National Air negotiated an arrangement with a popular restaurant

Question

﻿National Air negotiated an arrangement with a popular restaurant chain to give the chain's patrons booklets of coupons for discounts on National's flights. Marketing experts claimed that this promotion strategy would more effectively make National stand out relative to rival airlines serving the same routes than would directly setting its fares lower than those of its rivals.

Which of the following, if true, would best explain why, despite heavy demand for the booklets of coupons, National's market share did not increase in response to the promotion?

A. The restaurant chain distributing the coupons was initially skeptical about National's proposal.

B. Many of National's rivals widely advertised their willingness to honor National coupons.

C. Fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year.

D. During the month immediately preceding the beginning of the promotion, National negotiated a contract with the pilots' union.

E. Several airlines operating entirely in areas not served by National launched coupon promotions within the same week that National's promotion was launched.

gmatophobia · Accepted Answer

We have to resolve the paradox that despite heavy demand for the booklets of coupons, National's market share did not increase in response to the promotion. A. The restaurant chain distributing the coupons was initially skeptical about National's proposal. While this option may indicate that the restaurant chain probably didn't distribute as many booklets of coupons initially, however when they started distributing the coupons, the market share of National Airline still did not increase in response to the promotion. We also know that the demand for booklets of coupons was high, hence, the anticipated result would be an increase in sales. We can hence, eliminate this option. B. Many of National's rivals widely advertised their willingness to honor National coupons. Perfect! This option gives us a reason for what actually happened. As other airlines were willing to honor the coupons of National Airlines, the patrons of the restaurants used the coupons to purchase tickets from the rivals. Hence, despite the high demand for coupons National's market share did not increase in response to the promotion. Nice move National's rivals !

C. Fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year. Doesn't help resolve the paradox. We are trying to find a reason why National's market share did not increase in response to the promotion. There isn't any aspect of comparison between the current year and the previous year. D. During the month immediately preceding the beginning of the promotion, National negotiated a contract with the pilots' union. Doesn't help resolve the paradox. We are trying to find a reason why National's market share did not increase in response to the promotion. Hence, we can eliminate this option. E. Several airlines operating entirely in areas not served by National launched coupon promotions within the same week that National's promotion was launched. This is a trap option. This statement talks about airlines operating entirely in areas not served by National airlines. Hence there is no overlap of flyers. We can eliminate this option. Option B

MartyMurray · Answer

﻿National Air negotiated an arrangement with a popular restaurant chain to give the chain's patrons booklets of coupons for discounts on National's flights. Marketing experts claimed that this promotion strategy would more effectively make National stand out relative to rival airlines serving the same routes than would directly setting its fares lower than those of its rivals.

Which of the following, if true, would best explain why, despite heavy demand for the booklets of coupons, National's market share did not increase in response to the promotion?

The correct answer will explain why, even though National Air negotiated an arrangement with a popular restaurant chain to give the chain's patrons booklets of coupons for discounts on National's flights and marketing experts claimed that that strategy would make National stand out relative to rival airlines, National's market share did not increase.

There are two key things we need to notice about what the correct answer must explain.

- It must explain something about "National's market share," not it's profits, number of passengers, revenue or any other metric.

- It must explain why National's market share did not increase. So, it doesn't have to explain a decrease or anything else other than a lack of an increase.

A. The restaurant chain distributing the coupons was initially skeptical about National's proposal.

Notice that the passage says that "National Air negotiated an arrangement with a popular restaurant chain." So, even if the restaurant chain was "initially skeptical," it did agree to give its patrons the coupons.

So, the information provided by this choice doesn't change what we know that's relevant to the situation since initial skepticism on the part of the chain doesn't change the fact that the plan appears to have been implemented.

Eliminate.

B. Many of National's rivals widely advertised their willingness to honor National coupons.

If we consider this choice carefully, we see that it explains why National did not stand out and increase market share because of the coupon promotion.

Our initial impression might be that, if many of National's rivals widely advertised their willingness to honor National coupons, National would have somehow benefited because its coupons were being honored.

Notice, however, that what this choice really means is that many of National's rivals jumped in on the promotion. They basically offered to do the same thing National was doing, taking the coupons and thus providing discounts on air travel.

So, we can see exactly why National didn't stand out and increase its market share. The other airlines did essentially the same thing National was doing at the same time.

Thus, this choice explains the surprising outcome.

Keep.

C. Fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year.

This choice is tricky because it could explain something related to what we have to explain but doesn't explain the right thing.

