Manufacturers sometimes discount the price of a product to

[catennacio]

Source GMAT Prep

Manufacturers sometimes discount the price of a product to retailers for a promotion period when the product is advertised to consumers. Such promotions often result in a dramatic increase in amount of product sold by the manufacturers to retailers. Nevertheless, the manufacturers could often make more profit by not holding the promotions.

Which of the following, if true, most strongly supports the claim above about the manufacturers' profit?

(A) The amount of discount generally offered by manufacturers to retailers 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, not sufficiently long for consumers to become used to the sale price.
(C) For products that are not newly introduced, the purpose of such promotions is to keep the products in the minds of consumers and to attract consumers who are currently using competing products.
(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 falls to offer such promotions but its competitor offers them, that competitor will tend to attract consumers away from the manufacturer's product.

OA is D highlight to reveal

I agree with the OA and understand why OA is correct but I have some concern on how to interpret the question:

We must have the model of Manufacturer --> Retailer --> People in order to support this argument. We need this, otherwise the OA is not correct. If the manufacturers both sell the product DIRECTLY to the consumers (which some manufacturers do in real world, i.e. Coca Cola) and through retailers (i.e supermarket), then the promotion can actually increase their profits despite the fact that the retailers buy as many products as possible during the promotion period and then sell them at retail price as stated in D. In that case, since we don't know any information related to the price and number of units sold in comparison of with-promotion with without-promotion, we can't conclude anything about the profit.

Now, even though one knows the model M --> R --> People, meaning that the profit of the M comes only from the R, one can't still conclude that the M makes less money with-promotion compared to without-promotion for the very same reason: we don't know any information about the number of products sold with-promotion and without-promotion. What if when without-promotion the R buys significantly less product than they do with-promotion? So the MG can still make more money, hence profit, if the number of products sold in the 2 situations greatly differs.

Another question: I'm not a business guy, who do I supposed to know this model M --> R --> People?

Anyone can shed some light please? Thanks a lot.

[RonPurewal]

What if when without-promotion the R buys significantly less product than they do with-promotion? So the MG can still make more money, hence profit, if the number of products sold in the 2 situations greatly differs.

catennacio, i've got a secret for you: if your argument starts with "What if...", then it's not really an argument.

basically, when you're looking at the effect of changing one variable (here, the promotion vs. non-promotion), you shouldn't magically change around other variables to try to make contrarian points.
if you let yourself do that, you can reach all sorts of absurd conclusions.
e.g., you could conclude that raising the price of gas won't make driving more expensive ("What if people drive less?"). obviously, the only legitimate way to make that comparison, unless you are assured that people will actually drive less (i.e., it's not "What if" anymore), is to take as a baseline identical driving habits in both situations.

Another question: I'm not a business guy, who do I supposed to know this model M --> R --> People?

i mean, if you know what "retailer" means, then by definition you understand this relationship. i guess you're smarter than you think.

nb: interesting that you'd choose coca-cola as your example, by the way -- beverage companies are actually an excellent example of companies that don't sell directly to random consumers. (as a random consumer, you have to buy through local distributors / bottling companies.)

[akashnarang91]

Please clarify:
The questions relates to the profit of the manufacturer only.
Since his profits are determined by how much he sells to the retailer, how does the fact that the retailer hoard the goods affect the profits of the manufacturer?
To the contrary, this implies that the retailer is purchasing more goods than he can sell....hence this should further increase the profit of the manufacturer.

[jlucero]

Please clarify:
The questions relates to the profit of the manufacturer only.
Since his profits are determined by how much he sells to the retailer, how does the fact that the retailer hoard the goods affect the profits of the manufacturer?
To the contrary, this implies that the retailer is purchasing more goods than he can sell....hence this should further increase the profit of the manufacturer.

(D) "they then sell much of it later at their regular price."

The retailer buys when the manufacturer is selling its product cheaply and sells "much of it*" later on.

*Don't argue about the semantics of this language- you could absolutely find a scenario where the manufacturer makes more money now, but you're playing the "what if" game. (D) is the only option that gives us a reason to not sell to the retailer at discount.

