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# Automobile manufacturers often offer incentive programs

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Automobile manufacturers often offer incentive programs  [#permalink]

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Updated on: 24 Oct 2013, 12:37
1
13
00:00

Difficulty:

95% (hard)

Question Stats:

33% (01:59) correct 67% (01:56) wrong based on 643 sessions

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Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability.
Which of the following, if true, most strongly supports an argument for the incentive programs?

A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular
price.
E. If a manufacturer fails to offer such promotion but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's
product.

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Originally posted by noboru on 24 Jul 2010, 16:06.
Last edited by WaterFlowsUp on 24 Oct 2013, 12:37, edited 1 time in total.
Corrected OA
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24 Jul 2010, 18:42
5
2
I think you got the wrong OA. Answer should be D.

Conclusion : Such incentive programs often result in a dramatic increase
in the amount of product sold by the automobile manufacturers to dealers but may
hurt the manufacturers' profitability.

A does not explains how manufacturer's profitability is impacted. But it explains dramatic increase in sales.

D supports both the parts of the conclusion. Since the dealers buy most of the sales, the manufacturer's sales goes up during the promotion. Since they sell the items from the warehouse after the promotion - the stock's price now is MRP, they end with huge margins which definitely cut the manufacturer's bottom line. I think this is illegal. But that's besides the point. D is correct.
##### General Discussion
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24 Jul 2010, 20:28
noboru wrote:
Automobile manufacturers often offer incentive programs through which they discount
the price of a car to their dealers for a promotion period when the product is
advertised to consumers. Such incentive programs often result in a dramatic increase
in the amount of product sold by the automobile manufacturers to dealers but may
hurt the manufacturers' profitability.
Which of the following, if true, most strongly supports an argument for the incentive
programs?
A. The amount of discount generally offered by manufacturers to dealers is
carefully calculated to represent the minimum needed to draw consumers'
attention to the product.
B. For many consumer products, the period of advertising discounted prices to
consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they
dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses
inventory bought at discount; they then sell much of it later at their regular
price.
E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.

OA is A. However, if the minimum discount needed to attract consumers' attention to the product is such that the profit is going to decrease, tue program is not supported.

Could anybody clarify?

Can you re-check the OA? I belive it should be D as well. Profitability factor is not explained in A at all.
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24 Jul 2010, 23:36
6
This is the reason I am going back to the OG, its the best book ever written. I am not gonna focus on any other source. First the argument is a copy of the one in the OG. Second OA is E.

This is such a subtle question. There are TWO parts of the conclusion. The question wants to strengthen just the first part (increased product sales) Not the second (how the manufacturer's profitability is impacted) part.

Which of the following, if true, most strongly supports an argument for the incentive programs? -----> means tick on the answer which strengthens the "incentive program" of the MANUFACTURER. (in favor of the manufacturer)

D is NOT in favor of the manufacturer. It works in favor of the dealers. Dealers cut the profitability. It strengthens the second part of the conclusion.

E says there is a risk by not offering the promotion. E works in favor of the manufacturer - increased sales - increased profits.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.
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25 Jul 2010, 10:45
nusmavrik wrote:
This is the reason I am going back to the OG, its the best book ever written. I am not gonna focus on any other source. First the argument is a copy of the one in the OG. Second OA is E.

This is such a subtle question. There are TWO parts of the conclusion. The question wants to strengthen just the first part (increased product sales) Not the second (how the manufacturer's profitability is impacted) part.

Which of the following, if true, most strongly supports an argument for the incentive programs? -----> means tick on the answer which strengthens the "incentive program" of the MANUFACTURER. (in favor of the manufacturer)

D is NOT in favor of the manufacturer. It works in favor of the dealers. Dealers cut the profitability. It strengthens the second part of the conclusion.

E says there is a risk by not offering the promotion. E works in favor of the manufacturer - increased sales - increased profits.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.

completely missed it!
good catch nus! +1

i chose D as well initially..

