Business Studies · May / June 2023 · Paper 12 · Question 3

0450

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VVA is a business based in country X. It manufactures school backpacks (bags). VVA uses retailers as its channel of distribution. The Managing Director knows there are many factors that can affect 3 demand including the stage of the business cycle and how competitive the market is. VVA imports 45% of its raw materials. The Managing Director is worried that the introduction of import tariffs and import quotas, as well as an appreciation in country X’s exchange rate, will affect VVA.

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3(a)[2]
Define ‘import tariff’. Award 2 marks for a full definition. Award 1 mark for a partial definition. A tax placed on imported goods when they arrive into a country [2]
OR A specific form of tax imposed on imported goods [2]
Partial definition e.g. type of tax [1]
OR tax on imported goods [1]
Other appropriate responses should also be credited. 2 First mark for understanding it is a tax. Idea of from another/into the country is +1 only.
3(b)[2]
Identify two reasons why some markets can become more competitive. Award 1 mark per reason (max 2). Points might include:
Globalisation/free trade
Internet/ecommerce/social media/developments in technology
Improvements in transport/infrastructure
New legal controls/provide grants/removal of tariffs/quotas
Increase in competitors Other appropriate responses should also be credited. 2 Only award the first two answers given. Do not award: Factors affecting demand/spending patterns e.g. changes in population, spending on advertising, lower prices/actions of competitors
3(c)[4]
State the four stages of the business cycle. Award 1 mark per stage (max 4).
Recession
(Economic) growth
Boom
Slump/depression 2 Award the first four responses only. The order does not matter. Notes
3(d)[6]
Explain one possible effect of the following changes on VVA when importing raw materials: Award 1 mark for identification of each relevant effect [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: Introduction of import quotas in country X:
Limit/reduce the amount of imports [k] as import 45% of these [app] which could reduce output/may have to find more (local) suppliers [an]
May mean have to find local/alternative suppliers/may not be able to find suitable suppliers [k] leading to increase time/cost [an]
Fewer imports possible [k] leading to fewer (potential) sales [an]
Lower production [k] Appreciation of country X's exchange rate:
Imports become cheaper [k] reducing VVA’s costs [an] of its school bags [app]
Imports become cheaper [k] so may be able to lower prices [an]
Lower import price [k] so could increase its profit margin [an]
Imports become cheaper [k] so can import more [an]
Can import more (materials) [k] so can increase output [an] Other appropriate responses should also be credited. 6 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:
School backpacks/bags
45% (raw materials) / 55% locally
Retailers
Increased level of competition Other appropriate examples can be credited. Do not award: Tariff as [app]. Notes
3(e)[6]
Do you think retailers are the best channel of distribution for a manufacturing business to use? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to whether using retailers is the best channel of distribution for a manufacturing business to use. Points might include: Retailers:
Wide distribution/access to customers/sell in different places [k] increase sales/revenue [an]
Retailers will carry out/pay for advertising/promotional activities [k] raise awareness/increase sales [an]
Can sell in large quantities/higher sales [k]
Manufacturer can hold less inventory [k] lower storage costs [an]
Price may be higher [k] leading to fewer sales [an]
No direct contact with customers [k] so difficult to build/maintain customer relationship [an]
Loss of (some) control of marketing mix/promotion/price/product [k]
Retailer takes some of the profit [k] which reduces profit margin [an]
Manufacturer must pay delivery costs to the retailers [k] Other options could include: Sell direct to customers/direct selling/online/internet/ecommerce open own shops [k]
All/more profit goes to manufacturer [an]
Can sell at a lower price [an] leading to more sales [an]
Can control all/more of the marketing [an]
Allows for direct customer contact/feedback/market research [an]
Increased delivery costs/customers over a wide area/[an]
May need to employ extra workers (to manage paperwork/pack) [an] 6 This is a general question so there are no marks for application. Points must focus on viewpoint of manufacturing business. Some points can be presented as advantages/disadvantages of different channels but only award point once. Some points can be written as [k] or [an] but only award once. Notes Use wholesalers [k]
Wholesalers will buy in bulk/large amounts [an]
Saves storage space for manufacturer [an]
Loss of control over marketing mix [an]
Takes part of the profit [an]
Agents (when selling in other countries) [k]
Have local market knowledge [an] Other appropriate responses should also be credited. Justification might include: Retailers offer a wide distribution [k] which can help increase potential sales [an]. Selling direct to customers [k] would mean the business could keep all the profit [an]. I think selling to retailers is better as the high sales will increase the total revenue [eval] which will offset the lower profit margin. [eval] Notes

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