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Business Studies · Oct / Nov 2020 · Paper 22 · Question 3

0450

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  • 3(a)[8]

    Explain two reasons why a new business is at a greater risk of failing than an established business. Award 1 mark for each relevant reason (maximum of two reasons). Relevant answers might include:

    Lacks finance – liquidity/cash flow problems
    Poor planning - lack of experience - may not have a business plan - may lack management skills – lacks efficiency
    Inadequate research – no effective market research – not identified customer needs - lack of demand
    Difficulties of breaking into a new market - does not have brand loyalty/there is high competition in the market
    Difficulty competing with larger established firms in the market – as cannot benefit from economies of scale
    Overexpansion – tries to grow too quickly at the start – objectives too ambitious when lack of experience in running the business
    Unable to respond quickly enough to changes in the external influences – lack of financial reserves – e.g. not responding to shift to online sales Award a maximum of 3 additional marks for each explanation of the reason. For example: Inadequate research (1)

    as a business might not have carried out accurate market research and felt that their products will be in demand (1)

    but if the products are not popular it will lead to fewer products being sold (1)

    resulting in lower revenue and possible business failure if costs cannot be covered (1).

  • 3(b)[12]

    Consider the following three elements of a suitable marketing mix for CC’s new range of personalised mobile phone covers. Justify which element is the most important.

    Pricing method
    Method of promotion
    Place – distribution channel Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more elements. Well-justified conclusion of the most important element of the marketing mix. Candidates discussing three elements of the marketing mix in detail, in context and with well-justified conclusion, including why the alternative elements were rejected, should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one element of the marketing mix. Judgement with some justification/some evaluation of choices made. Candidates discussing two or more elements of the marketing mix in detail and applying them to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the elements of the marketing mix with little/no explanation. Simple judgement with limited justification/limited evaluation of choices made. Candidates outlining three elements of the marketing mix in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Price Identifies and justifies a suitable pricing method for new phone covers aimed at high income 18–25 year olds
    Price skimming as it’s a new product with few competitors at the introductory stage of the product life cycle – so can charge a high price as high income customers willing to pay to own one first
    Cost-plus pricing to make sure a profit is made on the new cover
    Competitive pricing could be used as there are few competitors in this market at present
    Penetration pricing to enter a new target market of 18–25 year olds Promotion Identifies and justifies a suitable promotional method for new phone covers aimed at high income 18–25 year olds
    Advertise in specific magazines read by young people - niche market aimed at young people
    Targets young people aged 18–25 – advertising on social media may go viral and low marketing costs – CC is a small business so needs to keep down the marketing costs
    Suitable examples of promotional methods used for targeting high income 18–25 year olds – e.g. discounting Place Identifies and justifies a suitable distribution channel for new phone covers aimed at high income 18–25 year olds
    Sold online – easily accessible by young people aged 18–25 – used to ordering online – download an app to order directly from CC – as young people may not use main retail outlets
    Shopping malls are used by target market of higher income young people
    Direct distribution increases delivery costs – but CC keeps profit margin of retail outlets Conclusion Justification of the most important element may include:
    If the pricing method is wrong, then the target market will not be interested in the new product even if it is promoted effectively and sold using the most suitable distribution channel for young people aged 18–25 so price is most important.
    Promotion is most important as if people are not aware of the covers then even if the price and place are suitable high income consumers will not buy the new covers.
    Place has to be suitable because even if consumers are attracted to buying the mobile phone covers with the right price and promotions to attract them, if these high income consumers cannot easily find where to buy the covers they will not sell well.
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