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Customer loyalty programs are attempts to bond customers to a company

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New post 29 May 2018, 22:37
swanidhi wrote:
And more questions!!

4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?
A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.
B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.
C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.
D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.
E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.


5. The second paragraph functions primarily to
A. propose solutions to certain problems inherent in customer loyalty programs.
B. emphasize certain risks inherent in customer loyalty programs.
C. address certain contentions put forth by advocates of customer loyalty programs.
D. defend certain specific aspects of customer loyalty programs against criticism.
E. reconcile competing view points regarding the efficacy of customer loyalty program.


+ 1 Kudos if this helped! :lol:


Can anyone explain how the answer of question number 4 is "E" ? In entire passage we're talking in percentages then howcome "E" is correct answer.
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New post 02 Jun 2018, 11:39
Hey GMATNinja

I am a bit confused with the OA - E for Question #4.

The passage talks about 80% revenue and not 80% profits. Can you explain how E is correct? We don't have any information regarding profits in the entire passage.
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New post 01 Dec 2018, 00:03
GMATNinja,

Can you please provide your explanations for the Question 1.? (Primary passage)

Confused between A. and D.
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New post 03 Dec 2018, 18:19
1
P1 - Customer loyalty programs, how it works, usefulness - not good.
P2 - usefulness, price discount - loyalty.

1. The primary purpose of the passage is to

A. question the notion that customer loyalty programs are beneficial

---------------------------------------------
2. The passage mentions each of the following as a potential reason for customers' divided loyalty EXCEPT

D. Customers will often buy a unfamiliar brand when it is new on the market

-------------------------------------------

3. According to the passage, advocates of the customer loyalty programs claim which of the following about highly loyal customers?

Still, advocates of loyalty programs contend that such programs are beneficial because the costs of serving highly loyal customers are lower,

B. They can be served at lower expense to a company than nonloyal customers

--------------------------------------------
4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?

In support of loyalty programs, companies often invoke the “80/20” principle,which states that about 80 percent of revenue typically comes from only about 20 percent of customers.

E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.

--------------------------------------------
5. The second paragraph functions primarily to


C. address certain contentions put forth by advocates of customer loyalty programs.

------------------------------------------

6. The author of the passage suggests that which of the following is most likely to be true of a customer who is exclusively loyal to a particular brand of product?

usually, they are heavy consumers who simply prefer to buy a number of brands. Such multi-brand loyalty means that one company’s most profitable customers will probably be its competitors’ most profitable customers as well.

C. The customer is probably not a heavy consumer of that particular type of product.
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New post 03 Dec 2018, 18:37
1
chibi wrote:
GMATNinja,

Can you please provide your explanations for the Question 1.? (Primary passage)

Confused between A. and D.

chibi - hope this will be helpful.
1. The primary purpose of the passage is to

For a better success in such questions, take care for 2 things. 1 - have a complete paragraph summary in your mind. a mapping will be fine. 2 - find 4 choices that are not answer. In other words eliminate choices that is not covering whole passage. While selecting answer pre-think - why author wrote this whole thing. what he wants to say.

A. question the notion that customer loyalty programs are beneficial --- best answer. covering both paras. start and end of 2nd para shows that author is incline towards "customer loyalty programs are beneficial"

B. examine the reasons why many customers buy multiple brands of products --- no

C. propose some possible alternatives to customer loyalty programs - no

D. demonstrate that most customers are not completely loyal to any one brand of product or service ---- very small part of para, not covering much. also look at author's intent. why wrote this abstract. is it for this ? You see this passage has a lot more to say then just this.

E. compare the benefits of customer loyalty programs with those of other types of purchase incentive programs ---- this was not the purpose, nor this is covering whole thing.
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New post 10 May 2019, 13:02
GMATNinja wrote:
ammuseeru wrote:
Dear Expert,

Could you please explain question 4. Following is last sentence of 1st paragraph.

Such multi-brand loyalty means that one company???s most profitable customers will probably be its competitors??? most profitable customers as well. .

As per above lines, i thought answer to question 4 is B.

But OA is E. I find B and E both correct. Could you pls let me know how should i select E over B.

Regards,
Amm

Quote:
4. The passage suggests that companies that invoke the "80/20" principle in customer loyalty programs believe which of the following?

A. A well designed customer loyalty program can increase the number of company's loyal customers by as much as 80 percent.

