Experia Inc , One of the Pioneers in the Online Retailing in the Cosmetics Business, Does not have a Physical Presence

Question: Experia Inc , one of the pioneers in the online retailing in the cosmetics business, does not have a physical presence and sells all its products through its website. While evaluating its various marketing channels to make the best use of its funds, the company has discovered that it attracts two times as many visitors for every dollar spent on Google than on Cosmetico, an online magazine. The company also found that the average purchase of a customer does not depend on the fact whether he/she came through Google or the magazine. The company has, therefore, decided to shift some of its marketing funds from the magazine to Google.

Which of the following most strongly undermines the ability of the company’s plan to increase its profits?

1. An average reader of a Cosmetico magazine has income that is several times greater than the income of an average Google user
2. The conversion ratio from visitors to customers is several times higher in case of Cosmetico than in case of Google
3. Last time, when the company shifted more of its resources from Cosmetico to Google, it resulted in an immediate increase in its sales
4. Given the large presence of Google across various geographies, the visitors that come from Google are much more spread geographically than those who come from Cosmetico.
5. By investing time and money on writing articles in Comimetico, Experia can reduce its customer acquisition costs to half to what they are now.

Experia Inc , one of the pioneers in the online retailing in the cosmetics business, does not have a physical presence - is a GMAT Critical question. This particular GMAT Critical Reasoning topic has been taken from ‘501 GMAT Questions’. GMAT critical reasoning questions is examining how well a candidate can analyze the argument, find its flaws, and develop a plan of action. In this GMAT critical reasoning the type of question is weakening the argument. So we are looking for something that can be proven or it can weaken the argument. In case it is wrong or maybe disable the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions. 

Answer: B
Explanation:

Let us check the Premise from the passage:

1. Experia Inc attracts two times as many visitors for every dollar spent on Google than on Cosmetico.
2. The average purchase of a customer coming through Google and coming through the magazine is the same.

Now let us check the conclusion : Shift some of its marketing funds from the magazine to Google.
We are given the Question : Which of the following most strongly undermines the ability of the company’s plan to increase its profits?

The Pre-thinking is that for every dollar spent, visitors from Google(Vg) = 2 X visitors from Cosmetico(Vc)

Concluding the author that Google is a more profitable platform to generate more customers.
However, the relation between number of visitors and number of customers actually buying the product coming from these platforms is not given.

Hence, we can understand that the author is assuming that more number of visitors mean more number of buyers for Experia.

We need to look for the option which weakens this assumption or refutes this assumption.

Lets check the options one at a time now :

1. An average reader of a Cosmetico magazine has income that is several times greater than the income of an average Google user - This is Incorrect since the author already states that the average spend of a person from Google or Cosmetico is the same. So even if the income of these people are different, they are still spending similar amounts per person on Expedia.
2. The conversion ratio from visitors to customers is several times higher in case of Cosmetico than in case of Google - This option is very much inline with what we thought. 
   Let's take conversion ratio for leads coming through Google is Rg and that through Cosmetico is 3 X Rg,
   then the effective customers coming through Google (=Cg) will be => Cg = Vg X Rg
   and the effective customers coming through Cosmetico (=Cc) will be => Cc = Vc X Rc = 0.5 X Vg X 3 X Rg = 1.5 Vg X Rg.
   Thus, Cc > Cg and thus cosmetico is generating more customers and as avg spend is same for both type customers. Cosmetico is generating more profitable visitors to Expedia.
   Hence, this is the option that weakens the argument.
3. Last time, when the company shifted more of its resources from Cosmetico to Google, it resulted in an immediate increase in its sales- This option seems incorrect since we can predict the upcoming result based on one data point in the past. If that is not the case and we assume that the results will remain the same, it still strengthens the conclusion. Hence, this is incorrect.
4. Given the large presence of Google across various geographies, the visitors that come from Google are much more spread geographically than those who come from Cosmetico. - The fact that more visitors come from Google has already been established. However, this option does not tell us or shows it is weakening the argument and hence, considered Irrelevant.
5. By investing time and money on writing articles in Comimetico, Experia can reduce its customer acquisition costs to half to what they are now. - This option does not give us information on the conclusion that it can be weakened. Hence, it is out of scope and incorrect.

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