Automobile manufacturers often offer incentive programs

Question

Automobile manufacturers often offer incentive programs through which they discount the price of a car to their dealers for a promotion period when the product is advertised to consumers. Such incentive programs often result in a dramatic increase in the amount of product sold by the automobile manufacturers to dealers but may hurt the manufacturers' profitability.

Which of the following, if true, most strongly supports an argument for the incentive programs?

A. The amount of discount generally offered by manufacturers to dealers is carefully calculated to represent the minimum needed to draw consumers' attention to the product.

B. For many consumer products, the period of advertising discounted prices to consumers is about a week, which is not sufficiently long for consumers to become used to the sale price.

C. More prestigious auto makers do not use incentive programs because they dilute the company's brand name.

D. During such a promotion, retailers tend to accumulate in their warehouses inventory bought at discount; they then sell much of it later at their regular price.

E. If a manufacturer fails to offer such promotion but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

nusmavrik · Accepted Answer

This is the reason I am going back to the OG, its the best book ever written. I am not gonna focus on any other source. First the argument is a copy of the one in the OG. Second OA is E.

This is such a subtle question. There are TWO parts of the conclusion. The question wants to strengthen just the first part (increased product sales) Not the second (how the manufacturer's profitability is impacted) part.

Which of the following, if true, most strongly supports an  argument for the incentive programs ? -----> means tick on the answer which strengthens the "incentive program" of the MANUFACTURER. (in favor of the manufacturer)

D is NOT in favor of the manufacturer. It works in favor of the dealers. Dealers cut the profitability. It strengthens the second part of the conclusion.

E says there is a risk by not offering the promotion. E works in favor of the manufacturer - increased sales - increased profits.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.

nusmavrik · Answer

I think you got the wrong OA. Answer should be D.

Conclusion : Such incentive programs often result in a dramatic increase
in the amount of product sold by the automobile manufacturers to dealers but may
hurt the manufacturers' profitability.

A does not explains how manufacturer's profitability is impacted. But it explains dramatic increase in sales.

D supports both the parts of the conclusion. Since the dealers buy most of the sales, the manufacturer's sales goes up during the promotion. Since they sell the items from the warehouse after the promotion - the stock's price now is MRP, they end with huge margins which definitely cut the manufacturer's bottom line. I think this is illegal. But that's besides the point. D is correct.

amp0201 · Answer

-- To support the argument for incentive program means- the program should be able to sell more cars as well as with some profits to the manufacturer. If this is justified, then that should be the correct answer choice.

A. The amount of discount generally offered by manufacturers to dealers is
carefully calculated to represent the minimum needed to draw consumers'
attention to the product.
  -- Since this answer choice exactly says - discount offered is carefully calculated to attract customers. It means it results in more sell with some profit to the manufacturer. Thus A supports the incentive program and should be a correct answer choice.

B. For many consumer products, the period of advertising discounted prices to
consumers is about a week, which is not sufficiently long for consumers to
become used to the sale price.
  -- Irrelevant, hence not a correct answer choice.

C. More prestigious auto makers do not use incentive programs because they
dilute the company's brand name.
  -- Irrelevant, hence C not a correct answer choice.

D. During such a promotion, retailers tend to accumulate in their warehouses
inventory bought at discount; they then sell much of it later at their regular
price.
 -- This is an opposite answer. It is going exactly opposite to the incentive program. Thus though the sales will increase, profitability for the manufacturers will get hurt. Hence D cannot be a correct answer choice.

E. If a manufacturer fails to offer such promotion but its competitor offers them,
that competitor will tend to attract consumers away from the manufacturer's
product.
  -- This is a new information and taking us away from the main argument of incentive program. Hence E cannot be a correct answer choice.

I hope this helps. Thank You.

Thanks,
Akhil M.Parekh

frankiegar · Answer

Option E states that failing to offer promotions may result with a decrease in customer base. However, loosing customers is entirely different than reduction in profitability. Decreasing number of customers may result with a decline in total profit but decline in profitability is not necessary.

I think this question ignores a simple business fact. :lol:

method · Answer

The answer is E.

We know that the discounts may hurt the company's profitability. Therefore, an assumption exists that the company is offering the discounts for a reason other than maximizing profit.

A) Only states that the discounts were set at a price just high enough to draw attention. 
-Ok, so what? You drew their attention. You have to make another assumption that drawing attention leads to sales. 
-Why are you drawing attention? Is this about awareness? Raising market share? We have absolutely no idea.
-If you want to draw attention, why are you offering discounts? Does advertising alone not work? What alternatives are there? Is discounts the best alternative? We have no answers to any of these. Again, more assumptions to be made.

E) We know that if the company doesn't offer the discounts, they will lose customers to a competitor.
-Ah ha, the reason the company offers the discount despite a potential to hurt (lower) profitability. No further assumptions needed.

okay · Answer

This is tricky, but if you focus on the conclusion, you will arrive at the right answer.

So the argument says that promotions lead to more cars sold, but may hurt auto mfg profitability. The question asks for support for the incentive program. i.e. despite the fact that profitability may go down, why should they do it?

A-  Doesn't give support for the incentive program.. just says that prices are carefully set (which doesn't mean anything to us) 
B-  irrelevant 
C-  irrelevant 
D-  This is tricky because it says the RETAILERS accumulate the cars at a discounted price to sell for full price later. So this could be a positive for the retailers, but doesn't affect the auto mfgs other than confirming that their profitability is hurt (because they sold all of these cars at a discount vs. regular price). 
E-  This gives a reason for why the mfgs should do the promotions: if they don't they will lose customers

What is the source for the question?

Officialroy · Answer

The question stem asks to strengthen that the manufacturers' profitability may get hurt. D states that since retailers are piling up on stock, the manufacturer will sell less when the discount period is over. So how is it not correct?

MartyTargetTestPrep · Answer

Take another look at the question stem. You've missed a key aspect of it.

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot: 

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

 This post was generated automatically.

Automobile manufacturers often offer incentive programs

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

Automobile manufacturers often offer incentive programs

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