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# QOTD: Manufacturers sometimes discount the price of a product

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QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Feb 2018, 11:50
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73% (01:29) correct 27% (01:53) wrong based on 494 sessions

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Verbal Question of The Day: Day 228: Critical Reasoning

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Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often result in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotions.

Which of the following, if true, most strongly supports the claim above about the manufacturers' profit?

(A) The amount of discount generally offered by manufacturers to retailers 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, not sufficiently long for consumers to become used to the sale price.

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products.

(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 falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Every question of the day will be followed by an expert reply by GMATNinja in 12-15 hours. Stay tuned! Post your answers and explanations to earn kudos.

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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Feb 2018, 12:12
1
IMO D.

The conclusion is the manufacturer "could often" make more profit by not holding such promotions. Pre-thinking: Why? Maybe, because the costs of the promotions are on the higher side thereby affecting the profits or there are other, better options than these promotions; options that will give increased sales with decreased costs for executing these options. With this, let us look at the answer choices-

(A) The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumers' attention to the product. Okay but this tells nothing about profits to manufacturers in relation with the promotions. Irrelevant. Incorrect.

(B) For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price. Even if consumers do not get "used to" sale price, we are specifically talking about situations in which the sales increase because of promotions and if there are better alternatives to achieve the same. Incorrect.

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products. Not related with our conclusion again. Incorrect.

(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. Finds the flaw in the present method of offering discounts coupled with promotions. Suggests there can be a better alternative to achieve increased sales. In line with our pre-thinking. Correct.

(E) If a manufacturer falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product. This rather suggests why promotions should be held irrespective of other factors. Incorrect.
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Feb 2018, 12:29
Question Type: Strengthen

Argument: Manufacturers can make even more profit by not holding the promotions.

A - We can't precisely analyze the effect of this option on the manufacturers profit

B - Talks about the duration of promotion but does not talk about profits to manufacturers.

C - Talks about a subset of products.

D - Correct.

E - Opposite. In this case manufacturer may lose revenues by not offering the promotion.

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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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23 Feb 2018, 03:18
souvik101990 wrote:

Verbal Question of The Day: Day 228: Critical Reasoning

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Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often result in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotions.

Which of the following, if true, most strongly supports the claim above about the manufacturers' profit?

(A) The amount of discount generally offered by manufacturers to retailers 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, not sufficiently long for consumers to become used to the sale price.

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products.

(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 falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Every question of the day will be followed by an expert reply by GMATNinja in 12-15 hours. Stay tuned! Post your answers and explanations to earn kudos.

IMO D A-eliminated because its not showing why we need to continue it simply saying how this thing work.
B- eliminated because it weaken the above conclusion.
c- eliminated out of scope.
D- correct answer shows how this technique will increase profit.
E-eliminate because out of scope.
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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01 Mar 2018, 20:34
4
Let's start with the claim that we are trying to support: "the manufacturers could often make more profit by not holding the promotions."

Next, let's make sure we understand the situation:

• "Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers." - The manufacturers sell their products to retailers who then sell the products to consumers. Sometimes, when the product is being advertised to consumers, the manufacturers will lower the price that the retailers pay for their products.
• During those promotional periods, there is often a "dramatic increase in the amount of product sold by the manufacturers to retailers." This makes sense. If manufacturers lower their prices, then retailers might want to buy more.

At first glance, this seems good for both retailers and manufacturers. The manufacturers give the retailers an incentive to buy more product (lower prices). Then the product is advertised to stimulate consumer demand. If all goes well, consumers will flock to the retailers to buy the product, and the retailers will have plenty of inventory because they stocked up on the discounted product.

True, the manufacturers are making less profit per item because of the discounted prices. But if there is a DRAMATIC increase in the amount of product sold by the manufacturers to retailers, then that could easily make up for the decreased revenue per item.

Quote:
Which of the following, if true, most strongly supports the claim above about the manufacturers' profit?

Now back to the claim: "Nevertheless, the manufacturers could often make more profit by not holding the promotions." As described above, it is easy to imagine how these promotional periods could benefit the manufacturers. But despite the possible benefit, the author claims that manufacturers could often make more profit by NOT holding the promotions.

Why is that the case? We need an answer choice that explains how the situation described above could actually backfire and lead to lower profits:

Quote:
(A) The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.

