A manufacturer of workstations for computer-aided design seeks

Question

A manufacturer of workstations for computer-aided design seeks to increase sales to its most important corporate customers. Its strategy is to publish very low list prices for workstations in order to generate interest among the buyers for those corporations.

Which of the following, if characteristic of the marketplace, would tend to cause the manufacture’s strategy to fail?

A. The proposed list prices would seem low to a typical buyer for the manufacturer’s most important corporate customers.

B. The capabilities of workstations suitable for given jobs are not significantly different among various manufactures.

C. The manufacturer’s most important corporate customers employ as buyers persons who are very knowledgeable about prices for workstations for customer-aided design.

D. customers differ significantly in the percentage of resources they can devote to computer workstations.

E. Buyers for corporations that purchase workstations for computer-aided design receive bonuses for negotiating large discounts from the list price

GMATNinjaTwo · Accepted Answer

If the plan is "to publish very low list prices for workstations in order to generate interest among the buyers for those corporations," the fact that those proposed list prices actually would seem low to a typical buyer is consistent with the manufacturer's plan. This is evidence that the strategy will succeed, not fail.
 
True, the buyers' compensation may be affected by several other factors, but choice E only discusses the specific bonus received for "negotiating large discounts from the list price." All else equal, if the list prices are already low and the buyers have no room to negotiate, the buyers will most likely NOT be able to earn those specific bonuses. This would REDUCE the buyers' interest in those listings and potentially cause the strategy to fail. Also, the question does not ask us for a characteristic of the marketplace that would DEFINITELY cause the strategy to fail; rather it asks for one that "would TEND to cause the manufacturer’s strategy to fail." E is the best choice because it most clearly works against the strategy of the manufacturer.

GMATNinja · Answer

The manufacturer's strategy (in other words, the manufacturer's conclusion) is that publishing very low list prices for workstations will generate interest among buyers, and therefore increase sales. Keep in mind that the best choice will give us the best logical reason for  this specific conclusion  to fail.

The conclusion is not "publishing very low list prices will hide the manufacturer's intent" or "tricking buyers into a non-straightforward deal will lead to increased sales." It doesn't rely on any kind of hidden reason for the low list price, and doesn't rely on any kind of particular knowledge outside of list prices. So let's keep this as simple as it sounds. The right answer will give us a reason to doubt whether lower list prices will lead to more sales.

If this were true, wouldn't it be even more clear to buyers that the manufacturer's list prices are very low when compared to the rest of the workstation market? If anything, this makes the strategy more believable, because now we know that the strategy targets the people who are most informed about price.

In short: there's no need to complicate this.

The strategy focuses on the impact of low list prices on sales. 
  Choice (C), at most, slightly strengthens the strategy by confirming that buyers are knowledgeable about prices in general. 
  Choice (E) weakens the strategy by revealing that buyers would see low list prices as negative for them, and therefore have less reason to buy.

I hope this helps!

lonemeteorz · Answer

Because the buyers get bonuses for negotiating large discounts and since the list price is already low, instead of stimulating sales, buyers will be better off negotiating with other companies and purchase from them, and hence, sales of this company will not increase due to the lowered prices. Quite the opposite intended. Hence answer is E.

b9n920 · Answer

Clear E.

Since buyers have a vested interest in negotiating on the LISTED price, it would be foolish to already list products for less. They have to face the bargain from the buyers anyway. Already low list price will definitely hinder the manufacturer's ability to discount further and thus cannot contribute to improved sales.

A is slightly relevant but fails to establish why a LOW price won't improve the sales.

Binit.

puto · Answer

There are many subtitles of a bonus component that could affect the purchase decision. Some scenarios include - bonus from buyer or seller, bonus calculation method  and so on.

Since weighing so many options is not possible how is E the correct answer when A has very low scope of digressing from the point raised in the question?

Thanks.

puto · Answer

Thanks for responding, however I still am not convinced.

Option A - "list prices would seem low to a typical buyer "-> Indicates that the typical buyer is aware of the fair prices so wouldn't anything lower arouse suspicion that other product attributes such as quality, warranty, post sale services and so on might have been compromised resulting in a purchase decision against the manufacturer?

Option E - How do we know that the buyers receive the bonus from their corporation?
Couldn't the buyers receive bonus from seller in a scenario where although a large discount was negotiated, a large volume purchase resulted in considerable profits for the seller in addition to making up for the discount offered?

I hope I am not stretching the reasoning to much !!

Thanks again.

GMATNinjaTwo · Answer

Remember that the strategy of the manufacturer is "to publish very low list prices for workstations in order to generate interest among the buyers for those corporations"--the manufacturer WANTS the prices to seem low to a typical buyer, so choice A is consistent with that strategy. True, we don't know for sure if that strategy will succeed, and if one of the answer choices were something like, "Most buyers are suspicious of very low prices...", that could certainly be a characteristic of the marketplace that would tend to cause the strategy to fail; however, without being given that information, we can't make assumptions about the thought process of the buyers.
As for choice E, again, we can only go by the information in the passage--all we know is that the buyers receive bonuses for negotiating large discounts from the list price. If the list prices are already low, then there is little to no room to negotiate discounts; thus, the buyers cannot earn those specific bonuses. This alone is a factor that works AGAINST the strategy (ie "would tend to cause the manufacture’s strategy to fail"). Yes, we can come up with scenarios in which the lost bonuses referred to in choice E are offset by other means of compensation, but we cannot assume that will happen if it is not included in the answer choice.

