Price promotions, such as temporary price reductions or coupon offers, have a large, measurable, immediate effect on a brand's sales....

GMAT Critical Reasoning : (CR) Questions

Source: Mock

Critical Reasoning

Logically Completes

HARD

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Notes

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Price promotions, such as temporary price reductions or coupon offers, have a large, measurable, immediate effect on a brand's sales. However, such promotions increase price sensitivity, which constrains profitability because it becomes more difficult to raise prices. Furthermore, price promotions become increasingly less effective, making it necessary to offer more costly promotions in the future. Finally, price promotions encourage consumer stockpiling (buying more, less often), which leads to greater volatility in sales, exacerbating the task of managing inventories, thereby increasing costs and further reducing profitability. Therefore, retail managers should ___________

Which of the following most logically completes the argument above?

negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix

use price promotions relatively rarely

offer price promotions only for overstocked items

offer shallow price discounts during promotions

raise prices after promotions to levels above those prior to promotions

Solution

Passage Analysis:

Text from Passage	Analysis
Price promotions, such as temporary price reductions or coupon offers, have a large, measurable, immediate effect on a brand's sales.	What it says: Price promotions quickly boost sales in a big way What it does: Sets up the positive side of promotions as the starting point What it is: Author's opening claim Visualization: Brand X normally sells 100 units/month → With 20% off promotion → Sells 180 units that month
However, such promotions increase price sensitivity, which constrains profitability because it becomes more difficult to raise prices.	What it says: Promotions make customers more focused on price, hurting long-term profits What it does: Introduces the first major downside, contrasting with the initial benefit What it is: Author's counterargument Visualization: Customers used to paying $10 → After seeing $8 promotion → Resist when price goes back to $10 or higher
Furthermore, price promotions become increasingly less effective, making it necessary to offer more costly promotions in the future.	What it says: Each promotion works less well, forcing bigger and more expensive promotions later What it does: Adds a second problem that builds on the price sensitivity issue What it is: Author's supporting evidence Visualization: Month 1: 10% off gets 80% more sales → Month 6: 10% off gets only 20% more sales → Need 25% off to get same boost
Finally, price promotions encourage consumer stockpiling (buying more, less often), which leads to greater volatility in sales, exacerbating the task of managing inventories, thereby increasing costs and further reducing profitability.	What it says: Promotions cause customers to stock up, creating unpredictable sales patterns and inventory headaches What it does: Presents the third and final problem, completing the case against promotions What it is: Author's concluding evidence Visualization: Normal: 50 customers buy 1 item each week → Promotion week: 200 customers buy 4 items each → Next 3 weeks: 5 customers buy 1 item each
Therefore, retail managers should ___________	What it says: Based on all these problems, managers should take some action What it does: Signals the conclusion that follows from the three major downsides presented What it is: Author's conclusion setup

Argument Flow:

The argument follows a classic problem-solution structure. It starts by acknowledging the obvious benefit of price promotions (immediate sales boost), then systematically presents three major problems: increased price sensitivity hurting long-term pricing power, diminishing returns requiring costlier future promotions, and stockpiling creating inventory management nightmares. Each problem builds on the previous one to show how short-term gains lead to long-term pain.

Main Conclusion:

Retail managers should avoid or minimize price promotions (the blank will likely be filled with advice to avoid price promotions or use alternative strategies).

Logical Structure:

This is a 'weighing costs vs benefits' argument where the author shows that while promotions have immediate benefits, the three long-term costs (price sensitivity, diminishing effectiveness, and inventory volatility) outweigh those benefits. The logic flows: Benefit acknowledged → Cost 1 → Cost 2 → Cost 3 → Therefore, avoid the practice that causes these costs.

Prethinking:

Question type:

Logically Completes - We need to find a conclusion that follows naturally from the evidence presented about the problems with price promotions

Precision of Claims

The argument presents specific negative effects: increased price sensitivity constraining profitability, diminishing effectiveness requiring costlier promotions, and stockpiling creating inventory management costs

Strategy

Since the argument systematically builds a case against price promotions by listing three major downsides (price sensitivity, diminishing returns, inventory problems), we need a conclusion that logically follows from these problems. The completion should recommend action that addresses or responds to these identified issues with promotions.

Answer Choices Explained

negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix

'negate the effects of price promotions on individual brands by promoting more brands in a constant but ever-changing mix' - This choice misses the point entirely. The argument shows that price promotions themselves cause systemic problems (price sensitivity, diminishing returns, inventory volatility). Simply spreading these problematic promotions across more brands doesn't solve any of the three core issues identified - it would actually multiply them across the entire product portfolio.

use price promotions relatively rarely

'use price promotions relatively rarely' - This directly addresses the argument's logic. Since the passage demonstrates that promotions cause three significant long-term problems (increased price sensitivity, diminishing effectiveness, and inventory management issues) that outweigh the short-term sales benefits, using them sparingly is the logical response. This approach minimizes exposure to the identified downsides while still allowing for strategic use when truly necessary.

offer price promotions only for overstocked items

'offer price promotions only for overstocked items' - While this might seem practical, it doesn't address the fundamental problems outlined in the argument. Even promotions on overstocked items would still increase price sensitivity, become less effective over time, and encourage stockpiling behavior. The argument's concerns apply regardless of inventory levels.

offer shallow price discounts during promotions

'offer shallow price discounts during promotions' - This choice attempts to minimize one aspect of the problem but doesn't solve the core issues. Even small discounts would still contribute to price sensitivity, lose effectiveness over time, and encourage stockpiling. The argument suggests the problems are inherent to the practice of price promotion itself, not just the depth of discounts.

raise prices after promotions to levels above those prior to promotions

'raise prices after promotions to levels above those prior to promotions' - This directly contradicts the argument's point about increased price sensitivity. The passage specifically states that promotions make it 'more difficult to raise prices' because customers become more price-sensitive. Attempting to raise prices above previous levels would likely backfire and reduce profitability even further.

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