A primary concern among manufacturers polled in a 1998 survey was the inefficiency of trade promotions- inducements offered by manufacturers...
GMAT Reading Comprehension : (RC) Questions
A primary concern among manufacturers polled in a 1998 survey was the inefficiency of trade promotions- inducements offered by manufacturers to retailers to encourage them to reduce retail prices temporarily so as to boost sales volume. Such inducements may include temporarily reduced costs of goods, free goods, or display allowances (fees manufacturers pay retailers to encourage them to allocate premium shelf space to a product). At the heart of manufacturers' dissatisfaction lies concern regarding widespread retailer opportunism. Although consumers know from experience the approximate frequency of promotional pricing, they do not typically have complete information about ongoing trade promotions in a given period, so retailers can profit by sometimes choosing not to pass along their own savings to their customers. Inefficient use of trade promotion dollars has prompted several large manufacturers to adopt an "everyday low price" policy for their goods, but at least one diaper manufacturer found it had to revert to its former pricing strategies in the face of increasing promotional competition from other brands. Adopting an alternative approach, some manufacturers have themselves advertised ongoing promotions. By informing at least some customers about promotions, manufacturers believe they can regulate retailer opportunism by increasing customers' propensity to search for discounted prices.
It can be inferred that the diaper manufacturer mentioned in the highlighted text of the passage discovered that consumers
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| A primary concern among manufacturers polled in a 1998 survey was the inefficiency of trade promotions- inducements offered by manufacturers to retailers to encourage them to reduce retail prices temporarily so as to boost sales volume. | What it says: Companies that make products are worried that their marketing deals with stores don't work well. These deals are meant to get stores to lower prices temporarily to sell more stuff. What it does: Introduces the main problem/topic - inefficient trade promotions Source/Type: Factual information from a survey Connection to Previous Sentences: This is the opening sentence - establishes the foundation topic Visualization: Manufacturer → gives deal to → Store → (supposed to) lower prices → more sales What We Know So Far: There's a problem with trade promotions What We Don't Know Yet: What specifically makes them inefficient, what these promotions look like, what solutions exist Reading Strategy Insight: Notice the author immediately defines "trade promotions" - this is helpful, not intimidating! |
| Such inducements may include temporarily reduced costs of goods, free goods, or display allowances (fees manufacturers pay retailers to encourage them to allocate premium shelf space to a product). | What it says: Here are concrete examples of what those deals look like: cheaper wholesale prices, free products, or payments for better shelf placement. What it does: Provides specific examples to clarify the previous abstract concept Source/Type: Explanatory examples Connection to Previous Sentences: This CLARIFIES sentence 1 by giving concrete examples. "Such inducements" directly refers back to "inducements" from sentence 1. This is simplification, not new complexity! Visualization: • Deal Type 1: Manufacturer sells diapers to store for $8 instead of $10 • Deal Type 2: Buy 100 boxes, get 10 free • Deal Type 3: Pay store $500 to put product at eye level instead of bottom shelf Reading Strategy Insight: Feel relieved here - the author is helping you understand by giving concrete examples of the abstract concept from sentence 1. |
| At the heart of manufacturers' dissatisfaction lies concern regarding widespread retailer opportunism. | What it says: The real reason manufacturers are unhappy is that stores are taking advantage of these deals in sneaky ways. What it does: Identifies the core cause of the problem mentioned in sentence 1 Source/Type: Author's analysis of the survey findings Connection to Previous Sentences: This explains WHY the trade promotions are inefficient (from sentence 1). "Manufacturers' dissatisfaction" directly connects to "primary concern among manufacturers" from the opening. Visualization: Sentence 1: "Trade promotions are inefficient" ← WHY? ← Sentence 3: "Retailers are being opportunistic" What We Know So Far: Trade promotions exist, manufacturers are unhappy with them, stores are the problem What We Don't Know Yet: How exactly stores are being opportunistic Reading Strategy Insight: This sentence answers the "why" question that sentence 1 raised - the passage is building logically! |