This explains how manufacturers can minimize their discounts and thus minimize the amount of revenue lost per item. This would help explain how manufacturers can boost profits during promotional periods (increasing sales while decreasing profits per item as little as possible). This does not explain how the promotional periods could hurt the manufacturers' profits, so eliminate (A).

Quote:
(B) For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price.

If (B) were not true, consumers might decide to stop buying the product once the promotional period is over. In other words, they might get used to the lower price and then decide that they don't want the product at the higher (regular) price.

But (B) says that this is not the case. Consumers might get excited during the sale, but they will not get accustomed to the sale price. This suggests that consumers will continue buying the product when the sale is over. This should HELP the manufacturers' profits, so eliminate (B).

Quote:
(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products.

Choice (C) describes potential benefits of offering promotions. This explains how promotional periods could actually boost profits in the long run. We need something that suggests that promotional periods might hurt profits in the long run, so eliminate (C).

Quote:
(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 explains how the promotional periods could end up hurting the manufacturers. The retailers aren't actually SELLING all of the discounted inventory. Instead, the retailers are thinking, "Hey, let's buy a bunch of extra product while it's cheap. Then when the promotional period is over, we can sell it at regular price to boost our profits!"

The manufacturers thought everything was great because they were selling more product during the promotional period. But, if (D) is true, think about what happens AFTER the promotional period. First of all, retail sales might drop back down once the advertising period is over. Also, the retailers already have plenty of inventory stocked up. With a decrease in consumer demand AND an excess supply of product, the retailers probably won't need to buy any more product from the manufacturers for a while.

Also, without any excess inventory, retailers would have to continue buying product at full price once the promotion is over. By purchasing extra inventory in advance (at discounted prices), retailers are saving money that would have otherwise added to the manufacturer's profits. Thus, any accumulated retail inventory represents a loss of potential profits for the manufacturers.

The manufacturers may have boosted profits during the promotion. But, if (D) is true, their sales and profits will likely dry up after the promotion. This explains how the promotions could actually hurt the manufacturers' profits in the long run. Hang on to (D).

Quote:
(E) If a manufacturer falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Choice (E) explains how a failure to offer promotions could hurt a manufacturer's profits. We need something that explains how offering promotions could actually hurt a manufacturer's profits. Eliminate (E).

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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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01 Mar 2018, 22:20
(A) The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.

This does not give information to identify how manufacture can gain without offering promotional offers.

(B) For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price - No information about profits in this statement.

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products - No information on profits in this as well.

(D)When the retailers accumulate product in discount price and sell later for regular price , the profits does not go to manufacturers , this is in line with question stem - Correct

(E) If a manufacturer falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product - No information on profit.

Ans: D
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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12 Mar 2018, 23:29
Is it asked to find a reason where the manufacturers profits are hurt!!
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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13 Mar 2018, 03:47
Richin wrote:
Is it asked to find a reason where the manufacturers profits are hurt!!

Precisely.

As for your doubt: D - points out how the benefits that the manufacturers want to transfer to the " customers " ( i.e final end users ) are rather being transferred to the retailers ( or middle men / shopkeepers etc ) and hence the final purpose of discounts ( which could be growing the customer base etc ) is not achieved as the customers end up paying the usual price for items after the discount period is over and retailed sell the hoarded up merchandise.

Please give kudos if you liked the explanation...
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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20 Mar 2018, 08:08
zoezhuyan wrote:
Quote:
Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often results in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotion.

Which of the following, if true, most strongly supports the claim above about the manufacturer's profit?

A. The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumer's attention to the product.
B. For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price.
C. For products that are not newly introduced, the purpose of such promotions is to keep the product in the minds of consumers and to attract consumers who are currently using competing products.
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 promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Hi mikemcgarry, GMATNinjaTwo, GMATNinja, MagooshExpert Carolyn, sayantanc2k,

I think i must miss something on B , but i have no idea what's my problem, please help to clarify
B. For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price.
If the duration of promotion is so short that customers have not yet realised the sale price, then they possible to buy commidities at a regualr price ,which is higher than sale price, then it is apparent to increase the revenues of manufacture,

Does B mean supportable ?