The fact that "fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year," would explain why National's revenue or number of passengers did not increase "despite heavy demand for the booklets of coupons." However, that outcome is not what the correct answer must explain.

The correct answer must explain why National's "market share" did not increase, and the fact fewer people traveled would not explain that outcome. After all, market share is not an absolute number of people. Rather, it's a proportion of the market. So, even if the overall market shrank because fewer people traveled, the promotion could have made National "stand out" and increase its "share" of the market.

Eliminate.

D. During the month immediately preceding the beginning of the promotion, National negotiated a contract with the pilots' union.

This choice is relatively straightforward to eliminate because there's no clear relationship between National's contract with the pilot's union and it's market share. So, unless we make up an extended, unsupported story, there is no reason to say that this choice explains why National's market share didn't increase.

Eliminate.

E. Several airlines operating entirely in areas not served by National launched coupon promotions within the same week that National's promotion was launched.

This choice is tempting because the fact that other airlines also launched coupon promotions could seem to explain why National's coupon promotion did not cause it to stand out or its market share to increase.

However, there's a key detail of this choice that we need to notice in order not to choose it: this choice is about "airlines operating entirely in areas not served by National." So, the airlines this choice is about are not in the same market that National is in. Thus, their coupon promotions wouldn't have any effect on National's market share.

So, this choice actually explains nothing about National's market share.

Eliminate.

The correct answer is (B).

shanks2020 · Answer

MartyMurray

As an independent reader, how would we know what does "honoring National's coupon"mean?
How would we know that it means that coupon meant for Nationa's discount would mean discount for that airlines as well?

GmatKnightTutor · Answer

National Air negotiated an arrangement with a popular restaurant chain to give the chain's patrons booklets of coupons for discounts on National's flights. Marketing experts claimed that this promotion strategy would more effectively make National stand out relative to rival airlines serving the same routes than would directly setting its fares lower than those of its rivals.

Which of the following, if true, would best explain why, despite heavy demand for the booklets of coupons, National's market share did not increase in response to the promotion?

Which of the following, if true, would best explain why, despite heavy demand for the booklets of coupons, National's market share did not increase in response to the promotion?

A. The restaurant chain distributing the coupons was initially skeptical about National's proposal.

B. Many of National's rivals widely advertised their willingness to honor National coupons.

C. Fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year.

D. During the month immediately preceding the beginning of the promotion, National negotiated a contract with the pilots' union.

E. Several airlines operating entirely in areas not served by National launched coupon promotions within the same week that National's promotion was launched.

The passage starts off with an airline saying it'll give flight coupons at a certain restaurant chain. The idea is that it'll create more awareness of the airline with potential customers compared to rival airlines operating the same routes.

We're asked to find out why market share didn't increase even though there was a huge demand for the flight coupons.

(B) is a nice answer. Basically, if many rival airlines say "Hey, if you bring that National Air 20% coupon to us, we'll give you the same discount", there is no unique benefit a coupon holder gets from National Air itself anymore. In a sense, the increased competitiveness/attractiveness of all the airlines honoring the 20% coupon gets cancelled out by each other. This could result in the market share of National Air not increasing.

-contact: gmatknight site | gmatclub dm

MartyMurray · Answer

Interesting question. I guess you need to know that one definition of "honor" is "accept" and thus understand that, if the other airlines accepted the coupons, they in effect gave the same discount that National was giving.

sanebeyondone · Answer

I still have a doubt about choice B.

"B. Many of National's rivals widely advertised their willingness to honor National coupons."

The choice says National's rivals widely advertised their willingness to....

I'm stressing on the word  "advertised"  which mean we don't know if they actually honored/accepted the coupons or not.

Though I guess chioce B is the best answer choice, compared to others.

NVM what I said, I understand the context now, the rivals didn't actually buy the coupons from National but they bought them from the customers, secondhand.

Oppenheimer1945 · Answer

I was also struggling to comprehend the practical meaning of choice B. But indeed I'll select choice B using elimination only, because "advertised"+"honor" is rining no bells to me.

But @ GmatKnightTutor  explained it very nicely

bronaugust · Answer

To solve this question, let us deploy   IMS's four-step technique  .

STEP #1   ->   IDENTIFY THE QUESTION TYPE

Let us read the question stem to identify the question type.  
 
  The stem indicates a   paradox   question.

STEP #2   ->   X-RAY THE PASSAGE

In a   paradox   question, the correct answer must help explain the paradox. Therefore, let us x-ray the passage first and note the paradox soon after.  
 
