computer work stations and low prices

Question

A manufacturer of workstations for computer-aided design seeks to increase sales to its
most important corporate customers. Its strategy is to publish very low list prices for
workstations in order to generate interest among the buyers for those corporations.
Which of the following, if characteristic of the marketplace, would tend to cause the
manufacturer’s strategy to fail?
A. The proposed list prices would seem low to a typical buyer for the manufacturer’s
most important corporate customers.
B. The capabilities of workstations suitable for given jobs are not significantly
different among various manufacturers.
C. The manufacturer’s most important corporate customers employ as buyers
persons who are very knowledgeable about prices for workstations for customeraided
design.
D. Customers differ significantly in the percentage of resources they can devote to
computer workstations.
E. Buyers for corporations that purchase workstations for computer-aided design
receive bonuses for negotiating large discounts from the list price.

priyankurml · Answer

IMO E.

If further negotiations take place, Manufacturer may not compete with the prices. Whereas negotiation is inevitable for market behavior.

ugimba · Answer

only E comes close but not sure... remaining all 4 answers are way out of scope.

gmatavenue · Answer

In for E.
Easy after saving the Turtles.

icandy · Answer

K, I see what you are saying but some how was not convinced when I read this. But you made it obvious.

Thanks

bigfernhead · Answer

E for me.

Why would buyers buy from a corporation that is selling at lower prices if they have an incentive on making big bonuses if the price of the workstations are higher? They'd rather go somewhere else.

icandy · Answer

I guess this the better reason. Even if the list price is low, buyers who negotiate the deals will not get big bonuses as they cannot get the price much further down. The price is already low to start with. So their bonuses will become peanuts and probably will use quality related excuses to go some where else.

+1

scthakur · Answer

Here is my reason to pick C and reject E.

The strategy talks only of generating interest and not essentially converting interest into sale. In option C, if the employees are already knowledgeable about the price, the list price may not generate any further interest.

Am I reading too much here?

bigfernhead · Answer

If they see that the new price is lower than the "list price" and they are indeed knowledgeable, they would jump on it. Thus, the strategy would work...

gurpreet07 · Answer

yes i definitely think you are reading too much

scthakur · Answer

Thanks for the clarification. It makes sense now.

ritula · Answer

Definitely E.
If the buyers are getting bonus for negotiating the prices, they will rather go 2 a company where the listed price are high and they can negotiate. But if company's prices are already listed too low, they are left with no scope for further slash in prices and hence no bonus. Hence they will show no interest.This works aginst the company's strategy.

shashanknitp · Answer

E it is. No Doubt in that. :twisted:

mejia401 · Answer

Reasoning:   So as to increase sales, manufacturers are cutting prices. Since this is a weaken question, the correct answer undoubtedly proves that sales will not increase after cutting costs or provides an alternative cause for increasing sales. An incorrect answer either strengthens the answer or is neutral.

A. The proposed list prices would seem low to a typical buyer for the manufacturer’s most important corporate customers.  Strengthen - if the prices were low, its customers would likely purchase, thereby increasing sales.

B. The capabilities of workstations suitable for given jobs are not significantly different among various manufacturers.  Stengthened - If the capabilities are not wide-ranging, then the low prices are likely to attract buyers, thereby increase sales.

C. The manufacturer’s most important corporate customers employ as buyers persons who are very knowledgeable about prices for workstations for customeraided
design.  Strengthened - If m. employ those who are knowledgeable of prices, low prices are likely in attract more buyers, thereby increasing sales.

D. Customers differ significantly in the percentage of resources they can devote to computer workstations.   Neutral - This neither weakens the argument or strengthens it.

E. Buyers for corporations that purchase workstations for computer-aided design receive bonuses for negotiating large discounts from the list price.  Correct - This gives a different cause for the effect of increasing sales. The original cause and effect relationship is low prices and increased sales; whereas, now the such relationship is high discounts and increased sales. This indeed weakens the relationship.

computer work stations and low prices

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