GMAT Reading Comprehension - Pricing is the Most Influential Medium of Communication that Companies

Reading Passage Question

Pricing is the most influential medium of communication that companies can use with their customers. Prices send unequivocal messages about what the firm believes in, what it thinks of its customers, and how it wants to interact with them.

The traditional approach for fixing the price by ‘running the numbers’ only aims at maximizing short term profits. Using this mechanical and antagonistic approach solely may not be a sustainable long-term strategy since present day consumers disseminate information about a firm’s prices, exploiting social media platforms to publicize policies that they believe are unfair. And they don’t hesitate to abandon companies that cross the line. For example, when Bank of America announced in September 2011 that it would start charging a $5 monthly debit card fee, the public outcry was so intense that the bank soon rescinded the plan. But the damage was done and account closings increased significantly.

Pricing instead should be strategically used to create shared value for both the company as well as the customers. The key step towards such pricing would be to humanize the process by focusing on consumer relations and not solely on the transactions. Attempts should be made to innovatively design pricing models to facilitate a better consumer experience. Recognizing that many of its customers disliked shipping costs and long waits for delivery, Amazon introduced a service, which, for an annual fee, provides two-day shipping on all orders, thereby eliminating the pain of paying associated with each order. This pricing scheme not only rewards high-volume customers but, more strategically, it also helped Amazon change buying behavior by encouraging customers to do more of their shopping with the company.

Promoting transparency and avoiding complicated pricing plans and obscure contractual terms is another vital practice. A firm that is transparent about the way it makes money fosters engagement and builds trust and goodwill among customers. Hidden costs and consumer traps may help for generating short term revenues but are disadvantageous on a long-term basis. Lastly, companies must closely understand and be able to influence the perceived standards of fairness of the price of their product or service.

Reading Passage Question:

‘Pricing is the most influential medium of communication that companies’ is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 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.

Questions and Solutions

1. The passage is primarily concerned with:

A) Analyzing the various advantages and disadvantages of various pricing strategies.
B) Describing the various aspects of the pricing process
C) Explaining the importance of humanizing the process of price fixing
D) Identifying steps to adapt pricing strategy to changing trends.
E) Discussing the changing trends in consumer behavior with regard to unfair pricing

2. By using the phrase ‘running the numbers’ the author is referring to what practice?

A) Running complex equations on a computer to generate a number to fix the price.
B) Making calculations for optimizing profits.
C) Making decisions solely based on calculations ignoring unquantifiable variables that may have a greater impact.
D) Using traditional methods for calculation and price fixing.
E) Running simulations on statistical data to fix price.

3. According to the passage, which of the following describes present-day consumers most accurately?

A) Consumers sometimes use modern tools to criticize products and service.
B) Consumers raise their voices against products or services which they feel are unjust.
C) They sometimes force companies to lower prices.
D) They use social media to strongly oppose price increases.
E) They sometimes threaten to stop using products.

4. The author of the passage is LEAST likely to make which of the following recommendations to Businessmen.

A) Instead of using pricing for profits, businessmen should use pricing to increase consumer satisfaction.
B) They should avoid hidden costs and simplify the terms of use of their service for better understanding.
C) Businessmen should look at value creation for the consumer too along with traditional strategies for price fixing.
D) They should use pricing as an effective means of communicating with customers.
E) They should try to position themselves so that they may be able to influence the perceived level of fairness of the price of their product.

Suggested GMAT Reading Comprehension Samples

• GMAT Reading Comprehension- New Observations about the Age of Some Globular Clusters in Our Milky Way Galaxy
• GMAT Reading Comprehension- Until recently most astronomers believed that the space between the galaxies in our universe was a near-perfect vacuum
• GMAT Reading Comprehension- JIT stands for Just-In-Time. More than a standardized methodology or systematic process, it is a philosophy
• GMAT Reading Comprehension- Seeking a competitive advantage, some professional service firms
• GMAT Reading Comprehension- The Pioneers of the Teaching of Science Imagined that its Introduction into Education
• GMAT Reading Comprehension- But Man is Not Destined to Vanish
• GMAT Reading Comprehension- Critics have Long been Puzzled by the Inner Contradictions of Major Characters in John Webster’s Tragedies.
• GMAT Reading Comprehension- A Fundamental Principle of Pharmacology is that all Drugs have Multiple Actions.
• GMAT Reading Comprehension- What is the Biggest Lesson from the Great Depression?
• GMAT Reading Comprehension- Social learning in animals is said to occur when direct or indirect social interaction facilitates the acquisition of a novel behavior.
• GMAT Reading Comprehension- Many Politicians, Business Leaders, and Scholars Discount the Role of Public Policy
• GMAT Reading Comprehension- Most Recent Work on the History of Leisure in Europe has been based on the Central Hypothesis
• GMAT Reading Comprehension- Although numbers of animals in a given region may fluctuate from year to year, the fluctuations are often temporary
• GMAT Reading Comprehension- On the surface, the Conquest of the Aztec Empire by Herman Cortes
• GMAT Reading Comprehension- Coral Reefs Are One of the Most Fragile, Biologically Complex
• GMAT Reading Comprehension- Justice is the first virtue of social institutions, as truth is of systems of thought.
• GMAT Reading Comprehension- The career of trumpeter Miles Davis was one of the most astonishingly productive that jazz music has ever seen.
• GMAT Reading Comprehension- A One-Child Policy was Implemented in China in 1979
• GMAT Reading Comprehension- The Extinction of the Dinosaurs thought to be Caused by an Asteroid Impact
• GMAT Reading Comprehension- Extensive research has shown that the effects of short-term price promotions on sales