  PARADOX:   Despite heavy demand for the booklets of coupons in the popular restaurant chain with which National Air had negotiated an agreement to give the chain's patrons booklets of coupons for discounts on National's flights, National's market share did not increase.

STEP #3   ->   FRAME A SHADOW ANSWER

To frame a shadow answer, we need to know what the correct answer should do. In this question, the correct answer must help explain why National's market share did not increase in response to the promotion even though there was a heavy demand for the booklets of coupons.

SHADOW ANSWER:   Any situation that helps explain why National's market share did not increase in response to the promotion despite heavy demand for the booklets of coupons.

STEP #4   ->   ELIMINATE INCORRECT ANSWERS

Options that do not match the shadow answer can be eliminated.

A. The restaurant chain distributing the coupons was initially skeptical about National's proposal. |   NOT A MATCH   |   Whether or not the restaurant chain distributing the coupons was    initially    skeptical about National's proposal will not help explain why National's market share did not increase in response to the promotion despite heavy demand for the booklets of coupons.   |   ELIMINATE

B. Many of National's rivals widely advertised their willingness to honor National coupons.

If we consider this choice carefully, we see that it explains why National did not stand out and increase market share because of the coupon promotion.

Our initial impression might be that, if many of National's rivals widely advertised their willingness to honor National coupons, National would have somehow benefited because its coupons were being honored.

Notice, however, that what this choice really means is that many of National's rivals jumped in on the promotion. They basically offered to do the same thing National was doing, taking the coupons and thus providing discounts on air travel.

So, we can see exactly why National didn't stand out and increase its market share. The other airlines did essentially the same thing National was doing at the same time.

Thus, this choice explains the surprising outcome.

C. Fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year. |   NOT A MATCH   |   We need an option that helps explain why National's market share did not increase in response to the promotion despite heavy demand for the booklets of coupons; this option, however, tells us fewer people traveled by air during the period covered by the coupon promotion than had done so during the same period in the previous year. So, if, let us say, 99 people traveled by air during the period covered by the coupon promotion this year, there were more than 99 flyers (let us say 100) during the same period in the previous year. What if all 99 that traveled during the period covered by the coupon promotion actually chose National as opposed to only 50 the previous year? This option can intensify the paradox, but what we are looking to do is resolve it.   |   ELIMINATE

D. During the month immediately preceding the beginning of the promotion, National negotiated a contract with the pilots' union. |   NOT A MATCH   |   Whether or not National negotiated a contract with the pilots' union during the month immediately preceding the beginning of the promotion is irrelevant to helping explain why National's market share did not increase in response to the promotion despite heavy demand for the booklets of coupons.   |   ELIMINATE

E. Several airlines operating entirely in areas not served by National launched coupon promotions within the same week that National's promotion was launched. | NOT A MATCH | This option discusses airlines operating entirely in areas not served by National. What this means is that these airlines are not National's rivals. Therefore, even if they did launch coupon promotions within the same week that National's promotion was launched, we will not be able to explain why National's market share did not increase in response to the promotion despite heavy demand for the booklets of coupons. | ELIMINATE

Hence, (B) is the correct answer.

Hence, (B) is the correct answer.

SundayRoast · Answer

Question on the wording as rivals couldn't honor the coupons as they were for restaurants and not for airline redemptions. They could offer the same coupons but how could they honor them?

DmitryFarberMPrep · Answer

The coupons are meant to be given out at restaurants, but they are "for discounts on National's flights." Therefore, these are airline coupons, not restaurant coupons. In any case, as long as a coupon doesn't say something like "free french fries," but rather "10% off your purchase," anyone could honor it, if they chose to.

rmonikapandey · Answer

M struggling to understand why the answer is B. Technically, a rival company cannot do this right?

mkeshri185 · Answer

The passage indeed mentions about the area where National and other compete that is okay. But when the que has been asked, it doesn't mention the specific area , means the author is not talking about that area where all operate. So he must be talking about general market share. And general market share indeed get affected by other areas where National doesn't serve or less serve. So even if National included coupons and other stuffs and in the other region his competition outperformed National then its sure the Market share wont increase. Why we have to take into consideration only that area where all Airlines operate when in question it has not been mentioned??

DmitryFarberMPrep · Answer

Sure they can! Why not? First, remember that the question is saying "Which of the following,  if true. " So for our purposes, none of the answers can be false. If B said "Rival companies will cast magic spells," we'd still accept that as fact.

