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Difficulty:
25%
(medium)
Question Stats:
80% (01:43) correct
20%
(01:58)
wrong
based on 752
sessions
History
Date
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Getting the retailer to buy more from the manufacturer is a necessary condition for the manufacturer's ultimate goal of encouraging the retailer to sell more. However, because quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy—these discounts encourage forward buying: Retailers stockpile the product for future sale at higher prices, which causes booms and busts in wholesale demand. Large variations in demand increase manufacturers' production and distribution costs, thus lowering their profit margin. In order to discourage stockpiling, manufacturers should.
Which of the following most logically completes the argument?
A. decrease the discount offered for quantity purchases
B. give larger discounts to the bigger retail chains when they purchase in large quantities
C. increase the quantity a retailer must buy before a discount applies
D. make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products
E. reduce the amount of product that can be bought at discount
GMAT-Club-Forum-am4l2c0z.png [ 99.97 KiB | Viewed 3408 times ]
_________________
Which of the following most logically completes the argument?
A. decrease the discount offered for quantity purchases
B. give larger discounts to the bigger retail chains when they purchase in large quantities
C. increase the quantity a retailer must buy before a discount applies
D. make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products
E. reduce the amount of product that can be bought at discount
Attachment:
GMAT-Club-Forum-am4l2c0z.png [ 99.97 KiB | Viewed 3408 times ]
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Getting the retailer to buy more from the manufacturer is a necessary condition for the manufacturer's ultimate goal of encouraging the retailer to sell more. However, because quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy—these discounts encourage forward buying: Retailers stockpile the product for future sale at higher prices, which causes booms and busts in wholesale demand. Large variations in demand increase manufacturers' production and distribution costs, thus lowering their profit margin. In order to discourage stockpiling, manufacturers should __________.
Which of the following most logically completes the argument?
The correct answer that fills the blank must describe something manufacturers can do that would "discourage stockpiling" by retailers.
At the same time, it's not enough for the approach to serve to reduce stockpiling. Since it must be something manufacturers "should" do, it should have an overall effect of helping manufacturer profitability.
We see that the passage indicates that stockpiling occurs because "quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy." So, it's likely that the approach described by the correct answer will somehow address that dynamic.
A. decrease the discount offered for quantity purchases
Decreasing the discount won't solve the problem since, as long as there is any discount for quantity purchases, retailer will have an incentive to stockpile.
Also, decreasing the discount too much will reduce the incentive for retailers to purchase the product in the first place, defeating the purpose of the discount.
Eliminate.
B. give larger discounts to the bigger retail chains when they purchase in large quantities
Discounts are causing stockpiling because they encourage volume purchasing.
So, increasing the size of discounts associated with purchasing particularly large quantities won't help. It could even make the problem worse.
Eliminate.
C. increase the quantity a retailer must buy before a discount applies
Stockpiling is occuring because retailers are already purchasing large quantities to get discounts.
So, requiring them to buy even larger quantities to get discounts will only exacerbate the issue.
Eliminate.
D. make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products
This approach is the best.
It keeps the quantity discounts in place to encourage purchases by retailers, and at the same time, it addresses the stockpiling issue by tying the discount to the speed with which retalers can sell the products.
If retailers get the discounts only if they sell out the products relatively quickly, then they have an incentive not to stockpile. After all, stockpiling makes it difficult to see out quantities of product quickly.
So, this approach encourages minimization of stockpiling while leaving the incentive of the discount in place and thus not having an unnecssarily negative impact on sales.
Keep.
E. reduce the amount of product that can be bought at discount
This approach might reduce the amount of stockpiling that occurs, but the issue is that it also discourages the purchasing that the discounts are meant to encourage.
So, this is not a great approach because, while it may help to solve the stockpiling problem, it could do so by serving to reduce purchases by retailers.
The goal is not simply to reduce stockpiling but to maximize profits. So, since this approach would not do the latter, it's not the best one.
Eliminate.
Correct answer: D
_________________
Which of the following most logically completes the argument?
The correct answer that fills the blank must describe something manufacturers can do that would "discourage stockpiling" by retailers.
At the same time, it's not enough for the approach to serve to reduce stockpiling. Since it must be something manufacturers "should" do, it should have an overall effect of helping manufacturer profitability.
We see that the passage indicates that stockpiling occurs because "quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy." So, it's likely that the approach described by the correct answer will somehow address that dynamic.
A. decrease the discount offered for quantity purchases
Decreasing the discount won't solve the problem since, as long as there is any discount for quantity purchases, retailer will have an incentive to stockpile.
