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Business Studies · May / June 2021 · Paper 12 · Question 1

0450

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Pamela is a sole trader. She started her successful photography business 30 years ago. She specialises in taking pictures of people and places for use in posters, calendars and fashion 1 magazines. It is a niche market. Pamela uses cost-plus pricing as part of her marketing mix. Offering a high quality service is important to Pamela and her 2 employees.

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  • 1(a)[2]

    Define ‘cost-plus pricing’. Award 2 marks for a full definition. Award 1 mark for a partial definition. The price is based on the cost of making a product and the addition of a fixed percentage for profit [2]

    OR The cost of manufacturing the product plus a (profit) mark-up [2]

    OR Formula e.g. [total cost / total number of units] + % mark up [2]

    Partial definition e.g. profit added to the cost [1]

    2 First mark is for explaining what the ‘plus’ is e.g. profit. Second for reference to / description of mark-up. Price is based on / related to cost of product [0]

    (reordering only).

  • 1(b)[2]

    Define ‘marketing mix’. Award 2 marks for a full definition. Award 1 mark for a partial definition. All activities that go into the marketing of a product or service. These activities are often summarised as the four P’s – product, promotion, place and price [2]

    OR Four marketing decisions needed for the effective marketing of a product [2]

    OR The combination of product, price, promotion and place (distribution) that determines how a firm markets itself to its customers and potential customers [2]

    Partial definition e.g. (combine) price, product, promotion and place [1]

    OR Different strategies a business can use to help market / sell its products [1]

    2 For 2 marks candidates must understand that it involves four elements AND what it is used for (e.g. help sell products / attract customers / make marketing decisions / market a product). Do not award answers such as 4P’s or 7P’s these do not define the term.

  • 1(c)[4]

    Outline two reasons why offering a high quality service might be important for Pamela’s business. Award 1 mark for each relevant reason. Award 1 mark for each relevant reference to this business. Points might include:

    Increase sales / maintain sales / attract customers [k] of calendars / poster [app]
    Helps maintain / increase customer loyalty [k] for this sole trader business [app]
    Maintain reputation / improve brand image [k] built up over 30 years [app]
    Set/maintain high prices [k] which helps as use cost- plus pricing [app]
    Way to add value [k] as operates in a niche market [app]
    To reduce complaints [k] for the 2 employees [app]
    No need to replace faulty work [k]
    Gain competitive advantage [k] which can help her business remain successful [app] 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:
    Sole trader
    30 years
    Photography / posters / calendars / (fashion) magazines / pictures / camera
    Niche market
    Cost-plus pricing
    2 employees
    Successful business Other appropriate examples in context can still be credited. Do not award 2 employees as application where answer refers to sharing profit or using profit to pay wages.

  • 1(d)[6]

    Explain two advantages to Pamela of operating as a sole trader. Award 1 mark for identification of each relevant advantage (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:

    Keeps all the profit [k] from photography business [app] so has an incentive to (continue to) work hard [an]
    Has complete control / makes all the decisions / does not need to consult with anyone [k] such as the 2 employees [app] so able to take decisions more quickly [an]
    Own boss [k]
    Freedom to choose her own holidays / schedule / work time [k] so can choose time off when the business is less busy so does not miss out on sales [an]
    Able to keep (financial) information private / do not need to produce annual accounts [k] so competitors cannot use information to take away her customers / market share [an] which can help her stay successful [app]
    Has close contact with customers / able to offer a more personal service [k] as it’s a niche market [app] which can help encourage customer loyalty [an] 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:
    30 years
    Photography / posters / calendars / (fashion) magazines / pictures / camera
    Niche market
    Cost-plus pricing
    2 employees
    High-quality (service)
    Successful business Other appropriate examples in context can still be credited. Do not award points about start-up as business has been operating for 30 years e.g. quick/easy to set up [0], requires little capital [0], few legal requirements [tv]

  • 1(e)[6]

    Do you think operating in a niche market will help a small business have a better chance of success than operating in a mass market? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether operating in a niche market will help a small business have a better chance of success than operating in a mass market. Points might include: Niche market:

    Able to focus more closely on customer’s needs [k] leading to customer loyalty / good customer relations [an]
    Less competition [k] less pressure to lower prices / easier to attract customers [an]
    May be able to set higher prices (for a high status, exclusive product) [k] so able to have high / increase profit margin [an]
    Can become expert in the segment [k]
    Small size of market means will not benefit from economies of scale [k] leading to higher average costs [an]
    Less potential for growth / low potential demand [k]
    Over dependence on single product / less able to spread risk / vulnerable to changes in consumer spending patterns [k]
    Likely to attract competition if successful [k] 6 This is a general question so there are no marks for application. To access evaluation marks, candidates must identify points for both types of markets. To gain both evaluation marks, answer must clearly relate to a small business. Do not award definitions of terms as this is NAQ. Advantages of operating in one type of market can be presented as disadvantages of the other option but do not award the same point twice as mirror answers are not accepted. Guidance Mass market
    More (potential) customers/sales [k] leading to higher (potential) revenue [an]
    Increased / high level of competition [k] so might have high level of customer loyalty [an] Other appropriate responses should also be credited. Justification might include: In a niche market a business can focus more closely on customer’s needs [k] leading to higher levels of customer loyalty [an]. In a mass market, there are more potential customers [k] which could mean higher revenue [an]. However, I do think a small business has a better chance of success in a niche market because it can continue to charge high prices [eval] as large companies will not see the market as worthwhile because of potentially low sales. [eval]
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