Business Studies · Oct / Nov 2020 · Paper 12 · Question 2

0450

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DSY is a private limited company. It produces washing machines and cleaning equipment. The Managing Director wants DSY to expand into a different market. He plans to spend $2bn on 2 developing electric cars. There is a lot of competition in the electric car market. This market is growing rapidly. A leading pressure group has identified the environmental problems of non-electric cars. The Managing Director knows that important decisions about the method of production and the new car’s brand image still have to be made.

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2(a)[2]
Define ‘pressure group’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Group formed by people with a common interest who take action to change/ influence business decisions or government policies. [2]
Organisations of like-minded people who put pressure on businesses and the government to change their policies to reach a predetermined objective [2]
Partial definition e.g. group formed by people with a common interest [1]
Do something to change business decisions/government policies [1]
Other appropriate responses should also be credited. 2 For 2 marks must have the idea of a group with a common interest and influence on business or government Notes
2(b)[2]
Define ‘brand image’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Identity/logo/unique name of a product that distinguishes it from other brands [2]
The general impression/perception/reputation of a product held by consumers [2]
Partial definition e.g. identity given to a product (which gives it a personality of its own) [1]
Something that distinguishes a product from its competitors [1]
How the product is seen/perceived by others [1]
Other appropriate responses should also be credited. Notes
2(c)[4]
Outline two advantages to DSY of being a private limited company. Award 1 mark for each relevant advantage. Award 1 mark for each relevant reference to this business. Points might include: Advantage:
Access to more capital (than unlimited company)/can raise capital by selling shares [k] to start making cars [app]
Control over who buys shares/less risk of takeover (than public limited company) [k] which may be important as there is a lot of competition [app]
Continuity of existence [k]
Separate legal identity [k]
(Its shareholders benefit from) limited liability/incorporated [k] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
(electric) cars
Lot of competition
$2bn
Market is growing rapidly
Different market
Washing machines/ cleaning equipment Other appropriate examples in context can still be credited. Notes
2(d)[6]
Explain two factors DSY should consider when deciding on a suitable method of production for the new product. Award 1 mark for identification of each relevant factor (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:
Access to/amount of capital available/cost of machinery [k] as may not be able to afford to set up flow production [an] when already planning to spend $2bn [app]
Level of demand/size of market/volume needed [k] as there is a lot of competition [app] may not be able to sell/need to produce a large number [an]
Nature/type of product [k] as cars [app] are more likely to be mass produced to be more cost-efficient/if luxury then job production might be suitable [an]
Access to/amount of suitable space (inside the factory) [k]
Access to (suitable/skilled) employees [k]
Possible environmental damage/impact/pollution [k] which leads to protests by pressure groups [app] which could damage its reputation/ potential sales [an]
How efficient is the method of production/amount of waste [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
(electric) cars
Washing machines/ cleaning equipment
Lot of competition
$2bn
Market is growing rapidly
Pressure groups Other appropriate examples in context can still be credited. Notes
2(e)[6]
Do you think entering a growing market where there is a lot of competition is the best way for a business to expand? 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 entering a market where there is a lot of competition is the best way for a business to expand. Points might include:
Shows high potential demand/many potential customers [k] could lead to an increase in revenue [an]
Have to do something different to make your product ‘stand out’/ customers may be brand loyal to other businesses/ more choice [k] leading to higher/lower sales [an] leading to higher/lower revenue [an]
Allow the business to spread risk [k]
Difficult to charge high prices/may have to set lower prices (than competitors) [k] lowering the profit margin/so difficult to break-even [an]
(Additional) costs of promotion/market research [k] leading to higher expenses [an]
Makes the business be more efficient [k] to reduce average costs [an] Other options might include:
Develop new products [k]
Expand in existing market [k]
Find new market with low/no competition [k] provides chance for monopoly (as no competition) [an]
Take over a competitor [k] so gain their market share [an] Other appropriate responses should also be credited. 6 This is a general question so there are no marks for application. Some points can be awarded as either [k] or [an] but only allow once. For evaluation to be awarded justification will usually follow on from relevant analysis of points. Notes Justification might include: A growing market shows high potential demand [k] so possible to earn enough revenue to recover costs [an]. However, if there is a lot of competition then it might be difficult to charge high prices [k] and this might lower the profit margin [an] which could make it difficult to recover the cost of developing new products [an]. It will depend on how good its product is because if customers are interested in what the business is offering, they may be prepared to buy it despite the competition so in this situation it is worth the risk as they would be able to gain market share to justify the costs of expansion.[eval] [eval] Notes

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