The fact that reducing price can generate a competitive advantage for

Question

The fact that reducing price can generate a competitive advantage for a company does not mean that every reduction in price will create such an advantage. Price reduction, like improvement in service, must be balanced against other types of efforts on the basis of direct, tangible benefits such as increased revenues. If a company is already effectively on a par with its competitors because it provides product at an acceptable price and keeps customers from leaving at an unacceptable rate, then reduction in price may not be effective, since price is not necessarily the deciding factor for any customer in any situation.

This truth was not apparent to managers of one operating system software vendor, which failed to improve its competitive position despite its attempt to reduce price. The software managers did not recognize the level of customer inertia that arises from the inconvenience of switching operating system. Nor did they analyze their reduction in price to determine whether it would attract new customers by producing a new standard of price that would excite customers or by proving difficult for competitors to copy.    1 
 1. According to the passage, reduction in price are comparable to improvement in service in terms of the

(A) tangibility of the benefits that they tend to confer
(B) increased revenues that they ultimately produce
(C) basis on which they need to be weighed
(D) insufficient analysis that managers devote to them
(E) degree of competitive advantage that they are likely to provide

2 
 2. The passage suggests which of the following about price charged by an operating system software vendor prior to its strategy in reducing its price?

(A) It was slightly low to that of the vendor's competitors.
(B) It threatened to weaken the vendor's competitive position with respect to other operating system software vendor
(C) It had already been reduced after having caused damage to the vendor's reputation in the past.
(D) It enabled the vendor to retain customers at an acceptable rate
(E) It needed to be reduced to attain parity with the software provided by competing vendors.

3 
 3. The discussion of the operating system software vendor last paragraph serves which of the following functions within the passage as a whole?

(A) It describes an exceptional case in which reduction in price actually failed to produce a competitive advantage.
(B) It illustrates the pitfalls of choosing to reduce price at a time when business strategy is needed more urgently in another area.
(C) It demonstrates the kind of analysis that managers apply when they choose one kind of business strategy over another
(D) It supports the argument that strategies in certain aspects are more advantageous than strategies in other aspects.
(E) It provides an example of the point about reduction in price made in the first paragraph.

4 
 4. The passage suggests that operating system software managers failed to consider whether or not the price reduction mentioned last sentence

(A) was too complicated to be easily described to prospective customers
(B) made a measurable change in the experiences of customers purchasing
(C) could be sustained if the number of customers increased significantly
(D) was an innovation that competing vendors could have imitated
(E) was adequate to bring the vendor's general level of price to a level that was comparable with that of its competitors

RC Butler 2022  -  Practice Two RC Passages Everyday.   
Passage # 25 Date: 17-Jan-2022
 This question is a part of RC Butler 2022 .  Click here for Details

Source: GMAT Sample Verbal Test

Makhabbat · Answer

Hello! Please can someone explain 1,2,5 questions? Thank you in advance!

Anamika1496 · Answer

Could you also provide detailed answers to the RC passages so that we understand why our answer went wrong
 bm2201

PRI23YA · Answer

+1

Yes, that would really help. could you give the details around this  Sajjad1994  ? Thank you.

kntombat · Answer

100mitra , AnirudhaS Would love your help with the questions for this passage.

Sajjad1994 · Answer

Explanation

1. According to the passage, reduction in price are comparable to improvement in service in terms of the

Difficulty Level:   700

Explanation

Answer choices make this question complicated; first of all, find support from the passage and then read the answer choices one by one. It is mentioned in the passage that:

“Price reduction, like improvement in service, must be balanced against other types of efforts on the basis of direct, tangible benefits such as increased revenues."

According to the lines above,  A, C,  and  E  seem possible answer choices; but read all options one by one and keep only one in line with the passage.

(A) tangibility of the benefits that they tend to confer

It seems ok to keep it for the time being and find something better than this.

(B) increased revenues that they ultimately produce

No inline with the passage and also especially with the quoted text above. Eliminate it.

(C) basis on which they need to be weighed

Hmm! It looks like great talent. Keep it too.

(D) insufficient analysis that managers devote to them

Out of scope. Eliminate it too.

(E) degree of competitive advantage that they are likely to provide

This seems the third best answer after  A  and  C , but as we have two better options than this one, just eliminate it.