Also, decreasing the discount too much will reduce the incentive for retailers to purchase the product in the first place, defeating the purpose of the discount.
Eliminate.
B. give larger discounts to the bigger retail chains when they purchase in large quantities
Discounts are causing stockpiling because they encourage volume purchasing.
So, increasing the size of discounts associated with purchasing particularly large quantities won't help. It could even make the problem worse.
Eliminate.
C. increase the quantity a retailer must buy before a discount applies
Stockpiling is occuring because retailers are already purchasing large quantities to get discounts.
So, requiring them to buy even larger quantities to get discounts will only exacerbate the issue.
Eliminate.
D. make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products
This approach is the best.
It keeps the quantity discounts in place to encourage purchases by retailers, and at the same time, it addresses the stockpiling issue by tying the discount to the speed with which retalers can sell the products.
If retailers get the discounts only if they sell out the products relatively quickly, then they have an incentive not to stockpile. After all, stockpiling makes it difficult to see out quantities of product quickly.
So, this approach encourages minimization of stockpiling while leaving the incentive of the discount in place and thus not having an unnecssarily negative impact on sales.
Keep.
E. reduce the amount of product that can be bought at discount
This approach might reduce the amount of stockpiling that occurs, but the issue is that it also discourages the purchasing that the discounts are meant to encourage.
So, this is not a great approach because, while it may help to solve the stockpiling problem, it could do so by serving to reduce purchases by retailers.
The goal is not simply to reduce stockpiling but to maximize profits. So, since this approach would not do the latter, it's not the best one.
Eliminate.
Correct answer: D
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General Discussion
Posts: 88
I think Option D
The problem is that while manufacturers offer quantity discount on the buying of products for the retailers, the retailers take advantage of the situation and buy large quantity and instead of selling them right away, they do stockpiling of the products so that they can sell them in future at higher prices to customers.
This causes fluctuating demand and manufacturers face a fluctuation in the production and distribution cost.
A. If the manufacturers decrease the discount offered for quantity purchases - the retailers' purchase from them could possibly go down. That will not buy any profit to the manufacturers.
B. If they give larger discounts to the bigger retail chains when they purchase in large quantities - that does not in any way ensure that the bigger chain of the retailers will not do stockpiling for greater profit.
C. increase the quantity a retailer must buy before a discount applies - again may cost them less revenue from retailers.
E. reduce the amount of product that can be bought at discount - Again , if discount is bounded, sells to retailers could decrease. No profit.
Only Option D suggests of making quantity discounts contingent on how quickly retail sales outlets can sell the relevant products - this does not cut out the discounted price to buy for the retailers, but also adds a condition of selling them quickly.
The problem is that while manufacturers offer quantity discount on the buying of products for the retailers, the retailers take advantage of the situation and buy large quantity and instead of selling them right away, they do stockpiling of the products so that they can sell them in future at higher prices to customers.
This causes fluctuating demand and manufacturers face a fluctuation in the production and distribution cost.
A. If the manufacturers decrease the discount offered for quantity purchases - the retailers' purchase from them could possibly go down. That will not buy any profit to the manufacturers.
B. If they give larger discounts to the bigger retail chains when they purchase in large quantities - that does not in any way ensure that the bigger chain of the retailers will not do stockpiling for greater profit.
C. increase the quantity a retailer must buy before a discount applies - again may cost them less revenue from retailers.
E. reduce the amount of product that can be bought at discount - Again , if discount is bounded, sells to retailers could decrease. No profit.
Only Option D suggests of making quantity discounts contingent on how quickly retail sales outlets can sell the relevant products - this does not cut out the discounted price to buy for the retailers, but also adds a condition of selling them quickly.
Only A and D are close.
A could be rejected because even if the discount is reduced still the discount applicable can be good enough for the retailers to stockpile . Hence stockpiling will not be discouraged . Retailers can continue stockpiling with whatever reduction in price they are being offered.
D is the answer. marty
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A could be rejected because even if the discount is reduced still the discount applicable can be good enough for the retailers to stockpile . Hence stockpiling will not be discouraged . Retailers can continue stockpiling with whatever reduction in price they are being offered.
D is the answer. marty
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lavanya.18
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Schools: ESSEC MiM "27 HEC MiM "27 IE LBS MiM "26 INSEAD MiM "26
Posts: 118
By adding one more condition ie. the quantity that was bought should be sold fast, this ensures that retailers will keep buying and not stockpile anymore. There will not be any gap in sales of wholesalers that was earlier an issue. Discounts offered by wholesalers would continue to ensure retailers remain as wholesalers' customers and be a permanent motivation to buy from them.
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