In this case, however, the answer is describing a practice that does occur in real life. Businesses can charge what they like for goods and services, so if a customer has a coupon for 10% off a flight on Airline A, then Airline B can choose to honor the coupon by offering the coupon holder the same discount. Of course, Airline A doesn't have to pay for this! It's just one business's way of matching the deal offered by another business.

DmitryFarberMPrep · Answer

I'm assuming you're asking about the reason for eliminating E.

If National doesn't serve certain areas, then it doesn't really matter which airline is used. For instance, let's say that National doesn't have flights between San Francisco and Seattle, and let's say that on a typical day, 2,500 people fly between these cities. Now, say that Airline Q offers a coupon for its flights, so that some customers switch over from Airline Z. Q has gained share at the expense of Z, but this doesn't really affect National. They aren't in this market, and there's no indication that the market is growing, so their position is unchanged.

We could imagine a scenario in which the coupons mentioned in E drive more people to make that particular trip, but we can't really infer that this will happen, and that this will grow the overall market at National's expense, rather than just shifting consumers from one flight to another. Additionally, if coupon promotions DO draw in consumers, then we might reasonably expect that both National and these other airlines all increased their market share relative to other companies that did not issue coupons. In short, E does not provide a clear explanation for why National's market share didn't grow despite this heavily-demanded promotion. Any interpretation we apply to make E work could just as easily go the other way.

ruchir11 · Answer

I can see how the statement "Many of National's rivals widely advertised their willingness to honor National coupons." is equivalent to Nationals rivals "honouring" Nationals coupons and thus letting customers use these coupons to avail discounts on their flight.

But honestly the wording doesnt indicate that. If you are reading the statement, you will basically read it as them somehow "appreciating (honouring)" the coupon. I might be wrong here, but the wording of the choice seems extremely vague.

egmat · Answer

Hi ruchir11,

Your instinct about the word is fair, but the wording is actually doing exact, technical work here.  "Honor"  has two senses, and the question is leaning on the one you're not using.

The two senses of "honor"

Everyday sense  - to respect or appreciate ("we honor our elders"). This is the reading you defaulted to, and it does make the choice sound vague.

Commercial / transactional sense  - to  accept something as valid for payment or a discount . This is the standard business meaning in phrases like:

- "The store will  honor  your gift card."
- "This coupon is  honored  at all locations."
- "The bank refused to  honor  the check."

In every one of those, "honor" means  accept and redeem  - nothing to do with appreciation.

Why the commercial sense is the right one here

The choice puts "honor" next to  "National coupons"  - a purely commercial object (a discount voucher for flights). In that context, the transactional sense is the only one that fits. A rival airline "appreciating" a competitor's coupon does nothing; a rival airline  accepting  that coupon on its own flights is exactly what breaks National's edge.

That's why B resolves the paradox. If National's rivals will redeem your National coupon on their flights, the coupon no longer pushes you toward National - it just gets you a discount on  any  airline. National's share stays flat.

A quick word-swap to feel it

Try substituting a plain word into each version and see which one still makes sense:

- "Rivals advertised their willingness to  appreciate  National coupons." - meaningless in a commercial claim.
- "Rivals advertised their willingness to  accept / redeem  National coupons." - this is the actual claim, and it explains everything.

The GMAT expects the commercial reading whenever the object is a coupon, check, ticket, warranty, or guarantee. Lock that in and B stops feeling vague - it becomes the only choice that resolves the paradox.

Answer: B

Auro411 · Answer

Let's face this stem. This Stimulus consists of several facts:

Fact 1: National Air collaborated with a popular restaurant chain to give the chain coupons for discounts to gain market share.

Fact 2: Despite Heavy Demand for booklets, National Airlines wasn't able to increase its market share.

Paradox: This Strategy, despite heavy demand, hasn't worked in their favour.

PreThink: Other Airlines have also adopted this strategy, which nullifies their heavy demand and doesn't lead to an increase in their market share.

(A) Being sceptical doesn't solve the paradox, nor does it explain heavy demand for coupons. Completely out of scope. Eliminate

(B) This option looks to explain both the facts, that National Rivals also adopt this strategy, which leads to increase in hevy demand and doesnt lead to increase in National Market share. Keep it as  CONTENDER

(C) This doesn't explain the heavy demand for national coupons. Eliminate

(D) This option is completely out of scope and doesn't address any explanation related to paradox.

(E) This options is a trap answer, but beware of the context, it is talking about airlines which doesnt serve the national airlines market, which makes it completely irrelevant in explaining both facts.

HENCE, answer option is B.

National Air negotiated an arrangement with a popular restaurant

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National Air negotiated an arrangement with a popular restaurant

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