Extensive research has shown that the effects of short-term price prom

Question

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 aftereffect 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.   1 
 E 
Q1: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

2 
 D 
Q2: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.

3 
 B 
Q3:The passage suggests that evidence for price promotions’ “effect on the bottom line” (Last 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

4 
 C 
Q4.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 wuld be 
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 product's customer.
E. threaten the products profitability.

MacFauz · Accepted Answer

The effects on the bottom line are that losses are brought due to these promotions. So what does the passage state to provide support to the fact that these promotions do infact bring losses? "Clearly price promotions are generally run at a loss, otherwise there would be more of them". This sentence almost explicitly provides the reason. The right answer is hence B.

anairamitch1804 · Answer

1)Price Promotion -> bad for loyalty, Bad for bottom line. 
Why companies do this ? – Some benefits (explanation) 
Consider Option E : explain the effects of a certain strategy (this is true, the author discussed this in the first para) and the primary motivations for adopting it (this is also true, the author explains this in the end of the passage – clearance, and reluctance to to abandon in hopes of profit margins later on) 
Option E therefore is correct! 
Consider Option C: justify the use of a certain strategy(does he justify the use of price promotion?) in light of certain criticisms that have been made against it.
Understand that the tone of the author overall is more or less negative wrt price promotions. The word “justify” implies that the author argues in support for this strategy. This is NOT true! C is therefore wrong.
2)""people seldom buy an unfamiliar brand merely because the price is reduced."
3)What does the passage state to provide support to the fact that these promotions incur losses? It is the sentence that says, “Clearly price promotions are generally run at a loss, otherwise there would be more of them”. Hence B.
4)"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.". Main reason to go for short term is because it helps in boosting sales. So, if you cease it obviously sales will go down.Hence C

angel2009 · Answer

Its A

Now it says P.P doesn't increase long term customers, doesn't mean P.P doesn't increase customer base at all.
Hence C can be rejected
I Select A for the highlighted portion

Financier · Answer

Can anybody explain the subtle line between these two choises? Am I right thinking that C is correct, but D portraites much bigger picture?

The passage suggests that evidence for price promotions’ “effect on the bottom line” (line 40) 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

Thanks.

JarvisR · Answer

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

Para#2 discuses this:
 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 .

The question itself is not clear to me.Anyways for me,its C. I appreciate inputs from fraternity on this.

royrijit1 · Answer

The first sentence of the last para states the below:

"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.  "
Clearly, the author says that the price promotions are not worthy to companies. Had they been, there would be more occurrences of price promotions. From this, we can infer that the answer would be 'B'.

We need to understand that this is a inference question. Hence we must be able to prove the answer by materials stated in the passage.

Hope this helps.

abrakadabra21 · Answer

The passage suggests that evidence for price promotions’ “effect on the bottom line” (Last line ) is provided by

First off, question is not about what is bottom line.

We have to find out relation between price promotions and effect on the bottom line. / The evidence used for that relationship.

"which is therefore reluctant to abandon this strategy despite its effect on the bottom line." so that means price promotion is negatively affecting bottom line, which is "recognizable increase in sales " now the evidence to prove that is given : "Clearly price promotions are generally run at a loss, otherwise there would be more of them" so the frequency is not that great. relation between price promotions and effect on the bottom line would have been positive there would be more "price promotion" thing.

so B the frequency with which price promotions occur

VAKRATUNDA · Answer

The passage suggests that evidence for price promotions’ “effect on the bottom line” (the effect being that they have the companies incur losses – lines 19 – 20) is provided by
A. the lack of lingering aftereffects from price promotions …  this being a location based question … lingering aftereffects is something that is a part of para 1 … as per the passage lack of lingering can best explain the fact that the strategy does not have its intended effect … however, it cannot explain the losses incurred 
B. the frequency with which price promotions occur … passage confirms that the lesser frequency implies the strategy has the company incurring losses … and the word ‘despite’ just before the phrase ‘effect on the bottom line’ allows one to glean from the context that the phrase refers to the negative effect mentioned earlier in the paragraph which is ‘running at a loss’ … thus CORRECT 
C. price promotions’ inability to attract new customers …  part of para 1 again … the concerned piece is a part of para 2 … again as per the passage this inability only proves that the strategy did not have it intended effects … not why the company instituting the strategy suffered loss 
D. price promotions’ recognizable effect on sales …  recognizable effects is something that might be inferred as working in the positive direction for the companies employing the strategy, however, the ‘effect on the bottom line’ is something that works in the negative direction for the company … one cannot thus be the evidence of the other 
E. the legitimate uses to which management can put price promotions …  again the legitimate uses are something that go in the benefitting direction whereas the ‘effect on the bottom line’ goes in the opposite direction … there is no way that one can be the evidence of the other

rinkumaa4 · Answer

I am not able to understand the Q2?

Can some one explain me, please?

regards

gmatgmatlala · Answer

This is the reason
 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.

I am new here.
Can you pls tell me what level passage this is

sdlife · Answer

Hi Experts/  VeritasKarishma  /  GMATNinja   GMATNinja 2,

Can you please help with the following?
 
Q1: The primary purpose of the passage is to 
B. attack a certain strategy by enumerating its negative consequences --  My understanding is that "attack" is too strong a word to use here. Sure, the author does provide some negative comments on the use of the strategy, but his overall purpose is not to attack the price promotions. Correct?  
C. justify the use of a certain strategy in light of certain criticisms that have been made against it --  Similary, for C, he is not justifying a theory, he is merely telling us the effects and understanding still why this strategy is used. Correct?