E is absolutely perfect..strongly supports the need for incentive programs.!
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25 Jul 2010, 21:55
nimma1 wrote:
Why is E not the answer...if we are to argue for the Incentive program...this seems to be the best option..

manufacturers' failure to offer such promotion is irrelevant. Info in E is beyond the facts given in the argument. E can be easily ruled out.

A infact kind of weakens the claim. The tone is such that such incentive programs may not hurt manufacturers profitability, although A openly does not talk about manufacturers profitability.

D is precise
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26 Jul 2010, 11:12
D is talking about retailers which is not what the argument is focusing on.

OA should be E because only E talks in support of the incentive programs.
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27 Jul 2010, 01:45
I also think D is correct ans....

Argument says that even after dramatic increase in the amount of product sold, the profitability of manufacturer will decrease .

Argument also says that cars are sold to dealers(retailers)...

D fits the bill as it says that Company sells the car to dealers in discounted rate --->Dealers stockpile these discounted cars --->Car is sold by dealers when price rise---->Definitely it harms companies profitability--->Hence, justified.

It dose not matter whether other Companies are giving discount or not.
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27 Jul 2010, 11:15
Chose A ..............Since lot of views have come in....let me air mine ......

I understood incentive as discount......

Automobile manufacturers often offer incentive programs through which they discount
the price of a car to their dealers for a promotion period when the product is
advertised to consumers. Such incentive programs often result in a dramatic increase
in the amount of product sold by the automobile manufacturers to dealers but may
hurt the manufacturers' profitability.
Which of the following, if true, most strongly supports an argument for the incentive
programs?
A. The amount of discount generally offered by manufacturers to dealers is
carefully calculated to represent the minimum needed to draw consumers'
attention to the product.

D. During such a promotion, retailers tend to accumulate in their warehouses
inventory bought at discount; they then sell much of it later at their regular
price.
E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.

A........discount is just minimum offered to dealers in order to catch customer attention...Since only minimum is lost it may be more than adjusted by increased sales

D......is good but the profit is for retailers......not to Manufacturer....so no use

E.......Competitor will offer them but what about his profitability ??..........

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27 Jul 2010, 13:55
Le tme repeat the question-
Which of the following, if true, most strongly supports an argument for the incentive
programs
?
The question is indicating the argument as a whole - it does not intend to say - which of the following if ture, strongly supports that the incentive program will be successful?
So the answer should be D.
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28 Jul 2010, 12:04
-- To support the argument for incentive program means- the program should be able to sell more cars as well as with some profits to the manufacturer. If this is justified, then that should be the correct answer choice.

A. The amount of discount generally offered by manufacturers to dealers is
carefully calculated to represent the minimum needed to draw consumers'
attention to the product.
-- Since this answer choice exactly says - discount offered is carefully calculated to attract customers. It means it results in more sell with some profit to the manufacturer. Thus A supports the incentive program and should be a correct answer choice.

B. For many consumer products, the period of advertising discounted prices to
consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
-- Irrelevant, hence not a correct answer choice.

C. More prestigious auto makers do not use incentive programs because they
dilute the company's brand name.
-- Irrelevant, hence C not a correct answer choice.

D. During such a promotion, retailers tend to accumulate in their warehouses
inventory bought at discount; they then sell much of it later at their regular
price.
-- This is an opposite answer. It is going exactly opposite to the incentive program. Thus though the sales will increase, profitability for the manufacturers will get hurt. Hence D cannot be a correct answer choice.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.
-- This is a new information and taking us away from the main argument of incentive program. Hence E cannot be a correct answer choice.

I hope this helps. Thank You.

Thanks,
Akhil M.Parekh
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06 Sep 2010, 19:18
The OA is E.

(d) actually weakens the argument for the incentive programs, while (e) strengthens that argument. so there's no question that you'd want (e).

