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Re: Automobile manufacturers often offer incentive programs [#permalink]
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-- To support the argument for incentive program means- the program should be able to sell more cars as well as with some profits to the manufacturer. If this is justified, then that should be the correct answer choice.

A. The amount of discount generally offered by manufacturers to dealers is
carefully calculated to represent the minimum needed to draw consumers'
attention to the product.
-- Since this answer choice exactly says - discount offered is carefully calculated to attract customers. It means it results in more sell with some profit to the manufacturer. Thus A supports the incentive program and should be a correct answer choice.

B. For many consumer products, the period of advertising discounted prices to
consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
-- Irrelevant, hence not a correct answer choice.

C. More prestigious auto makers do not use incentive programs because they
dilute the company's brand name.
-- Irrelevant, hence C not a correct answer choice.

D. During such a promotion, retailers tend to accumulate in their warehouses
inventory bought at discount; they then sell much of it later at their regular
price.
-- This is an opposite answer. It is going exactly opposite to the incentive program. Thus though the sales will increase, profitability for the manufacturers will get hurt. Hence D cannot be a correct answer choice.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.
-- This is a new information and taking us away from the main argument of incentive program. Hence E cannot be a correct answer choice.

I hope this helps. Thank You.

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Re: Automobile manufacturers often offer incentive programs [#permalink]
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Option E states that failing to offer promotions may result with a decrease in customer base. However, loosing customers is entirely different than reduction in profitability. Decreasing number of customers may result with a decline in total profit but decline in profitability is not necessary.

I think this question ignores a simple business fact. :lol:
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Re: Automobile manufacturers often offer incentive programs [#permalink]
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The answer is E.

We know that the discounts may hurt the company's profitability. Therefore, an assumption exists that the company is offering the discounts for a reason other than maximizing profit.

A) Only states that the discounts were set at a price just high enough to draw attention.
-Ok, so what? You drew their attention. You have to make another assumption that drawing attention leads to sales.
-Why are you drawing attention? Is this about awareness? Raising market share? We have absolutely no idea.
-If you want to draw attention, why are you offering discounts? Does advertising alone not work? What alternatives are there? Is discounts the best alternative? We have no answers to any of these. Again, more assumptions to be made.

E) We know that if the company doesn't offer the discounts, they will lose customers to a competitor.
-Ah ha, the reason the company offers the discount despite a potential to hurt (lower) profitability. No further assumptions needed.
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Re: Automobile manufacturers often offer incentive programs [#permalink]
noboru wrote:
Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability.
Which of the following, if true, most strongly supports an argument for the incentive programs?

A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.
B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.
D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular
price.
E. If a manufacturer fails to offer such promotion but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's
product.


This is tricky, but if you focus on the conclusion, you will arrive at the right answer.

So the argument says that promotions lead to more cars sold, but may hurt auto mfg profitability. The question asks for support for the incentive program. i.e. despite the fact that profitability may go down, why should they do it?

A- Doesn't give support for the incentive program.. just says that prices are carefully set (which doesn't mean anything to us)
B- irrelevant
C- irrelevant
D- This is tricky because it says the RETAILERS accumulate the cars at a discounted price to sell for full price later. So this could be a positive for the retailers, but doesn't affect the auto mfgs other than confirming that their profitability is hurt (because they sold all of these cars at a discount vs. regular price).
E- This gives a reason for why the mfgs should do the promotions: if they don't they will lose customers

What is the source for the question?
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Re: Automobile manufacturers often offer incentive programs [#permalink]
The question stem asks to strengthen that the manufacturers' profitability may get hurt. D states that since retailers are piling up on stock, the manufacturer will sell less when the discount period is over. So how is it not correct?
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Re: Automobile manufacturers often offer incentive programs [#permalink]
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Officialroy wrote:
The question stem asks to strengthen that the manufacturers' profitability may get hurt. D states that since retailers are piling up on stock, the manufacturer will sell less when the discount period is over. So how is it not correct?

Take another look at the question stem. You've missed a key aspect of it.
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Re: Automobile manufacturers often offer incentive programs [#permalink]
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