Have a nice day

>_~

Responding to a question from the retired thread...

zoezhuyan, (B) does not say that customers will not REALIZE the sale price. It just means that they won't grow accustomed to it. In other words, if you are NOT accustomed to a sale price, you will be excited by the discount. But once you grow accustomed to it, you will EXPECT the lower price. If you are accustomed the sale price and the price is then RAISED back to the original, you might not want to buy the product anymore. You became so used to the sale price that the original price now seems like a rip off!

I hope that helps.
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Mar 2018, 01:14
GMATNinjaTwo wrote:
zoezhuyan wrote:
Quote:
Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often results in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotion.

Which of the following, if true, most strongly supports the claim above about the manufacturer's profit?

A. The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumer's attention to the product.
B. For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price.
C. For products that are not newly introduced, the purpose of such promotions is to keep the product in the minds of consumers and to attract consumers who are currently using competing products.
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 promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Hi mikemcgarry, GMATNinjaTwo, GMATNinja, MagooshExpert Carolyn, sayantanc2k,

I think i must miss something on B , but i have no idea what's my problem, please help to clarify
B. For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price.
If the duration of promotion is so short that customers have not yet realised the sale price, then they possible to buy commidities at a regualr price ,which is higher than sale price, then it is apparent to increase the revenues of manufacture,

Does B mean supportable ?

Have a nice day

>_~

Responding to a question from the retired thread...

zoezhuyan, (B) does not say that customers will not REALIZE the sale price. It just means that they won't grow accustomed to it. In other words, if you are NOT accustomed to a sale price, you will be excited by the discount. But once you grow accustomed to it, you will EXPECT the lower price. If you are accustomed the sale price and the price is then RAISED back to the original, you might not want to buy the product anymore. You became so used to the sale price that the original price now seems like a rip off!

I hope that helps.

Ohhh, no, I misunderstood it again.
in fact, B says the duration of promotion is so short that people haven't accustomed to the sales price, people soon buy commidities on regualr price,

so maybe people won't buy commidities because they want to wait another promotion, maybe they will buy commidities because they can't wait another promotion.
so it does not bearing on the argument, right?

Have a nice dya
>_~
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QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Mar 2018, 06:26
zoezhuyan wrote:
GMATNinjaTwo wrote:
Responding to a question from the retired thread...

zoezhuyan, (B) does not say that customers will not REALIZE the sale price. It just means that they won't grow accustomed to it. In other words, if you are NOT accustomed to a sale price, you will be excited by the discount. But once you grow accustomed to it, you will EXPECT the lower price. If you are accustomed the sale price and the price is then RAISED back to the original, you might not want to buy the product anymore. You became so used to the sale price that the original price now seems like a rip off!

I hope that helps.

Ohhh, no, I misunderstood it again.
in fact, B says the duration of promotion is so short that people haven't accustomed to the sales price, people soon buy commidities on regualr price,

so maybe people won't buy commidities because they want to wait another promotion, maybe they will buy commidities because they can't wait another promotion.
so it does not bearing on the argument, right?

Have a nice dya
>_~

hi GMATNinjaTwo.

my new interpretation on B
because of the short duration of promotion, the customers do not become used the sale price and the impact of promotion is weak, so they think buying commidities on regualr price is common action,
while, if the duration of promotion is long enough that customer view the low/sale price is normal new price, if the price goes back to formal regular price, which is higher than sale price, then customer would unwilling to buy them, leading decrease the sales.

another question come up,
my above new interpretation seems impact on retailers, I dont think it impacts on the manufacture's profits.

As per D,
I can think two scenarios -- promotion and non promotion, according to D, the total amount of production is the same when promotion as when no promotion
Scenario #1 promotion, -- the manufactures low their price to be \$10 , then result in increase dramtic amount of productions, say 100, then the profit = 10*100 - cost
Scenario #2 non promtion -- the manufactures regular price is 15, the amount of prodctions is 100 as well, then the profit = 12*100 - cost,

so , we can see the profit during promotion is lower than that during non promotion.

Would you please point out my fault?