B. About 20 percent of any given company's most profitable customers are likely to be its competitors' most profitable customers as well.

C. It is unreasonable to expect more than 20 percent of customers to be 100 percent loyal to any particular brand of the product.

D. Even "loyal" customers cannot reasonably be expected to stick to one particular brand of product more than 80% of the time.

E. A relatively small number of loyal customers is responsible for about 80% of the company's profits.

The passage does indeed state that "one company’s most profitable customers will probably be its competitors’ most profitable customers as well."

However, that information is not relevant to this question. This question specifically asks about the "80/20" principle in customer loyalty programs, "which states that about 80 percent of revenue typically comes from only about 20 percent of customers." Companies that believe in the 80/20 principle believe that most of their revenue (and, hence, most of their profits) come from a relatively small number of loyal customers.

(E) is thus the best answer.

ammuseeru wrote:
What does 5 question, E option mean ?

Quote:
5. The second paragraph functions primarily to

A. propose solutions to certain problems inherent in customer loyalty programs.

B. emphasize certain risks inherent in customer loyalty programs.

C. address certain contentions put forth by advocates of customer loyalty programs.

D. defend certain specific aspects of customer loyalty programs against criticism.

E. reconcile competing view points regarding the efficacy of customer loyalty program.

Even if you don't quite understand the meaning of "reconcile" here, the second paragraph doesn't describe competing view points.

If we were given two competing view points, to "reconcile" them would be to make them consistent. For example, that might entail explaining how the two views actually share fundamental similarities despite apparent differences. Or that might entail describing inaccurate facts/assumptions taken by one or both of those views and then showing that, given the same facts/assumptions, the two different views would actual agree with one another.

Put simple, to reconcile two views is to make them both make sense given the facts.

Choice (C) is a much better answer here.

I hope that helps!


GMATNinja In question 3, why answer choice A is wrong? At the end of the last paragraph is written that "As for price sensitivity, highly loyal customers may in fact come to expect a price discount as a reward for their loyalty." So, isn't it what advocates of customers loyalty program saying? Many tks!
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New post 16 May 2019, 01:34
WilliamH wrote:
GMATNinja In question 3, why answer choice A is wrong? At the end of the last paragraph is written that "As for price sensitivity, highly loyal customers may in fact come to expect a price discount as a reward for their loyalty." So, isn't it what advocates of customers loyalty program saying? Many tks!

"Advocates of customer loyalty programs" are people who believe that these programs are beneficial to a brand. The first sentence of the second paragraph tells us why these advocates believe this:
Quote:
Advocates of loyalty programs contend that such programs are beneficial because the costs of serving highly loyal customers are lower, and because such loyal customers are less price sensitive than other customers.

So, advocates believe that the programs are beneficial for two reasons: 1) it costs less to serve a highly loyal customer than a less loyal customer, and 2) loyal customers are less price sensitive than other customers. "Less price sensitive" means that these customers will still buy their preferred brand even if the price of the product changes.

The rest of the second paragraph (including the sentence that you included in your analysis) actually contains the author's argument against these supposed benefits of a costumer loyalty program. First, he/she explains that the cost of serving a loyal costumer is not that different than the cost of serving a new customer. Then he/she argues that instead of being less price sensitive than other customers, people enrolled in a loyalty program expect lower prices as a reward. In other words, they become more price sensitive than they would be without the loyalty program.

Let's take a look at (A):
Quote:
A. They often expect price discounts a reward for their loyalty to the product

From the above analysis, we can see that this is an argument against the position of loyalty program advocates. Eliminate (A).

Now look at (B):
Quote:
B. They can be served at lower expense to a company than nonloyal customers

This closely mirrors the advocates' argument in the first sentence of the second paragraph: "such programs are beneficial because the costs of serving highly loyal customers are lower." (B) is the correct answer for question #3.

I hope that helps!
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New post 23 May 2019, 00:03
rahul2013 wrote:
GMATNinja , can you please help me to understand here in Question 4(option E), how can we assume revenue equals to Profit.
I rejected this option just because the passage was talking about revenue, whereas option was concerned with Profit. Please help



I m not an Expert, but there is something I want to add.

If you read this statement "However, this profitable 20 percent are not necessarily loyal buyers, especially in the sense of exclusive loyalty"

It surely links revenue to Profit

Hope It Helps
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