Extensive research has shown that the effects of short-term price promotions on sales are themselves line short-term. Companies’ hopes that promotions might have a positive after effect have not been borne out for reasons that researchers have been able to identify. A price promotion entices only a brand’s long-term or “loyal” customers; people seldom buy an unfamiliar brand merely because the price is reduced. They simply avoid paying more than they have to when one of their customary brands is temporarily available at a reduced price. A price promotion does not increase the number of long-term customers of a brand, as it attracts virtually no new customers in the first place. Nor do price promotions have lingering aftereffects for a brand, even negative ones such as damage to a brand’s reputation or erosion of customer loyalty, as is often feared.
So why do companies spend so much on price promotions? Clearly price promotions are generally run at a loss, otherwise there would be more of them. And the bigger the increase in sales at promotion prices, the bigger the loss.While short-term price promotions can have legitimate uses, such as reducing excess inventory, it is the recognizable increase in sales that is their main attraction to management, which is therefore reluctant to abandon this strategy despite its effect on the bottom line.
Q11: The primary purpose of the passage is to
A. compare the arguments in favor of a certain strategy with those against it
B. attack a certain strategy by enumerating its negative consequences
C. justify the use of a certain strategy in light of certain criticisms that have been made against it
D. advocate a particular strategy by arguing against an alternative
E. explain the effects of a certain strategy and the primary motivations for adopting it
Q12: According to the passage, which of the following is the reason why short-term price promotions do not attract new long-term customers to a brand?
A. Short-term price promotions do not produce an increase in sales.
B. Customers come to regard the promotional price as the fair price and the regular price as excessive.
C. Most customers select among competing products largely on the basis of price and very few are loyal to any particular brand.
D. Customers who have not previously bought the promoted brand are almost never persuaded to do so by the short-term price promotions.
E. Any customers that a brand gains by means of a short-term price promotion are liable to be lost when a competing brand has a similar promotion.
Q13: The passage suggests that evidence for price promotions’ “effect on the bottom line” is provided by
A. the lack of lingering aftereffects from price promotions
B. the frequency with which price promotions occur
C. price promotions’ inability to attract new customers
D. price promotions’ recognizable effect on sales
E. the legitimate uses to which management can put price promotions
Q14: It can be inferred from the passage that if a company ceased to run short-term price promotions for a particular product, an effect of this change would be to
A. reduce excess inventory of the product
B. lose some of the product’s long-term customers
C. reduce the product’s overall sales
D. inhibit growth in the number of the product’s customers
E. threaten the product’s profitability