BTW, can you tell me the link that I can search SC and CR QOTDs ?
I get a link https://gmatclub.com/forum/gmat-question-of-the-day-2017-edition-239951.html from signature of GMATNinja, a one not easy to search,
I also get a link from GMATNinja's reply, https://gmatclub.com/forum/search.php?search_id=tag&tag_id=1196, there are only SC QOTDs and search tag's spectrum does not narrow to the SC list of the link,

Have a nice day
>_~
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Re: QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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21 Mar 2018, 10:36
zoezhuyan wrote:
zoezhuyan wrote:
GMATNinjaTwo wrote:
Responding to a question from the retired thread...

zoezhuyan, (B) does not say that customers will not REALIZE the sale price. It just means that they won't grow accustomed to it. In other words, if you are NOT accustomed to a sale price, you will be excited by the discount. But once you grow accustomed to it, you will EXPECT the lower price. If you are accustomed the sale price and the price is then RAISED back to the original, you might not want to buy the product anymore. You became so used to the sale price that the original price now seems like a rip off!

I hope that helps.

Ohhh, no, I misunderstood it again.
in fact, B says the duration of promotion is so short that people haven't accustomed to the sales price, people soon buy commidities on regualr price,

so maybe people won't buy commidities because they want to wait another promotion, maybe they will buy commidities because they can't wait another promotion.
so it does not bearing on the argument, right?

Have a nice dya
>_~

hi GMATNinjaTwo.

my new interpretation on B
because of the short duration of promotion, the customers do not become used the sale price and the impact of promotion is weak, so they think buying commidities on regualr price is common action,
while, if the duration of promotion is long enough that customer view the low/sale price is normal new price, if the price goes back to formal regular price, which is higher than sale price, then customer would unwilling to buy them, leading decrease the sales.

another question come up,
my above new interpretation seems impact on retailers, I dont think it impacts on the manufacture's profits.

As per D,
I can think two scenarios -- promotion and non promotion, according to D, the total amount of production is the same when promotion as when no promotion
Scenario #1 promotion, -- the manufactures low their price to be \$10 , then result in increase dramtic amount of productions, say 100, then the profit = 10*100 - cost
Scenario #2 non promtion -- the manufactures regular price is 15, the amount of prodctions is 100 as well, then the profit = 12*100 - cost,

so , we can see the profit during promotion is lower than that during non promotion.

Would you please point out my fault?

BTW, can you tell me the link that I can search SC and CR QOTDs ?
I get a link https://gmatclub.com/forum/gmat-question-of-the-day-2017-edition-239951.html from signature of GMATNinja, a one not easy to search,
I also get a link from GMATNinja's reply, https://gmatclub.com/forum/search.php?search_id=tag&tag_id=1196, there are only SC QOTDs and search tag's spectrum does not narrow to the SC list of the link,

Have a nice day
>_~

zoezhuyan, your new interpretation of B sounds good! Yes, this would directly affect retailers. And if retailers are selling less product, then they would buy less product from the manufacturers. So, it would impact manufacturers' profits as well.

As for (D), the profit PER item might be lower, but if the manufacturers are selling much more product, then their overall profits will still be higher. Make sense?
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QOTD: Manufacturers sometimes discount the price of a product [#permalink]

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27 Mar 2018, 00:58
souvik101990 wrote:

Verbal Question of The Day: Day 228: Critical Reasoning

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Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often result in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotions.

Which of the following, if true, most strongly supports the claim above about the manufacturers' profit?

(A) The amount of discount generally offered by manufacturers to retailers 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, not sufficiently long for consumers to become used to the sale price.

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products.

(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 falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

Every question of the day will be followed by an expert reply by GMATNinja in 12-15 hours. Stay tuned! Post your answers and explanations to earn kudos.

Conclusion: The manufacturers could often make more profit by not holding the promotions.

Any answer choice that shows the negative side of promotions on profits of manufacturer is our answer.

(A) The amount of discount generally offered by manufacturers to retailers is carefully calculated to represent the minimum needed to draw consumers' attention to the product. If it is carefully calculated chances of loss is less.

(B) For many consumer products the period of advertising discounted prices to consumers is about a week, not sufficiently long for consumers to become used to the sale price. Weakner

(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products. Weakner

(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. Correct. if this happens the profit of manufacturer gets affected.

(E) If a manufacturer falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product. Weakner
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QOTD: Manufacturers sometimes discount the price of a product   [#permalink] 27 Mar 2018, 00:58
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