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# Profits for one of Company X's flagship products have been declining s

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Current Student
Status: Applied
Joined: 02 May 2014
Posts: 156
Location: India
Concentration: Operations, General Management
GMAT 1: 690 Q47 V38
GPA: 3.35
WE: Information Technology (Computer Software)
Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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18 Jan 2015, 04:24
Here the question asked is about the feasability of the decision of the CFO. Now D gives us an option to check if there is another way out to solve the problem. it talks about adding features extra without raising the unit cost ..Thus could be a solution and hence can be used for evaluation. hence this is the ans.
Manager
Joined: 07 Dec 2009
Posts: 101
GMAT Date: 12-03-2014
Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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19 Jan 2015, 01:54
Both option C and option D make the cut. However Option D is much better, Just think about it. What would you do if sales of a particular product are decreasing? Think of ways to improve it to increase its sales maybe ? this is mentioned in Option D and this can be done without adding to the price.

As far as option C is concerned, True one could try and sell the product in a different market to increase customer base but one cannot be sure whether the customers in these new market will not feel the same way as the customers of the current market (product’s functionality don't justify a higher price)

Hope this helps!
Senior Manager
Joined: 01 Nov 2013
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GMAT 1: 690 Q45 V39
WE: General Management (Energy and Utilities)
Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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09 Mar 2015, 04:00
Profits for one of Company X's flagship products have been declining slowly for several years. The CFO investigated and determined that inflation has raised the cost of producing the product but consumers who were surveyed reported that they felt the product’s functionality didn’t justify a higher price. As a result, the CFO recommended that the company stop producing this product because the CEO only wants products whose profit margins are increasing.

The answer to which of the following questions would be most useful in evaluating whether the CFO's decision to divest the company of its flagship product is warranted?

A Does the company have new and profitable products available with which to replace the flagship product?

B Will the rest of Company X's management team agree with the CFO's recommendation?

C Can Company X sell the flagship product to new markets to increase its customer base?

D Are there additional features that could be added to the product without raising the unit price?

E What percentage of Company X's revenues is represented by sales of the flagship product in question?

Options C and D look like good options.However, D is better.

The manager is stuck in a situation. The high inflation is pushing him to increase the price of the product because the cost of production is increasing but he can't increase the price because the customers do not think that any higher price justifies the lack of functionality of the product.

C- Even if we increase the customer base, how do we make sure that the new customer base will pay the high price for less functionality.

D- If he can increase the functionality of the product without increasing the price, then the customers may still pay the same price because the same old price can be justified for more functionality.

So D is within the scope and correct.

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Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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31 Mar 2017, 08:23
consumers aren't buying this product because product’s functionality didn't justify a higher price

Option D targets that premise and hence D over C
Manager
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Concentration: Finance, Entrepreneurship
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Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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31 Mar 2017, 09:05
Profits for one of Company X's flagship products have been declining slowly for several years. The CFO investigated and determined that inflation has raised the cost of producing the product but consumers who were surveyed reported that they felt the product’s functionality didn't justify a higher price. As a result, the CFO recommended that the company stop producing this product because the CEO only wants products whose profit margins are increasing.

The answer to which of the following questions would be most useful in evaluating whether the CFO's decision to divest the company of its flagship product is warranted?

A. Does the company have new and profitable products available with which to replace the flagship product?

B. Will the rest of Company X's management team agree with the CFO's recommendation?

C. Can Company X sell the flagship product to new markets to increase its customer base?

D. Are there additional features that could be added to the product without raising the unit price?

E. What percentage of Company X's revenues is represented by sales of the flagship product in question?

Lets test the two extremes of option D
Are there additional features that could be added to the product without raising the unit price?
Yes.if the additional features can be added without raising the prices then this higher price will be justified by customers they will love the product and buy it with confidence. STRENGHTEN the argument

No.if the additional features cannot be added without raising the prices further.Its already selling at the premium in the market any further price increase will hit the customers badly.WEAKEN the argument

Manager
Joined: 05 Dec 2015
Posts: 123
Re: Profits for one of Company X's flagship products have been declining s [#permalink]

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04 Sep 2017, 20:56
Poor quality question imo. D talks about adding a feature without increasing the unit price (sales price or unit cost?). Secondly, adding features doesn't improve margins, which is specifically what the CFO wants. It might keep the margins flat instead of having them decline, but nonetheless they are not increasing.
Re: Profits for one of Company X's flagship products have been declining s   [#permalink] 04 Sep 2017, 20:56

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