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Donut Chain, wishing to increase the profitability of its new store

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Joined: 14 Dec 2014
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Location: India
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Donut Chain, wishing to increase the profitability of its new store  [#permalink]

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15 Dec 2014, 08:50
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Difficulty:

5% (low)

Question Stats:

87% (01:18) correct 13% (01:36) wrong based on 176 sessions

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Donut Chain, wishing to increase the profitability of its new store, will place a coupon in the local newspaper offering a free donut with a cup of coffee at its grand opening. Donut Chain calculates that the cost of the advertisement and the free donuts will be more than recouped by the new business generated through the promotion.

Which of the following, if true, most strengthens the prediction that Donut Chain's promotion will increase the new store's profitability?

(A Donut Chain has a loyal following in much of the country.

(B) Donut Chain has found that the vast majority of new visitors to its stores become regular customers.

(C) One donut at Donut Chain costs less than a cup of coffee.

(D) Most of the copies of the coupon in the local newspaper will not be redeemed for free donuts.

(E) Donut Chain's stores are generally very profitable.
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Joined: 17 Aug 2018
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GMAT 1: 610 Q43 V31
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Re: Donut Chain, wishing to increase the profitability of its new store  [#permalink]

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25 Nov 2019, 14:44
1
This is a Strengthen the Argument question. The DC is opening a new store and will place an ad in the newspaper. The add will be in the form of a coupon that can be exchanged for free treats. Cool! The DC says that even though we have to spend some money on the ad and coupons (i.e. DC will have some costs), the revenues will be very great, exceeding the costs.

What would strengthen the above reasoning? Well, we need to find some facts that show that people will visit a new store that DC is about to open.

Quote:
(A Donut Chain has a loyal following in much of the country.

The key part here is "much of the country". What if the store will be opened in the location that is not in "much of the country"? Then the plan will fail. If you have difficulty understanding, replace country with European Union. So, there are many countries in EU, but if people in Belgium do not like donuts, and DC is planning to open the store in Belgium, the plan will fail miserably.

Quote:
(B) Donut Chain has found that the vast majority of new visitors to its stores become regular customers.

Aha! If vast majority of new visitors come back, they will spend more money and potentially become regular customers. Note that vast majority means many. If there is 100 visitors, many would be a number that is more than 5 to 15. Let's say 50 or 80 customers will come back. This is great!

Quote:
(C) One donut at Donut Chain costs less than a cup of coffee.

Cool. So, how does that affect the money that DC will make?

Quote:
(D) Most of the copies of the coupon in the local newspaper will not be redeemed for free donuts.

If anything, this option Weakens the argument. The ad campaign will not thrive & people will not use coupons. People do not want / like donuts

Quote:
(E) Donut Chain's stores are generally very profitable.

Great. Note, DCs stores are "generally" very profitable. But this new store might not be. This is not a strengthener.
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Re: Donut Chain, wishing to increase the profitability of its new store  [#permalink]

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15 Dec 2014, 23:45
uday1409 wrote:
Donut Chain, wishing to increase the profitability of its new store, will place a
coupon in the local newspaper offering a free donut with a cup of coffee at its
grand opening. Donut Chain calculates that the cost of the advertisement and the
free donuts will be more than recouped by the new business generated through
the promotion.
Which of the following, if true, most strengthens the prediction that Donut
Chain's promotion will increase the new store's profitability?
(A Donut Chain has a loyal following in much of the country.
(B) Donut Chain has found that the vast majority of new visitors to its stores
become regular customers.
(C) One donut at Donut Chain costs less than a cup of coffee.
(D) Most of the copies of the coupon in the local newspaper will not be redeemed
(E) Donut Chain's stores are generally very profitable.

A) Incorrect. Loyal following of donuts doesn't do anything with donuts chains plan on recouping the cost of newspaper ad and free donut
B) This is correct. Since majority of the new visitors become regular customers, the chain will have constant business which will offset the one time cost of free donut and newspaper advertisement
C) Incorrect. It does not address how the chain will recoupe the cost.
D) Incorrect. Again it does not address the increased revenue because of the ad campaign
E) Incorrect. This generalized doesn't address this particular new store's profitability

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Re: Donut Chain, wishing to increase the profitability of its new store  [#permalink]

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24 Nov 2019, 17:56
Bumping for further discussion
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Re: Donut Chain, wishing to increase the profitability of its new store   [#permalink] 24 Nov 2019, 17:56
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