Business Studies · May / June 2020 · Paper 12 · Question 3

0450

As printed in the paper

The question as text

Kala always wanted to be an entrepreneur. She used to work for a business which downsized its workforce 5 years ago. She then decided to start up CHL. She produced a business plan which 3 helped her obtain finance. Kala now designs customised sports clothes for women. Kala sells these products directly to customers using e-commerce. She has a loyal customer base of 25-40 year olds. However, Kala is worried about increased competition in this niche market. One idea she has is to target different market segments.

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

Show the answer and mark scheme

3(a)[2]
Define ‘business plan’. Award 2 marks for a full definition. Award 1 mark for a partial definition. A document containing the business aims/objectives and important details about the operations, finance and owners of a business [2]
States aim and/or objectives and shows how business aims to achieve them [2]
Partial definition e.g. a document showing what the business intends to do [1]
Other appropriate responses should also be credited. 2
3(b)[2]
Identify two reasons why a business might downsize its workforce. Award one mark per reason (max 2). Points might include:
Economic crisis
Factory/shop/office closure
Merger or takeover
Need to reduce costs
Changes in management/strategy
Automation or replaced by machinery
Excess workforce
Relocation Other appropriate responses should also be credited. 2
3(c)[4]
Outline two reasons why Kala’s business might need finance. Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business. (max 2). Points might include:
Increase working capital/examples such as buy inventory or materials/pay day to day costs [k] so prevent cash flow problems [app]
To expand/buy more non-current assets [k] so she can enter different market segments [app]
To pay for market research and advertising [k] of her sportswear [app] Other appropriate responses should also be credited.
3(d)[6]
Explain one advantage and one disadvantage to Kala of using e- commerce to sell her products.
Award 1 mark for identification of each relevant advantage and
disadvantage (max 2).
Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2).
Points might include:
Advantages:
Able to target customers [k] who are mainly women [app] so better able to attract attention of people most likely to buy her products [an]
Less rent/fewer employees needed [k] which can help reduce costs [an] for her sportswear [app]
Easy to update [k] so keep customers informed [an] about the ways the products can be customised [app]
Widen market/more potential customers [k] which can increase revenue [an]
Disadvantages:
Difficult to stand out from competition [k] at a time when she is worried about increased competition [app] leading to lower sales [an]
Not everyone has access to internet [k]
No passing trade [k] so could mean fewer sales [an]
Increased costs of postage/distribution [k] as need to arrange for delivery/vans [an]
Need to pay for pop-ups to advertise on popular sites [k]
Lack of personal service [k]
Customers may want to try before buy [k]
Other appropriate responses should also be credited.
3(e)[6]
Do you think selling to different market segments is the best way for a small business to respond to increased competition? Justify your answer.
Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points.
Award 2 marks for justified decision as to whether selling to different market segments is the best way for a small business to respond to increased competition.
Points might include:
Targeting a new segment:
Wider market base [k] could increase sales revenue [an]
Spreads risk [k] as not reliant on one market for sales [an]
Need to know reaction/current level of competition [k] as customers may be loyal to other businesses so not easy to obtain sales [an]
High cost and time involved developing new products [k]
Cost of promotion [k] as need to attract customer’s attention [an] Other issues or ways could be discussed such as:
Could change prices e.g. lower prices could lead to lower profit
margin/seen as lower quality [k] which could lower sales [an]
Size of market could be a factor as if niche market [k] this will limit number of possible sales [an]
Justification might include:
Yes, selling to other segments means spreading risk [k] as not reliant on one market for sales [an]. This is much better than charging lower prices [k] could reduce revenue [an] if they cannot generate enough extra sales to cover the price reduction which could be a major issue for especially for a small business who not have the sufficient funds to be keep lower prices [eval] so could struggle to remain competitive [eval] Other appropriate responses should also be credited.

Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.