Business Studies · May / June 2024 · Paper 11 · Question 4

0450

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CFG is a social enterprise. It buys cocoa beans from local farmers and then uses the beans to make chocolate. Being ethical is important to the business. CFG has developed a new chocolate 4 bar. The Marketing Manager plans to use skimming as its pricing method, and retailers as its distribution channel for the new product. He knows there are many legal controls over marketing that might affect a business.

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4(a)[2]
Define ‘social enterprise’. Award 2 marks for a full definition. Award 1 mark for a partial definition. An organisation that has social objectives as well as an aim to make a profit to reinvest back into the business [2]
OR A business with social objectives that reinvests most of its profits back into the business/into benefiting society at large [2]
OR A business that seeks to raise income, which it invests in a specific social or environmental issue [2]
OR A business set up to help society/a community rather than make a profit [2]
Partial definition e.g. a business that aims to help/benefit society [1]
2 Notes
4(b)[2]
Identify two ways legal controls over marketing might affect a business. Award 1 mark per way (max 2). Points might include:
No misleading promotion/advertising
No price fixing/charging very high prices where there is little or no competition
No selling faulty/dangerous goods/certain ingredients
Ensure products are fit for purpose
Price reductions must be genuine
Increased costs to meet the legal controls/pay fines
Spend longer time ensuring they meet the legal controls
May need to alter packaging
Restrictions on advertising certain products to some age groups/places. Other appropriate responses should also be credited. 2 Only award the first two responses given. Notes
4(c)[4]
Outline one advantage and one disadvantage to CFG of using skimming as its pricing method. Award 1 mark for each relevant advantage/disadvantage (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include: Advantages:
Helps establish a high-quality image/customers may think it is a good quality [k] which may also help as want to be ethical [app]
Can quickly recover research/development costs [k] which is important as developed a new product [app]
Higher revenue per item [k] for its chocolate [app]
May have a lower break-even output [k] Disadvantages:
High price might discourage (potential) customers [k] for this social enterprise [app]
High prices/profitability could encourage competitors to enter market [k] so may not be able to support local farmers [app] Other appropriate responses should be credited. 4 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:
Social enterprise
Cocoa beans
Local farmers
Chocolate (bar)
Retailers
Ethical
(Developed) a new product
Legal controls over marketing Other appropriate responses can be credited. Notes
4(d)[6]
Explain one advantage and one disadvantage to CFG of using retailers as its distribution channel for the new product. Award 1 mark for identification of each relevant advantage/disadvantage (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: Advantages:
Producers can sell in large quantities to retailers [k] increasing revenue [an] from its new product [app]
Reduced costs (compared to selling direct to consumers) [k] increasing profit margin [an] in this social enterprise [app]
Retailer shares the cost of holding inventory [k] lowering expenses [an]
Retailers will promote the product [k] reducing the cost of promotion/increasing sales [an]
Access wider range of customers [k] Disadvantages:
No direct contact with consumer [k] about its chocolate bar [app] so may not adapt to changing needs [an]
Final price (paid by consumer) is often high [k] so may be uncompetitive [an]
Retailer takes some of profit away from the producer [k]
Producer loses some control of marketing mix [k]
Retailers usually sell competitors’ products as well [k] 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:
Social enterprise
Cocoa beans
(Make) bars of chocolate
Ethical
(Local) farmers
Legal controls over marketing Other appropriate responses can be credited. Notes
4(e)[6]
Do you think being ethical will always lead to lower profit for a business? 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 justified decision as to whether being ethical will always lead to lower profit for a business. Points might include:
Limited/fewer sources of materials [k] leading to less output [an]
Higher cost of materials [k] leading to higher variable costs/cost of goods [an] which lowers gross profit margin [an]
Workers may have to be paid more/fair pay [k] increasing labour costs [an]
May take time to source ethical supplies [k] which could delay production [an]
Good image/reputation [k] so can charge high(er) prices/ lead to customer loyalty [an]
High(er) demand / increase sales / enter new market / more customers [k] which could increase revenue [an]
Help recruit/motivate/retain workers [k] leading to lower absenteeism/increased productivity [an]
Investors more likely to invest [k]
Can help create better supplier relations (by paying a fair price) [k]
Less opposition from pressure groups [k] 6 This is a general question so there are no marks for application. Increase cost can be awarded as [k] once where candidates do not refer to specific examples of costs. Do not credit answers which relate to the costs of being unethical as this is NAQ. Notes Justification might include: Being ethical could mean having to pay more to suppliers [k] increasing variable costs [an]. However, this could improve the business’s reputation [k] allowing them to increase prices [an]. Being ethical will not always mean lower profit because a better reputation is likely to attract more customers [eval], and the extra revenue gained could cover the costs increasing profit overall [eval].

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