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One name-brand cereal manufacturer is about to reduce wholesale prices

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One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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New post Updated on: 28 Oct 2018, 23:58
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Which of the following logically completes the passage below ?

One name-brand cereal manufacturer is about to reduce wholesale prices for its cereals by 20% because consumers have been switching from its cereals to cheaper store brands. The success of this strategy relies on the assumption that supermarkets will pass on all of the savings by lowering the prices they charge consumers for the manufacturers' cereals. Although supermarkets usually pass on such savings, in this case it is likely that supermarkets will not do so because ________.


(A) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals

(B) The average price per box of name-band cereals has significantly increases over the past 10 years.

(C) Total annual sales of cereal—including both name-brand and store-brand cereals—have increased over the past 10 years.

(D) Supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals.

(E) The current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers.

Originally posted by ankit0411 on 19 Nov 2012, 23:39.
Last edited by Bunuel on 28 Oct 2018, 23:58, edited 2 times in total.
Renamed the topic and edited the question.
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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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New post 20 Nov 2012, 01:59
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a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.
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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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New post 20 Nov 2012, 02:05
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Vineetk wrote:
a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.


Can you explain what it exactly means when it says "pass on the savings to consumers" ? That is what is actually confusing me.
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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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New post 20 Nov 2012, 02:21
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ankit0411 wrote:
Vineetk wrote:
a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.


Can you explain what it exactly means when it says "pass on the savings to consumers" ? That is what is actually confusing me.


This means that whenever store receives any discounts from manufacturer, it passes it to the customer but in this case it will not. The manufacturer is not reducing the price on MRP but on wholesale prices. While store is now getting the product at 20% lower price, it will not give discount to the customer (i.e. will still sell at MRP).
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Re: One name brand cereal manufacturer...  [#permalink]

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New post Updated on: 01 Jan 2013, 10:45
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In this plan, manufacturer is planning to sell the product store at reduced wholesale price expecting that it will "Pass on" this reduced price to end customer.

For example:
Current situation:
Wholesale price to store: $8, Manufacturer Product: MRP- $12
Store Product: MRP- $10
In this case consumer is switching to Store brand as its cheaper (by $2)

Proposed situation:
Wholesale price to store: $6 (note 20% reduction), Manufacturer Product: MRP- $12, Expected Discounted consumer price: $10
Store Product: MRP- $10

Explanation:
In this case the manufacturer assumes that the store will sell manufacturer's product at discounted price down to $10 from $12 (i.e. will "pass on these savings" to consumer) With both the products priced same, it will eliminate the price incentive for consumers who are switching produces based on the price. However as the manufacturer is not reducing the price on MRP but wholesale prices, Store will not give discount to the customer and will still continue sell at MRP $12, making sure they continue to sell their store cereal product at cheaper price.

D is the correct answer.
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Originally posted by PrashantPonde on 29 Dec 2012, 16:13.
Last edited by PrashantPonde on 01 Jan 2013, 10:45, edited 1 time in total.
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Re: One name brand cereal manufacturer...  [#permalink]

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New post 29 Dec 2012, 18:04
Thanks Prapon for providing some insight. But in the proposed solution which you mentioned, why did you again add 20% more discount? You have applied 20% (acc to current situation) + another 20% which is equivalent to 40%. Can you clarify?
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Re: One name brand cereal manufacturer...  [#permalink]

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New post 29 Dec 2012, 23:37
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I guess I applied 20% applied only on wholesale price. In short - The manufacturer plans to reduce the wholesale price of the product from $8 to $6 (by 20%) and assumes that store will "pass on" that discount/savings to consumer by selling the product at $10 (discounted price) instead of $12 (MRP).
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Re: One name brand cereal manufacturer...  [#permalink]

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New post 20 May 2013, 11:32
The official explanation is more convincing. It says- the store would want to continue with the store brand because it is more profitable rather than the new brand whose profit is less.
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New post 28 Oct 2017, 07:53
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One name-brand cereal manufacturer is about to reduce wholesale prices for its cereals by 20 percent because consumers have been switching from its cereals to cheaper store brands. The success of this strategy relies on the assumption that supermarkets will pass on all of the savings by lowering the prices they charge consumers for the manufacturer’s cereals. Although supermarkets usually pass on such savings, in this case it is likely that supermarkets will not do so because _______.

The argument assumes that the supermarkets will pass on the savings of price reduction to the customers. However, the argument concludes that this time they may not do so and we need to look for reasons for this.

(A) several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals : this won't affect the reason as to why the supermarkets will not pass on the price reduction.

(B) the average price per box of name-brand cereals has increased significantly in the last 10 years : argument is saying that the manufacturers want to reduce the price from the current situation.

(C) total annual sales of cereal - including both name-brand and store-brand cereals - have increased over the past 10 years - not sufficient

(D) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals - if the supermarkets make far more profit on store brand cereals than on name band cereals then definitely reducing the price of something that is not event that profitable might not benefit them , so they will not pass on the savings. Correct.

(E) the current prices of the manufacturer’s cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers - out of scope
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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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New post 28 Oct 2018, 23:53
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Exactly Similar question is here

https://gmatclub.com/forum/one-name-bra ... 44941.html

Moderators Bunuel : Could it be consider as topic which needs to be merged

Will be sending you many more requests further as and when i see two similar questions.

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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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Re: One name-brand cereal manufacturer is about to reduce wholesale prices  [#permalink]

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Re: One name-brand cereal manufacturer is about to reduce wholesale prices   [#permalink] 24 Nov 2019, 07:53
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