| Although consumers know from experience the approximate frequency of promotional pricing, they do not typically have complete information about ongoing trade promotions in a given period, so retailers can profit by sometimes choosing not to pass along their own savings to their customers. | What it says: Here's exactly how stores take advantage: customers know sales happen regularly but don't know when stores get deals, so stores can keep the manufacturer's discount instead of passing it to customers. What it does: Explains the specific mechanism of "retailer opportunism" from sentence 3 Source/Type: Explanatory detail Connection to Previous Sentences: This gives the concrete explanation of "retailer opportunism" from sentence 3. Again, the author is clarifying rather than complicating! Visualization: • Customer thinks: "Target usually has diaper sales every 6 weeks" • Reality: Manufacturer gave Target a $3/box discount this week • Target keeps the $3 and doesn't lower customer price • Customer doesn't know they should be getting a deal Reading Strategy Insight: This is another helpful explanation! The mystery of "opportunism" is solved with a clear, understandable example. |
| Inefficient use of trade promotion dollars has prompted several large manufacturers to adopt an "everyday low price" policy for their goods, but at least one diaper manufacturer found it had to revert to its former pricing strategies in the face of increasing promotional competition from other brands. | What it says: Because of this problem, some manufacturers tried a "no deals" approach with consistent low prices, but at least one had to go back to the old way because competitors were still offering promotions. What it does: Shows one attempted solution and its limitations Source/Type: Factual information about manufacturer responses Connection to Previous Sentences: "Inefficient use" directly refers back to the "inefficiency" from sentence 1. This shows what manufacturers tried to DO about the problem we've been discussing. Visualization: Problem (sentences 1-4) → Solution Attempt: "No more deals, just low prices always" But: Competitor brands still offer promotions → Customer goes to competitor → Must return to old system What We Know So Far: Trade promotions are inefficient because stores cheat, manufacturers tried eliminating deals, but it didn't work due to competition What We Don't Know Yet: What other solutions might exist Reading Strategy Insight: We're moving from problem to solutions - this is logical progression, not random new information! |
| Adopting an alternative approach, some manufacturers have themselves advertised ongoing promotions. | What it says: Some manufacturers tried a different solution: advertising their deals directly to customers. What it does: Introduces an alternative solution to the failed "everyday low price" approach Source/Type: Factual information about another manufacturer response Connection to Previous Sentences: "Alternative approach" explicitly contrasts with the everyday low price solution from the previous sentence. We're still in "solutions" mode. Visualization: Failed Solution: Stop doing promotions altogether New Solution: Keep doing promotions BUT advertise them directly Reading Strategy Insight: "Alternative approach" signals we're getting another solution to try - the passage structure is very clear! |
| By informing at least some customers about promotions, manufacturers believe they can regulate retailer opportunism by increasing customers' propensity to search for discounted prices. | What it says: Here's why this solution works: if customers know about deals, they'll look for lower prices, which stops stores from keeping the discounts for themselves. What it does: Explains the logic behind the alternative solution Source/Type: Manufacturers' reasoning/belief Connection to Previous Sentences: This explains HOW the solution from the previous sentence addresses the original problem. It directly connects back to "retailer opportunism" from sentence 3 and the information gap described in sentence 4. Visualization: Manufacturer advertises: "20% off diapers this week at all stores!" → Customer goes to store expecting discount → Store can't keep the discount because customer knows about it → Retailer opportunism is "regulated" What We Know So Far: Complete picture - problem identified, failed solution, alternative solution, and why it works Reading Strategy Insight: This final sentence ties everything together beautifully! It shows how the new solution fixes the specific problem described earlier. The passage has come full circle. |
2. Passage Summary:
Author's Purpose:
To explain a business problem and show how companies are trying different solutions to fix it
Summary of Passage Structure:
In this passage, the author walks us through a clear problem-solution analysis:
- First, the author introduces the main problem - manufacturers are unhappy because their promotional deals with retailers aren't working efficiently
- Next, the author explains exactly why this happens - stores take advantage of customers' limited knowledge about ongoing deals and keep discounts for themselves instead of passing them along
- Then, the author describes one solution that companies tried (consistent low prices with no promotions) and explains why it failed due to competitive pressure
- Finally, the author presents an alternative solution where manufacturers advertise deals directly to customers, explaining how this prevents stores from taking advantage
Main Point:
When manufacturers give promotional deals to retailers, stores often cheat by keeping the savings instead of passing them to customers, but manufacturers can solve this problem by advertising their promotions directly to consumers.
