Business (AS & A Level) · May / June 2024 · Paper 21 · Question 2

Fizzy Drinks (FD) FD is a private sector business that manufactures an international brand of carbonated drinks. Its slogan was ‘A premium drink for premium customers’. The market for FD’s drinks is very competitive, with 7 national and 12 international brands all competing in the same market. Recently FD lost the title of market leader to TR, one of its largest competitors. TR is a multinational public limited company. Two years ago, FD produced primary market research on customer preferences in the carbonated drink market. The report identified that FD still had a great brand name, high brand awareness and customer loyalty. The cost of raw materials has increased in recent years. To keep profit margins stable, FD reduced the quality of ingredients instead of raising the selling price, and reduced its marketing budget. Ted, Finance Director, used the evidence of high customer loyalty to justify the decision. The change in ingredients led to FD’s products tasting similar to their competitors. Customers left feedback highlighting a ‘flavourless drink’, and demand fell rapidly. FD’s good brand name and customer loyalty was lost. Currently FD is operating at 60% of maximum capacity. Table 2.1 FD financial data 2023 Total fixed costs ($m) 15 Average variable cost per unit ($) 1 Average selling price per unit ($) 4 Maximum capacity (m) 100 Employee morale has dropped as a result of the negative feedback. Key employees have left to work for FD’s competitors. The lack of experienced employees has led to a drop in the productivity of the production process. 5 10 15 20

Read automatically from the paper; the printed page above is exact.