(d)
if this happens, then the programs are actually costing the manufacturers in terms of potential profit: rather than buying the cars at regular price, the dealers are stocking as many as possible at the discount price, so that they can avoid paying the regular price (even in subsequent seasons, when they're still selling off the excess inventory).
hence, WEAKEN

(e)
if this is true, then the manufacturers need to offer the programs in order to maintain their customer base.
therefore, STRENGTHEN
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08 Sep 2010, 10:31
hemanthp wrote:
The OA is E.

(d) actually weakens the argument for the incentive programs, while (e) strengthens that argument. so there's no question that you'd want (e).

(d)
if this happens, then the programs are actually costing the manufacturers in terms of potential profit: rather than buying the cars at regular price, the dealers are stocking as many as possible at the discount price, so that they can avoid paying the regular price (even in subsequent seasons, when they're still selling off the excess inventory).
hence, WEAKEN

(e)
if this is true, then the manufacturers need to offer the programs in order to maintain their customer base.
therefore, STRENGTHEN

And if the company lose its customer base, what?
It is better to offer discounts, maintain its customers and lose money??

E is not good.
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07 Jan 2011, 03:15
More thoughts between A and E, please?
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Re: Automobile manufacturers often offer incentive programs  [#permalink]

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23 Jul 2012, 11:56
Option E states that failing to offer promotions may result with a decrease in customer base. However, loosing customers is entirely different than reduction in profitability. Decreasing number of customers may result with a decline in total profit but decline in profitability is not necessary.

I think this question ignores a simple business fact.
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Re: Automobile manufacturers often offer incentive programs  [#permalink]

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23 Jul 2012, 12:44
2

We know that the discounts may hurt the company's profitability. Therefore, an assumption exists that the company is offering the discounts for a reason other than maximizing profit.

A) Only states that the discounts were set at a price just high enough to draw attention.
-Ok, so what? You drew their attention. You have to make another assumption that drawing attention leads to sales.
-Why are you drawing attention? Is this about awareness? Raising market share? We have absolutely no idea.
-If you want to draw attention, why are you offering discounts? Does advertising alone not work? What alternatives are there? Is discounts the best alternative? We have no answers to any of these. Again, more assumptions to be made.

E) We know that if the company doesn't offer the discounts, they will lose customers to a competitor.
-Ah ha, the reason the company offers the discount despite a potential to hurt (lower) profitability. No further assumptions needed.
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Re: Automobile manufacturers often offer incentive programs  [#permalink]

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15 Mar 2017, 11:18
E should be the answer, even though I chose D. Here is why?

The incentive program is much more about attraction to customer, not profits. Further more, the incentive program should be offered by manufacturer, not retailer. => D cannot be right.

A is not strong enough, the minimum required does not guarantee a successful attraction to customers. On the other hand, the same incentive program offered by a competitor is the reason why the manufacture has to accept the argument, and starts the program.
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Re: Automobile manufacturers often offer incentive programs  [#permalink]

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09 Nov 2017, 03:18
I went with option "D" cause dealer keep on accrue inventory at discounted price during promotional time. But most of units are sold out at regular price after promotional time which doesn't attract pool of patrons. Consequently, manufacture's profitability will go down.
Correct my reasoning if I am wrong.
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Automobile manufacturers often offer incentive programs  [#permalink]

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09 Nov 2017, 10:22
gvij2017 wrote:
I went with option "D" cause dealer keep on accrue inventory at discounted price during promotional time. But most of units are sold out at regular price after promotional time which doesn't attract pool of patrons. Consequently, manufacture's profitability will go down.
Correct my reasoning if I am wrong.

I too had reasoning as you have. But after reading explanation, i can understand the biggest mistake.

Here the question stem asks us to support the incentive program. In the argument it is weakened by saying that it will reduce manufacture's profit.
This means our answer should be a statement that incentive program is success and give profit for manufacturer.

E - tells that incentive program will success.
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Re: Automobile manufacturers often offer incentive programs  [#permalink]

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09 Nov 2017, 13:45
Can sb name the source of this question, please.
Re: Automobile manufacturers often offer incentive programs &nbs [#permalink] 09 Nov 2017, 13:45

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