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jabhatta2
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Manufacturers sometimes discount the price of a product to retailers 11 Jan 2022, 15:21
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notes for me
- One issue with B is that if you promote a product (i.e. give a discount) -- will consumers 'expect' this discount /lower price FOREVER (i.e. when the promotion period is over) ?

this is one issue (anywhere/everywhere) when discounting a product

If a promotion does cause consumers to 'expect' lower prices -- then you cannot RAISE the price once the promotion is over.

Hence, any time you conduct a promotion -- you should be aware its not just about promotion vs non promotion

Its about promotion + long term impact of promtion (when promtion is over) vs non promotion

Option B is saying -- there is NO LONG TERM impact if you promote something (i.e. this is saying, promoting in this case -- you dont have to wory about this one item)

If there was long term impact (i.e. people expect products to be cheaper) --> then that make promoting A BAD THING.
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Manufacturers sometimes discount the price of a product to retailers 18 Feb 2022, 18:23
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Hi Experts,


I don't think my English is that bad but still, I couldn't comprehend what option A is trying to say.

(A) ........ to represent the minimum needed to draw consumers' attention to the product.

Minimum needed what?
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Manufacturers sometimes discount the price of a product to retailers 01 Mar 2022, 16:39
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gloomybison
Hi GMATNinja

Quote:
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).

Wouldn't B have similar effect as D?

Because imagine, our manufacturer sold an amount of product to retailers, however; during 1 week of promotion retailer barely made any sell or couldn't make any because consumer couldn't get accustomed to discounted prices. So products bought from discounted prices piled up. Once the promotion period will be over customers will buy products from original price and of course it will take a while to erode the products that didn't sell during the promotion period, preventing retailers to buy from manufacturers for a while...

In option D we have a similar scenario where retailers will not buy from manufacturers because they stocked plenty products and it will be long before reordering from manufacturers since it will take time to deplete the inventory

Thank you for your valuable reply :D
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It's worth noting that the argument doesn't actually say anything about the price to consumers during the promotional period. The retailers might leave prices exactly the same and simply enjoy an increase in sales thanks to the increase in advertising. In that case, they would enjoy greater profits per sale, since they were able to buy the products for a discounted price from the manufacturers.

But let's assume that prices are in fact discounted to consumers. In order for (B) to work, we have to further assume that consumer sales actually DECREASE when cost goes down -- as if consumers are saying, "hmm, this discounted price is suspiciously low... I don't feel comfortable spending that little on this product."

And that's certainly possible. Maybe consumers are worried that some change was made that decreased the cost and quality of the product? But we're going against Econ 101 if we pick (B) because we're relying on the assumption that a DECREASE in price will decrease demand -- it's a stretch, to say the least.

So yeah, is there a chance that lower prices for consumers will cause a decrease in sales and, thus, an increase in retailer inventory? Sure. But with (D), we don't have to invent anything. (D) specifically tells us that "during such a promotion retailers tend to accumulate in their warehouses inventory bought at discount." That makes (D) a much better choice.

I hope that helps!
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Manufacturers sometimes discount the price of a product to retailers 28 Mar 2022, 04:33
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GMATNinja
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).

(D) is the best answer.
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The question asks to support the claim option D is weaking the claim, right?
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Manufacturers sometimes discount the price of a product to retailers 28 Mar 2022, 06:29
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devil.rocx
The question asks to support the claim option D is weaking the claim, right?
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As GMAT Ninja explained, (D) supports the claim, which is "the manufacturers could often make more profit by not holding the promotions," by showing that, during the period of the promotion, retailers load up on the product at the discounted price and later purchase at the normal price less of the product than they would have if the promotion had not been held. In other words, (D) indicates that one effect of the promotion is that retailers get at a discount a lot of product that they will sell long after the promotion is over.

So, (D) indicates that, while the promotion may increase sales temporarily, it also causes the manufacturer to experience a reduction in profits after the promotion is over. Thus, (D) provides reason to believe that "the manufacturers could often make more profit by not holding the promotions."
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Manufacturers sometimes discount the price of a product to retailers 27 Apr 2023, 06:45
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dear MartyTargetTestPrep , I am confused about interpreting this question.
MartyTargetTestPrep
For all we know from what the passage says, profits are higher during the times when promotion are held than during times when full prices are charged. Right? Where does the passage say that profits are lower during the times when the promotions are held? It doesn't.

The conclusion is that, regardless of what occurs when the promotions are held, the profits are lower overall because of the promotions.

We need a reason to believe that conclusion, and check this out. You are assuming that the reason is that profits are lower when the promotions are held. You are adding the support yourself. The passage does not say that.
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first, I wonder what the passage you mean? do you mean the whole argument except the conclusion ?
because I think the conclusion- the last sentence:Nevertheless, the manufacturers could often make more profit by not holding the promotions- does tell us companies make greater profits during times when promotions are not held.
while you emphasize the conclusion is not companies make greater profits during times when promotions are not held, and you say the passage does not tell this.

honestly speaking, I did not get what the difference between
The conclusion is not that companies make greater profits during times when promotions are not held.
The conclusion is that promoting products by temporarily reducing prices causes overall reductions in profits.

second, I cannot make sure what compares with what, does the "greater profits during times when promotions are not held" mean what happened and compared during the promotion? or the ongoing trade, promotion is just a period of the ongoing trade ? how can I get it ?
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Manufacturers sometimes discount the price of a product to retailers 20 May 2023, 11:34
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The claim states that manufacturers could often make more profit by not holding promotions, despite the increase in product sold during the promotion period. Let's evaluate each option to determine which one most strongly supports this claim:

(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 option does not directly support the claim about manufacturers making more profit without promotions. It discusses the calculation of discounts to attract consumers' attention but does not address the profitability aspect.

(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.
This option weakens the claim. It suggests that the period of advertising discounted prices is short, which means consumers do not have enough time to get accustomed to the lower price. This implies that consumers may be less likely to switch back to the regular price after the promotion ends, potentially leading to higher profits for the manufacturers without promotions.

(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.
This option weakens the claim. It suggests that promotions serve the purpose of keeping products in consumers' minds and attracting those who use competing products. If promotions effectively achieve these goals, they could lead to increased sales and potentially higher profits for the manufacturers.

(D) During such a promotion, retailers tend to accumulate in their warehouses inventory bought at a discount; they then sell much of it later at their regular price.
This option supports the claim. It suggests that during promotions, retailers accumulate inventory bought at a discount and later sell it at the regular price. If manufacturers were not holding promotions, retailers would not be able to accumulate discounted inventory, potentially leading to higher profits for the manufacturers.

(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.
This option weakens the claim. It suggests that if a manufacturer does not offer promotions while its competitor does, consumers may be attracted to the competitor's product. This implies that promotions can be beneficial for manufacturers in maintaining market share and potentially increasing profit.

Based on the above analysis, option (D) most strongly supports the claim about manufacturers making more profit without promotions. It highlights the practice of retailers accumulating discounted inventory during promotions and later selling it at regular prices, suggesting that manufacturers could potentially make higher profits without holding promotions. Therefore, the correct answer is (D).
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Manufacturers sometimes discount the price of a product to retailers 25 Dec 2023, 06:04
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No Point in disagreeing with orignal answer but

if no discount is provided by manuf. to retailers, they will buy fewer products and we don't know whether the overall profit for manuf by selling discounted goods is < or > the overall profit of selling goods at normal price (No. of product sold can be less).
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Manufacturers sometimes discount the price of a product to retailers 05 Mar 2025, 19:49
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Dramatic increase in amount of product sold means increase in price or volume.?
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