Now compare A and C

Price reduction is comparable to that of improvement in service in terms of the basis on direct and tangible benefits, not on the tangibility or specific benefits of increased revenues. So  A  is weaker option than  C.

Answer: C

Sajjad1994 · Answer

Explanation

2. The passage suggests which of the following about price charged by an operating system software vendor prior to its strategy in reducing its price?

Difficulty Level:   700

Explanation

It is an excellent logical question with no problem with the official answer. Repeat the process; find support from the passage, and eliminate answer choices one by one.

"If a company is already effectively on ….. keeps customers from leaving at an unacceptable rate…”

and

"This truth was not apparent to managers of one operating system software vendor…”

Read answer choices one by one.

(A) It was slightly low to that of the vendor's competitors.

Not mentioned

(B) It threatened to weaken the vendor's competitive position with respect to other operating system software vendor

This is opposite

(C) It had already been reduced after having caused damage to the vendor's reputation in the past.

Not mentioned in the passage.

(D) It enabled the vendor to retain customers at an acceptable rate

According to the support text above, the vendor was able to retain customers at an acceptable rate.

(E) It needed to be reduced to attain parity with the software provided by competing vendors.

Irrelevant

Answer: D

Sajjad1994 · Answer

Explanation

3. The discussion of the operating system software vendor last paragraph serves which of the following functions within the passage as a whole?

Difficulty Level:   550

Explanation

It is a comparatively easy and straightforward question. Clearly, the author intends to prove his position that a reduction in price does not necessarily generate a competitive advantage. E is correct.

Answer: E

Sajjad1994 · Answer

Explanation

4. The passage suggests that operating system software managers failed to consider whether or not the price reduction mentioned last sentence

Difficulty Level:   650-700

Explanation

Again, this is a tricky question, and answer choices B and D seem relevant. First of all, read the related text from the passage, and I would suggest reading a few sentences before and after the associated text to understand the complete story.

"Nor did they analyze their reduction in price to determine whether it would attract new customers by producing a new standard of price that would excite customers or by proving   difficult for competitors to copy.  "

Now read answer choices one by one.

(A) was too complicated to be easily described to prospective customers

Irrelevant

(B) made a measurable change in the experiences of customers purchasing

This seems good just keep it for the time being and find something better than this.

(C) could be sustained if the number of customers increased significantly

Out of scope

(D) was an innovation that competing vendors could have imitated

This seems irrelevant at the start, but concentrate on the underlined portion of quoted text above; this is in line with the passage's last sentence. So this answer choice is better than B.

(E) was adequate to bring the vendor's general level of price to a level that was comparable with that of its competitors

Irrelevant

Answer: D

PS: Question numbers 2 and 3 were the same, so I removed #3, and now we are with four questions for this passage.

100mitra · Answer

Paraphrasing:  
  Para 1:   Deciding factor of Price reduction by any organization to compete with competitors may or may not be effective
  Par 2:   example of software vendor, analysing will it, attract new customers by producing a new standard of price that would excite customers or by proving difficult for competitors to copy.

1. According to the passage, reduction in price is comparable 
to improvement in service in terms of the

First of all, Eliminate B, and D, distraction , 
 Option B  is one of the balancing factors, loss of price reduction, compensating by increased revenue. 
 Option D  deals with insufficient analysis of particular product by manager – Irrelevant
(B) increased revenues that they ultimately produce
(D) insufficient analysis that managers devote to them

Eliminate Option E:  degree of competitive advantage that they are likely to provide
Is  Circle of concern , which cannot be balanced price reduction by  circle of influence ,
Eg. Today price reduction by XYZ to gain customer, another ABC can also reduce for same, and so shall go on
This is circle of concern

Between A, and C – as mentioned in passage,  
 1st line ,” The fact that reducing price can generate a competitive advantage for a company 
does not mean that every reduction in (price will create such an advantage)”
 Intended meaning:  it is not necessary all that benefits will connect in actual profit to compensate, price reduction, it has to be balanced well.
 2nd line  – “Price reduction, like improvement in service, (must be balanced against other types of efforts) on the basis of direct, tangible benefits such as increased revenues.”
 Intended meaning : Price reduction must be balanced against other efforts direct or tangible

Last line of passage   – “then reduction in price may not be effective, since price is not necessarily the deciding factor for any customer in any situation”

(A) tangibility of the benefits that they tend to confer
  Option A,   speaks more on Line 1, and line 2, which gives you understanding, 
How Price reduction can be compensated or balanced or managed, 
but fails to give you reason, does it really require? 
As price reduction is one among the factors, which is required in service improvement, 
 Trap here is  understanding need of - service improvement, 
which is used to attract customer, not about managing the fund pockets of an organisation.

