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12 May 2024, 10:48
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Difficulty:
45%
(medium)
Question Stats:
72% (01:53) correct
28%
(02:17)
wrong
based on 892
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The owner of the Holiday Antique Shoppe plans to increase profits by selling gift certificates for 10 percent less than their face value. He reasons that customers will eagerly buy the certificates as gifts for friends and family members in the belief that the customers are getting a discount, but that many recipients of the gift certificates will not be interested in antiques, and so will neglect to redeem the certificates.
Which of the following, if true, presents the most serious potential weakness of the plan?
A. Customers who buy the gift certificates would be likely to redeem them themselves in order to pay 10 percent less for antiques they had already intended to buy
B. The store's profit margin on many new items is less than 10 percent of the item's normal, undiscounted prices
C. Most customers would be at least slightly less likely to buy gift certificates for people whom they believe would neglect to redeem certificates
D. If the store did not offer the certificates, many customers would instead directly buy antiques from the store as gifts for people who are not interested in them
E. When another nearby antique store sold gift certificates for their face value, most of the certificates were never redeemed
Gmat club Q.PNG [ 17.72 KiB | Viewed 6910 times ]
Which of the following, if true, presents the most serious potential weakness of the plan?
A. Customers who buy the gift certificates would be likely to redeem them themselves in order to pay 10 percent less for antiques they had already intended to buy
B. The store's profit margin on many new items is less than 10 percent of the item's normal, undiscounted prices
C. Most customers would be at least slightly less likely to buy gift certificates for people whom they believe would neglect to redeem certificates
D. If the store did not offer the certificates, many customers would instead directly buy antiques from the store as gifts for people who are not interested in them
E. When another nearby antique store sold gift certificates for their face value, most of the certificates were never redeemed
Attachment:
Gmat club Q.PNG [ 17.72 KiB | Viewed 6910 times ]
13 May 2024, 00:03
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Jayam12
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Screenshot_20240513_123218_Samsung Notes.jpg [ 239.75 KiB | Viewed 8526 times ]
20 Aug 2024, 04:15
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Jayam12
Quote:
This clearly weakens. If the people who buy the certificates are likely to redeem them themselves, then the rationale for the plan (that significant no of people would give it to friends/family who would not redeem it) goes for a toss.
Quote:
This option suggests, that since the profit margin is less than 10%, than if customers buy these items using the gift certificate (which offers a 10% discount), then it is an overall loss for the store. But the rationale for the plan or the mechanism for the plan to reach for the goal is not that gift certificates would increase the volume of sales while still maintaining a profit (albeit less). It is that people would buy gift certificates for friends/family who would not use them. So this doesn't weaken.
Quote:
I'm not going to touch upon 'most' or 'slightly less likely' in this choice, both of which also do make this less of a contender. The thing to note is that customers are less likely to buy gift certificates for people whom they believe would neglect to redeem certificates. But how accurate is their belief. It is quite likely that there are people who would not redeem the certificate, but customers still believe that these people would redeem the certificate.
Quote:
All this shows is that some people do buy stuff as gifts for friends/family. Also if this is the case, then clearly the gift certificate route is better. Suppose (Cost = 60, Price = 100, Price with gift certificate = 90 ; then if certificates are not offered then for 1 sale the profit is 100-60 = 40, while if certificates are offered then the profit is pure 90)
Quote:
This is a very strong strengthener. It is a great analogy - antique store; nearby (same location), same plan.
And in this case what the rationale for P->G assumes does happen.