3. Question Analysis:
The question asks what can be inferred about the diaper manufacturer mentioned in the passage. Specifically, it focuses on what this manufacturer "discovered" about consumers when it tried the "everyday low price" policy but then had to revert back to its former pricing strategies.
Connecting to Our Passage Analysis:
From our passage analysis, we know that:
- The diaper manufacturer adopted an "everyday low price" policy (no promotions, just consistent low prices)
- This manufacturer had to abandon this approach and return to its former pricing strategies
- The reason given was "increasing promotional competition from other brands"
- The passage explains that retailers can profit by not passing along savings when customers don't have complete information about ongoing promotions
- The final solution involves manufacturers advertising promotions directly to increase customers' "propensity to search for discounted prices"
Prethinking:
The key insight is that the diaper manufacturer failed with "everyday low price" because of "increasing promotional competition from other brands." This suggests that even though the manufacturer offered consistently low prices, customers were still drawn away by competitors offering temporary promotional discounts. The manufacturer discovered that consumers would abandon a consistently lower-priced brand when faced with temporary sales on competing brands. This connects to the broader theme that customers have a "propensity to search for discounted prices" and are influenced by promotional pricing even when a consistently lower price is available.
Why It's Right:
• This directly explains why the diaper manufacturer had to revert from "everyday low price" due to "increasing promotional competition from other brands"
• Aligns with the passage's emphasis on customers' "propensity to search for discounted prices"
• Logically connects the manufacturer's failed strategy to consumer behavior patterns
• Explains the competitive pressure that forced the manufacturer to abandon consistent low pricing
Key Evidence: "at least one diaper manufacturer found it had to revert to its former pricing strategies in the face of increasing promotional competition from other brands"
Why It's Wrong:
• The passage provides no information about consumer perceptions of price-quality relationships
• Nothing in the text suggests that higher prices were associated with higher quality
• The manufacturer's problem was competitive pressure from promotions, not customers' willingness to pay full price
Common Student Mistakes:
- Thinking that "everyday low price" failed because customers preferred expensive brands?
→ Focus on the specific reason given: "promotional competition from other brands," not price preferences - Assuming quality perceptions caused the failure?
→ The passage emphasizes promotional competition, not quality considerations
Why It's Wrong:
• Contradicts the evidence that customers switched to competing brands during promotions
• If customers were truly loyal regardless of sales, the "everyday low price" strategy would have succeeded
• The manufacturer's need to revert strategies proves customers were not loyal enough to ignore competitors' promotions
Common Student Mistakes:
- Thinking brand loyalty would prevent customers from seeking deals elsewhere?
→ The manufacturer's failure shows customers did switch to competing promotional offers - Misinterpreting strong consumer response to promotions as loyalty?
→ The evidence shows customers left the consistent low-price brand for promotional competitors
Why It's Wrong:
• Focuses on quantity per shopping trip rather than brand choice behavior
• The manufacturer's problem was losing customers to competitors, not reduced purchase quantities
• No evidence in the passage about shopping trip behavior or purchase volume patterns
Common Student Mistakes:
- Confusing sales volume issues with competitive brand-switching problems?
→ The manufacturer lost market share to competitors, not sales volume per customer - Overthinking the "everyday low price" concept as affecting purchase patterns?
→ Focus on the stated reason: competitive promotional pressure
Why It's Wrong:
• Makes an unsupported comparison between diaper shopping and other product categories
• The passage doesn't compare consumer search behavior across different product types
• Doesn't explain why the "everyday low price" strategy failed due to promotional competition
Common Student Mistakes:
- Assuming the passage's mention of "propensity to search for discounted prices" applies uniquely to diapers?
→ This concept is presented as a general consumer behavior principle - Creating product-specific comparisons not supported by the text?
→ Stick to what the passage directly states about the diaper manufacturer's experience