Price promotions, such as temporary price reductions or coupon offers

Question

Price promotions, such as temporary price reductions or coupon offers, have a large, measurable, immediate effect on a brand's sales. However, such promotions increase price sensitivity, which constrains profitability because it becomes more difficult to raise prices. Furthermore, price promotions become increasingly less effective, making it necessary to offer more costly promotions in the future. Finally, price promotions encourage consumer stockpiling (buying more, less often), which leads to greater volatility in sales, exacerbating the task of managing inventories, thereby increasing costs and further reducing profitability. Therefore, retail managers should ___________

Which of the following most logically completes the argument above?

A. negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix

B. use price promotions relatively rarely

C. offer price promotions only for overstocked items

D. offer shallow price discounts during promotions

E. raise prices after promotions to levels above those prior to promotions

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Official Answer

B

sachi-in · Accepted Answer

Prethinking: Promotions good in short term, excessive has lot of drawbacks ( we need to find option that limits excess promotions )

A. negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix 
If this is done it may affect all brands adversely

B. use price promotions relatively rarely  
It done relatively less often price sensitivity will affect less, will not make promotions costlier, stockpiling from limited promotions will make inventory management easier as we can predict sales during phases without promotions etc.

C. offer price promotions only for overstocked items 
it affects inventory management, overstock items maybe sold out but that will again lead to miscalculations about actual market requirements and this process will continue

D. offer shallow price discounts during promotions 
This perhaps may help, but shallow prices frequently will lead to increased price sensitivity - no solution provided

E. raise prices after promotions to levels above those prior to promotions 
It will keep the previous price level normal but again done repeatedly will increase price sensitivity - no solution provided for that

VivekSri · Answer

OA is B

sayan640 · Answer

KarishmaB   MartyMurray  Requesting you to explain option B and C here ?

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KarishmaB · Answer

Price promotions, such as temporary price reductions or coupon offers, have a large, measurable, immediate effect on a brand's sales. - Conceding a point in favour of price promotions. Points against price promotions: - However, such promotions increase price sensitivity, which constrains profitability because it becomes more difficult to raise prices. - Furthermore, price promotions become increasingly less effective, making it necessary to offer more costly promotions in the future. - Finally, price promotions encourage consumer stockpiling (buying more, less often), which leads to greater volatility in sales, exacerbating the task of managing inventories, thereby increasing costs and further reducing profitability. Therefore, retail managers should ______ The argument concedes a point in favour of price promotion early on but then gives us multiple points against it - this, this and this problem. How do you think the author will summarize it? Therefore, it may not be in your best interest to use price promotion for short term gains or something like that. B. use price promotions relatively rarely Makes sense. Avoid using price promotions. Correct. C. offer price promotions only for overstocked items Can I summarize the argument by saying that offer price promotions only for overstocked items? No. None of the disadvantages of price promotion given to us are addressed. The argument tells us that when you reduce prices, this is what happens in the future (more difficult to raise prices later, more costly promotions in the future, exacerbating the task of managing inventories, thereby increasing costs and further reducing profitability). Even if you have extra inventory of an item right now, all these issues will happen in the future. Hence to get rid of current excess inventory you are creating 2 new problems in the future and continuing with one (managing inventory). Then how is it a logical solution? Hence, the logical solution is to not give price promotions or to give them rarely. Answer (B) I have discussed "logically completes the argument" in my content which you can access for free tomorrow through Super Sundays package (details in my signature below or at this link: https://youtu.be/gN_vlDpUflo )

Blackcrow1972 · Answer

Correct Answer: B. use price promotions relatively rarely
Explanation:
The passage outlines that price promotions can create long-term issues and advises against their frequent use. Option B directly aligns with this recommendation by suggesting that retail managers use price promotions sparingly, thereby minimizing their adverse effects.
Why the other options are incorrect:
A. negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix: This suggests a strategy unrelated to addressing the core problems identified in the argument (e.g., price sensitivity and profitability).

C. offer price promotions only for overstocked items: While this might address stock-related concerns, it doesn’t mitigate other issues like price sensitivity, declining promotion effectiveness, or long-term profitability.

D. offer shallow price discounts during promotions: This could reduce the severity of some effects, but it doesn’t address the broader challenges of price sensitivity and declining effectiveness over time.

E. raise prices after promotions to levels above those prior to promotions: This contradicts the stated problem that price promotions increase price sensitivity, making future price increases more difficult.

PeanutButter429 · Answer

I don't like (B) IMO, because when you consider that promotions can cause people to bulk buy, if things rarely go on sale, people will bulk buy more *intensel*, buy even more, and wait even longer to buy. This will make inventory management even worse.

egmat · Answer

Your logic:  If promotions are rare → people stockpile MORE when they happen

But test this:  Gucci never does promotions. Do people stockpile Gucci? No.

This proves that  stockpiling isn't caused by promotion rarity —it's caused  by the promotions themselves .

The passage says: "Price promotions encourage consumer stockpiling"
This means promotions are the  trigger . More triggers = more stockpiling events. Fewer triggers = fewer stockpiling events.
You're adding an external assumption: "Rare triggers become MORE powerful." But this isn't universally true, and the passage doesn't support it.

Critical CR principle:  Don't import logic that isn't universally applicable or supported by the passage.
 The argument establishes: Frequent promotions = Frequent problems The solution: Make promotions less frequent = Fewer problems

Price promotions, such as temporary price reductions or coupon offers

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GMAT Critical Reasoning (CR) Questions

Price promotions, such as temporary price reductions or coupon offers

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

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