(C) basis on which they need to be weighed – Correct

2. The passage suggests which of the following about price charged 
by an operating system software vendor 
prior to its strategy in reducing its price?  
  Explanation:   from para 2, we can infer about software vendor 
1. failed to improve its competitive position
2. did not recognize the level of inconvenience by switching operating system
3. would fail to attract new customers by producing a new standard of price

(A) It was slightly low to that of the vendor's competitors
  Wrong -   Out of scope, not mentioned in the passage

(B) It threatened to weaken the vendor's competitive position 
with respect to other operating system software vendor
  Wrong -   software vendor want to threaten by price reduction, not with other operating system

(C) It had already been reduced after having caused damage to the vendor's reputation in the past.
  Wrong -   Out of scope, not mentioned in the passage

(D) It enabled the vendor to retain customers at an acceptable rate
Correct: as mentioned in the passage, “This truth was not apparent to managers of one operating system software vendor, which failed to improve its competitive position despite its attempt to reduce price”

(E) It needed to be reduced to attain parity with the software provided by competing vendors.
  Wrong -  Out of scope, no such details in the passage to inference

3. The discussion of the operating system software vendor last paragraph serves which of the following functions within the passage as a whole?  
(A) It describes an exceptional case in which reduction in price actually failed to produce a competitive advantage.
  Wrong -   Trap! Passage is in description tone, it highlights general information with an example in the end of the passage, Trap here is, if one misses the eyesight “exceptional case”, its not only example specifically of price reduction, but also example of strategic failure by not understanding concern of customer, This stem has a opposite view too, what is the plan would have be successful, then this would not have to be exceptional case.

(B) It illustrates the pitfalls of choosing to reduce price at a time when business strategy is needed more urgently in another area.
  Wrong -   Irrelevant, as it diverts the discussion topic to strategy implementation from one area to another, which is not mentioned in the second passage

(C) It demonstrates the kind of analysis that managers apply when they choose one kind of business strategy over another
  Wrong -   Irrelevant, as it diverts the discussion topic to strategy implementation from one analysis to another, which is not mentioned in the second passage

(D) It supports the argument that strategies in certain aspects are more advantageous than strategies in other aspects.
  Wrong -   yes, second para, does support the 1st paragraph, but para 2 highlights only about price reduction as a strategy, it doesn’t not counter or show same price reduction is benefits to another aspects

(E) It provides an example of the point about reduction in price made in the first paragraph - Correct

4. The passage suggests that operating system software managers failed to consider whether or not the price reduction mentioned last sentence  
  Explanation:   as mentioned in the passage, 
there are 2 things manager failed to consider whether or not,

“Nor did they analyse their reduction in price 
- to determine whether it would attract new customers 
 1. by producing  a new standard of price that would excite customers or 
 2. by proving  difficult for competitors to copy

(A) was too complicated to be easily described to prospective customers
  Wrong -   passage doesn’t mention about definition of prospective customers

(B) made a measurable change in the experiences of customers purchasing
  Wrong -   yes, it was a experiment, but no where it mentions the measurable changes in it, for customer purchase

(C) could be sustained if the number of customers increased significantly
  Wrong -   Might be, has not justification or explanation mentioned in the passage – Out of scope

(D) was an innovation that competing vendors could have imitated
Correct: Yes, as mentioned above, it is one of the two analyse, which software manager missed  .

(E) was adequate to bring the vendor's general level of price to a level that was comparable with that of its competitors
  Wrong -   Irrelevant, not inclined with the tone of passage

nousernamefine · Answer

Line "  which failed to improve its competitive position despite its attempt to reduce price." in 2nd para does recommend that prior policy was weakening its comp. position and no change even after policy change. So, shouldn't it be B

The fact that reducing price can generate a competitive advantage for

Prep Toolkit

Top 5 GMAT Debrief Videos

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

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

The fact that reducing price can generate a competitive advantage for

Prep Toolkit

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

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards