. describe the nature of service alliances and discuss some of their attendant risks

2 
 2.   Which of the following business alliances is most clearly an example of a sensible asset-sharing service alliance, as such alliances are described in the passage?

A. A candy company that purchases generic small toys from a wholesale toy manufacturer to include in packages of itscandy
B. A gas station located on a major inbound commuter route that co-owns its premises with a fast-food restaurant specializing in quick breakfasts
C. A discount dry cleaning establishment located next door to a busy coin laundry in a large shopping mall
D. A home carpet cleaning service that sometimes rents its trucks to a furniture store for deliveries
E. A service station that advertises that it uses only a premium brand of spark plug when doing tune-ups on customers' cars

3 
 3. The author of the passage implies that which of the following is true of the service alliance between the restaurant and the hotel described in the highlighted text?

A. Its success would be limited by the fact that customers likely to patronize one company's services would not be likely to patronize the other company's.
B. Its success would be limited because the risks to the two companies involved in the alliance would be disproportionate.
C. It would be likely to succeed provided that the companies planned carefully about how to share decision-making and financial accountability.
D. It would fail because the benefits to one company would far outweigh the benefits to the other.
E. It would be unsuccessful primarily because the cost efficiencies achieved would not offset the initial costs of entering into the alliance.

Bunuel · Answer

Did this passage only have one question? Usually, there are 3-4 questions per passage.

SKDEV · Answer

Hi  Bunuel ,
 added rest of the questions, thanks  Sajjad1994  for helping me put up my first ever question on forum!
Please help in indentations if it's wrong

Thanks!

Bunuel · Answer

Thank you. Fixed minor formatting issues there. All is good now.

MrBobTheBuilder · Answer

Why the answer for 3 is not C? Can someone explain please. If possible explain the complete passage

crimson_king · Answer

If you read the passage carefully just before the highlighted text, it states that Asset-sharing alliances require careful matching to ensure compatibility of the businesses' target markets so since the target markets are different the likelihood of success of the strategy might be limited as a result of that.

Option C can be eliminated by POE as it does not mention anything about the likelihood of success of the said plan.

MrBobTheBuilder · Answer

Thanks, but I'm still finding it hard to understand.
"since the target markets are different the  likelihood of success of the strategy might be limited as a result of that .". Option 3 clearly says that "It would be  likely to succeed  provided that the companies planned carefully about how to share decision-making and financial accountability."

So why it is wrong? Am I missing anything?

technie0903 · Answer

Can someone please share explanation for solution for que 2.

bhavikachawla97 · Answer

can someone please explain Q3? why is B not a valid option? it is talking to service alliance in the question and the example has been given for asset sharing alliance. as per the passage, 
"Service alliances should be entered into cautiously, however. In a brand-sharing alliance, partners' relative risks and benefits are often disproportionate."
can anyone clarify?

maheshwaraj006 · Answer

I do have the same question. Can someone please enlighten?

naren31 · Answer

Option B isn’t right because it talks about "disproportionate risks" between the two companies. But if you look back at the passage, this problem—where one company faces more risk than another—only really comes up in brand-sharing partnerships (like the airline serving coffee from a famous coffee brand). The example with the restaurant and the hotel is actually about sharing assets, and the passage says the main issue here is whether their customers and markets fit together, not really about the risks between the two partners.

Alliances between service businesses fall into two broad categories.

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

­Alliances between service businesses fall into two broad categories.

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

Alliances between service businesses fall into two broad categories.