Morning Glory, the coffee shop on the corner,

Question

Morning Glory, the coffee shop on the corner, has lost nearly 50% of its business because a national
retail coffee chain opened up a store down the street. Instead of closing up shop, the owner of Morning
Glory plans to draw in customers by offering coffee, tea, and pastries at much lower prices than the
national coffee chain.

The owner’s plan of action is based on all of the following assumptions EXCEPT

a. some customers will choose the coffee shop that offers the lowest price.

b. the quality of Morning Glory’s coffee is comparable to that of the national coffee chain.

c. Morning Glory can afford to cut its profit margin in order to lower prices.

d. Morning Glory’s customers are very loyal.

e. the national coffee chain will not lower its prices in order to compete with Morning Glory.

Shalabh09 · Answer

Hi,

Could someone please tell how is option D the right answer? If the customers were loyal, the coffee shop owner wouldn't have lost anything and any price reduction will also be out of the question.

I believe the answer should be Option 'E' as the owner seems ignorant of the fact that the coffee chain will not respond by decreasing its prices in order to retain the customer base.

Please correct me if I'm wrong.

Thank you.

Best Regards,
Shalabh.

IanStewart · Answer

The stem tells us the customers are not loyal (50% of them left), so not only is that not an assumption here, it contradicts a premise the owner is working from. So D is a good answer here.

But the owner is not necessarily making any assumptions about the quality of coffee either. The owner's plan is to slash prices and offer new products. The owner doesn't need to assume the coffee is as good as the competition's to think that plan will work, just as the owner of a fast food restaurant isn't assuming his chicken is as good as what you'd get at the gourmet restaurant next door. Many businesses succeed by offering inferior products at low prices. So B is not a necessary assumption either, and is also a correct answer.

Since GMAT questions cannot have two different correct answers, this is not a good question. Where is it from?

dominicraj · Answer

The source is LEARNING EXPRESS'S GMAT EXAM SUCCESS. Its not a very renowned brand perhaps.

aj13783 · Answer

I chose Option E. But i think Option D is the right answer. The question looms around the assumption which the morning glory owner does not consider. Option D is the only option which is there. Since 50% of customers left, he does not think his customers are loyal. Thus Option D.

reto · Answer

If you read this then first try to bring up your own assumptions, which must be true. My first thought was that Morning Clory's clients must be very sensitive to prices. So every answer which is discussing the price could be assumptions on which the owner's plan is based on.

Let's have a look at it:

a. some customers will choose the coffee shop that offers the lowest price. > Yes of course! Without this assumptions, there is no sense in lowering prices.

b. the quality of Morning Glory’s coffee is comparable to that of the national coffee chain. > It does not discuss the price, but it makes 100% sense. If it was NOT the same quality, customers would maybe still pay the higher price at national coffee. Right?

c. Morning Glory can afford to cut its profit margin in order to lower prices. > Well yes, this MUST be an assumption. Otherwise he can just close the shop.

d. Morning Glory’s customers are very loyal. > What loyal? It's about the price baby! We're talking about money, not loyality! That's the one!

brs1cob · Answer

d. Morning Glory’s customers are very loyal.

if customers were loyal, then they would not have gone to a national chain for sipping coffee. n there would not have been a drastic drop in its business. this option weakens the conclusion.

Arro44 · Answer

AC D does not support the general rational.

Moreover, if D would be true the coffee chain might not have the respective problem in the first place.

VerbalBot · Answer

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Morning Glory, the coffee shop on the corner,

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