The Fact that Reducing Price can Generate A Competitive Advantage GMAT Reading Comprehension

Reading Passage Question

The fact that reducing price can generate a competitive advantage for a company does not mean that every reduction in price will create such an advantage. Price reduction, like improvement in service, must be balanced against other types of efforts on the basis of direct, tangible benefits such as increased revenues. If a company is already effectively on a par with its competitors because it provides product at an acceptable price and keeps customers from leaving at an unacceptable rate, then reduction in price may not be effective, since price is not necessarily the deciding factor for any customer in any situation.

This truth was not apparent to managers of one operating system software vendor, which failed to improve its competitive position despite its attempt to reduce price. The software managers did not recognize the level of customer inertia that arises from the inconvenience of switching operating system. Nor did they analyze their reduction in price to determine whether it would attract new customers by producing a new standard of price that would excite customers or by proving difficult for competitors to copy.

‘The fact that reducing price can generate a competitive advantage’ is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 4 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. According to the passage, reductions in price are comparable to improvements in service in terms of the

(A) tangibility of the benefits that they tend to confer
(B) increased revenues that they ultimately produce
(C) basis on which they need to be weighed
(D) insufficient analysis that managers devote to them
(E) degree of competitive advantage that they are likely to provide

2. The passage suggests which of the following is the price charged by an operating system software vendor prior to its strategy in reducing its price?

(A) It was slightly lower than that of the vendor's competitors.
(B) It threatened to weaken the vendor's competitive position with respect to other operating system software vendor
(C) It had already been reduced after having caused damage to the vendor's reputation in the past.
(D) It enabled the vendor to retain customers at an acceptable rate
(E) It needed to be reduced to attain parity with the software provided by competing vendors.

3. The discussion of the operating system software vendor last paragraph serves which of the following functions within the passage as a whole?

(A) It describes an exceptional case in which reduction in price actually failed to produce a competitive advantage.
(B) It illustrates the pitfalls of choosing to reduce price at a time when business strategy is needed more urgently in another area.
(C) It demonstrates the kind of analysis that managers apply when they choose one kind of business strategy over another
(D) It supports the argument that strategies in certain aspects are more advantageous than strategies in other aspects.
(E) It provides an example of the point about reduction in price made in the first paragraph.

4. The passage suggests that operating system software managers failed to consider whether or not the price reduction mentioned last sentence

(A) was too complicated to be easily described to prospective customers
(B) made a measurable change in the experiences of customers purchasing
(C) could be sustained if the number of customers increased significantly
(D) was an innovation that competing vendors could have imitated
(E) was adequate to bring the vendor's general level of price to a level that was comparable with that of its competitors

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