We only need to find an answer choice that would  tend  to cause the manufacturer's strategy to fail; we don't need it to be something that will DEFINITELY cause the strategy to fail. Solely based on the information in the passage and the answer choices, choice E is the best fit.

I hope that helps!

NAvinash · Answer

GMATNinja ,  GMATNinjaTwo  - I got it wrong with choice C. I moved from choice E to choice C. While I agree what we discussed above fr choice E , I want to understand how choice C can not be the answer ? I analysis behind choice C is since buyers have expert who know better about rates then probably buyers expert know that low price is caused because of some intention and might not be straight forward deal.

NAvinash · Answer

Thanks  GMATNinja . Keeping it simple is key here. Thanks.

AbhishekDhanraJ72 · Answer

wha if cusomer have no concern abou price.So D answer. Someone please explain D????

sm1510 · Answer

Question seen in GMAT Prep. Please help tag.

Bunuel · Answer

_______________________
Added the tag. Thank you!

jabhatta2 · Answer

I have a more fundamental question when i read the passage

How does  " generating interest  "  lead to "  Increased sales  " exactly ?

I thought what was where the answer would focus on

Is my strategy itself wrong when I think this way ?

Per my understanding here is the sequence of events

Reduce price --> generate interest among buyers --> step 2 will somehow increase sales

The answer E is weakening between Reduce price --> generate interest among buyers

GMATNinja · Answer

It's crucial here to differentiate between (1) the published prices (aka the "list prices") and (2) the prices that the buyers actually pay.

Imagine that these workstations are typically sold for about $1,000:

The manufacturer creates a catalog with its most recent models, and that catalog contains the published (list) prices of each one. 
 Now a buyer comes in and says, "Hey, I'd like to buy 50 of these $1,000 workstations. How about you sell them to me for $750 each?"  
 The manufacturer agrees, and the buyer gets to brag to his boss about how he/she saved the company 25% off the list price.

Now let's move to an alternate dimension where that same manufacturer says, "You know what? Let's publish LOWER list prices in our catalog to generate interest among the buyers!"

Now the LIST price for those same workstations is, say, $800 instead of $1,000. 
 The same buyer comes in wanting to buy 50, but the manufacturer still isn't willing to sell them for less than $750 (to get the same profit as in the previous example). 
 So the buyer in this dimension scores the same exact deal. But now the buyer only gets to brag about saving 6-7% off the list price.

If (E) is true, then the second situation doesn't bode well for the buyer. He/she would rather hunt for a manufacturer who publishes  inflated  list prices -- that way, there's more room for negotiation and more room for buyer bragging and bonuses! The key point is that we aren't talking about changing the actual purchase prices -- we're only changing the  published  (list) prices.

As for (C), you'd have to assume quite a bit to make this one work. Maybe those "very knowledgeable" buyers look at the price of 5 and say, "Wow, that's a great price for this kind of workstation! Let's buy a bunch while they are so cheap!" In that case, (C) could explain why the plan is likely to succeed.

(E) is a much better option. I hope that helps!

kumardhruv1212 · Answer

I get it why E is weakener, but why isnt option B as well?

Option B says that the workstations these manufacturers are making are similar, therefore other manufacturers can easily provide an alternative to buyers undercutting the low list price of the manufacturer in question.

KarishmaB · Answer

Plan: Publish very low list prices to generate interest among the buyers for corporations. Aim: To increase sales to its most important corporate customers. Corporates have employees in the purchase dept who buy the required infra. To increase sales, a manufacturer is planning to publish very low list prices and sharing those with the buyers of the corportaion. He expects that when the buyers will see low prices, they would want to buy the computers for the company from this manufacturer. What will make the manufacturer's strategy fail? A. The proposed list prices would seem low to a typical buyer for the manufacturer’s most important corporate customers. Well if the prices will seem low to the buyer, that is good. The manufacturer is hoping for that. B. The capabilities of workstations suitable for given jobs are not significantly different among various manufactures. Well, that's good. All computers have about the same capabilities but the computers of this manufacturer will be lower priced. This works for the manufacturer's plan. C. The manufacturer’s most important corporate customers employ as buyers persons who are very knowledgeable about prices for workstations for customer-aided design. That's good too. We want the buyers to be knowledgeable about prices so that they will know that the list price are low. This works for the manufacturer's plan. D. customers differ significantly in the percentage of resources they can devote to computer workstations. What percentage of resources each corporation devotes is irrelevant. E. Buyers for corporations that purchase workstations for computer-aided design receive bonuses for negotiating large discounts from the list price Correct. This tells us that the employees who act as buyers receive bonuses for negotiating large discounts. So if the list price of a computer is already very low, they will not be able to negotiate a large discount. But if the list price of a similar computer is much higher, they will likely be able to negotiate a large discount. Hence, the buyer will be likely interested in high list price so that he can negotiate large discounts and get bonus. This will not work for our manufacturer's plan in which he will lower the list price itself. Answer (E) Discussion on Weaken Questions: https://youtu.be/EhZ8FKkfy0k

A manufacturer of workstations for computer-aided design seeks

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 Critical Reasoning (CR) Questions

A manufacturer of workstations for computer-aided design seeks

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