Q3: The passage suggests that evidence for price promotions??? ???effect on the bottom line??? (Last 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

I still couldn't understand how choice D is wrong here. Can you please explain?

thanks so much!

SD

NoMatterWhat · Answer

For Question 3

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.

if you re-read it, you will get the keyword 'FIRST PLACE'...Which made option C incorrect

recognizable increase in sales is positive, not a negative, point for short term

Clearly price promotions are generally run at a loss, otherwise, there would be more of them....It clearly tells you 'evidence' is the low frequency of promotions.

Don't worry about KUDOS...Just help Others

KarishmaB · Answer

His purpose of writing the passage is the last line - 
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. - the motivation for adopting the strategy. 
The author starts off by explaining the effects, basically to show that they are not the ones because of which the management adopts this strategy. 
Hence, neither (B) nor (C) works. (E) is perfect.

As for question no 3,

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.

Th highlighted part shows the effect on bottom line. They are run at a loss. If they weren't, there would be more of them. 
Bottom line of the company is the profit/loss ( = Sales - Cost)

Increase in sales doesn't tell us what happens to the bottom line. If the sales increase by bearing loss, it will reduce the bottom line.

e.g. you have 100 widgets at cost of $1 each. 
If you sell 20 at $2 each, you get $40 sales and cost is $20. So profit = $20 (bottom line)
If you sell 20 at $2 each and 10 at $.50 each, sales = $45 (increased sales) and cost is $30. So profit = $15 (bottom line reduced)

Shrey08 · Answer

VeritasKarishma

Can you please explain why is B in Q4 wrong?

I marked B because of this line from first line of second paragraph.

KarishmaB · Answer

This does not mean that without a promotion, the "loyal" customers will not remain loyal. It means that when particular a brand has a promotion, only the loyal customers (who would have anyway bought) buy more or in advance. 
If there is no promotion, they will buy at their own convenience. They are "loyal" customers so they will anyway buy. 
So promotions only increase the overall revenue (shot term).

(C) is correct.

rocky620 · Answer

Dear Experts,

For  Q-2: 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?

C.  Most customers select among competing products largely on the basis of price and very few are loyal to any particular brand.
It is mentioned in the second para:
 They simply avoid paying more than they have to when one of their customary brands is temporarily available at a reduced price. 
So, we can infer that price is a factor for a new customer to be loyal to a brand whose products s/he has not bought yet.

D.  Customers who have not previously bought the promoted brand are almost never persuaded to do so by the short-term price promotions.
Can't figure out the reference for option D.

Kindly help.

KittyDoodles · Answer

Hi,

Let me try to help you with this one.

The answer to the question is in the 1st line of the second para, " 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."

So basically, the price promotion only attracts the existing customers. Its calling the existing customers as loyal or brand's long -term customers. In contrast, people who are  unfamiliar  with the brand will not try the brand just based on price promotions. Maybe they would try the brand based on the promotion of it's nutritional value or some other factor but not reduced price .

Now Option D states: Customers who have  not previously bought  the promoted brand  are almost never persuaded to do  so by the short-term price promotions. Thus price promotion almost is never to reason for a person to try a new product.

In contrast Option C: It's not stated in the passage that a customer purchases a product  just based on  largely on the basis of price  . The passage just states that reduced price attracts the existing loyal and long- term customers. Just based on largely on price is an extreme way of saying that price influences the customer's decision which again isn't stated any where in the passage.

So, we can infer that price is a factor for a new customer to be loyal to a brand whose products s/he has not bought yet.

As per passage we know:
1. People seldom buy an unfamiliar brand merely because the price is reduced.
2.They simply avoid paying more than they have to when one of their customary brands is  temporarily available at a reduced price .- Thus this shows why the sales increase. It doesn't say this increases the brand loyalty.

Hope this helps.

nikitamaheshwari · Answer

Can someone explain why option choice C is wrong in the first question.
C. justify the use of a certain strategy in light of certain criticisms that have been made against it

He tells why the management are using the strategy despite there is no use of it.

VeritasKarishma   GMATNinja 
Also, please explain option choice E
Thanks

KarishmaB · Answer

Look at the structure of the passage:

First para: 
Effects of short-term price promotions on sales are themselves short-term. Companies’ hopes that promotions might have a positive aftereffect have not been borne out for reasons that researchers have been able to identify.

Second para: 
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...

Third para
So why do companies spend so much on price promotions? 
Clearly price promotions are generally run at a 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.

Her purpose of writing the passage is the last line - 
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. - the motivation for adopting the strategy. 
The author starts off by explaining why price promotions do not help the company. She then questions why the management still uses this strategy even though profit reduces? Then she reveals why the management does so - because of the recognisable increase in sales.

Q1: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

The entire purpose of writing the passage was the big reveal - the recognisable increase in sales is the reason for using this strategy despite all its ill effects. That is why (E) makes sense.

The author's main concern is not to attack the strategy. If it were, then she would have said that these are the ill effects, so management should not use this strategy any more. But she doesn't do that. She questions why the management still uses it and then explains why. Hence (B) is not correct.

Extensive research has shown that the effects of short-term price prom

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Extensive research has shown that the effects of short-term price prom

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