[te_willy]

Hi,

I was hesitating btw answer (B) and (D).

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

From B I infer that consumers would buy even without the promotion.
Hence, manufacturers don't have to do the promotion to sell.
Thus, manufacturers would make more profit by not holding the promotions.

Can you tell me why B is incorrect?

Thanks

[tim]

how could you possibly infer from B that "consumers would buy even without the promotion"? there's nothing in B to suggest this..

[GraceZ853]

What if when without-promotion the R buys significantly less product than they do with-promotion? So the MG can still make more money, hence profit, if the number of products sold in the 2 situations greatly differs.

catennacio, i've got a secret for you: if your argument starts with "What if...", then it's not really an argument.

basically, when you're looking at the effect of changing one variable (here, the promotion vs. non-promotion), you shouldn't magically change around other variables to try to make contrarian points.
if you let yourself do that, you can reach all sorts of absurd conclusions.
e.g., you could conclude that raising the price of gas won't make driving more expensive ("What if people drive less?"). obviously, the only legitimate way to make that comparison, unless you are assured that people will actually drive less (i.e., it's not "What if" anymore), is to take as a baseline identical driving habits in both situations.

Another question: I'm not a business guy, who do I supposed to know this model M --> R --> People?

i mean, if you know what "retailer" means, then by definition you understand this relationship. i guess you're smarter than you think.

nb: interesting that you'd choose coca-cola as your example, by the way -- beverage companies are actually an excellent example of companies that don't sell directly to random consumers. (as a random consumer, you have to buy through local distributors / bottling companies.)

Ron, I am confused with choice B. If people are not used to the discounted price, they will buy the commidities at the regular price and thus there is no need to hold the promotion. Can you explain for me wherer I am wrong? Thanks in advance

[RonPurewal]

If people are not used to the discounted price, they will buy the commidities at the regular price

no. if this were true, it would explicitly contradict the passage.

the passage says:
Such promotions often result in a dramatic increase in amount of product sold
... in other words:
"FACT: When they put the stuff on sale, more people buy it."

you can't hypothesize things that contradict what you already know!

[RonPurewal]

also, you may not be seeing the point of choice B.

if the buyers "become used to the sale price", then that means the sale price has become, in the buyers' minds, the new "normal" price.
if that's the case, then, if the sale ends-- and the price returns to what was, in fact, the "normal" price-- then that price will now seem too high.
if that were to happen, then it would be a bad idea to put the items on sale, because the buyers' altered perception would have a negative impact on future sales.

on the other hand, choice B says that this WON'T happen, so choice B is exactly the opposite of what you want here.

[Neko_Yin]

Hello!
I think the main issue in the stem is that: Will the M make more profit when the promotions no longer exist? rather than: Will the M make more profit without the promotions.
Because I see the word "holding".
Am I right to think in that way?
On the other hand, if I think about M can make profit without (not after) the promotions, Answer D seems not good enough.
I'm confused. Please explain the Main issue you find in the Q stem.
Thanks a lot!

[RonPurewal]

"holding" a sales promotion is the same as just "having" a sales promotion, or "doing" a sales promotion.
that word doesn't mean anything specialized.
(it has nothing to do with making anything last longer... in case that's what you were thinking.)

...but, read choice D again. according to choice D, the buyers aren't actually buying any more stuff than they otherwise would; they're just buying it EARLY -- to take advantage of the discount -- and then storing the excess inventory that they don't need right away.
therefore, they're buying the same amount of stuff, but at lower prices.

[Neko_Yin]

"holding" a sales promotion is the same as just "having" a sales promotion, or "doing" a sales promotion.
that word doesn't mean anything specialized.
(it has nothing to do with making anything last longer... in case that's what you were thinking.)

...but, read choice D again. according to choice D, the buyers aren't actually buying any more stuff than they otherwise would; they're just buying it EARLY -- to take advantage of the discount -- and then storing the excess inventory that they don't need right away.
therefore, they're buying the same amount of stuff, but at lower prices.

Ron, thank you very much!

[RonPurewal]

you're welcome.