Marketing, competition and the customer · IGCSE Business

Outline two ways SDY could increase the number of sales. Award 1 mark for each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:

• Advertising (or examples such as television)/product placement [k] the hats/scarves [app]
• Lower prices/ promotional pricing/offer discounts [k] in 240 locations [app]
• Introduce new products [k] in the shops [app]
• Improve customer service [k] which may be included in the induction training [app]
• Point of sale display [k]
• Free samples [k]
• Competitions [k]
• Offer free gifts [k]
• Loyalty cards [k]
• Buy One Get One Free / BOGOF [k]
• New/change packaging [k]
• Enter a new market [k]
• Sell through new outlets / introduce ecommerce [k] Other appropriate responses should be credited.

Identify four ways a business could respond to an increase in competition. Award 1 mark per way (max 4). Points might include:

• Decrease prices / competitive pricing
• Increase advertising / (or examples such as) social media / television
• Increase sales promotion / (or examples such as) BOGOF/competitions / free gifts / promotional pricing/ discounts
• Add/develop new products/services/new features
• Improve/maintain quality (of existing products)
• Improve/maintain branding/brand image
• Improve/maintain packaging
• Enter/sell in new markets
• Sell in new locations/sell via ecommerce
• Improve/maintain customer relationships/loyalty/ offer better customer service
• Takeover/merge/buy out a competitor
• Increase added value Other appropriate responses should be credited.

Identify two reasons why some markets have become more competitive. Award 1 mark for each relevant reason (max 2). Points might include:

• Globalisation/growth of free trade agreements
• Changes in technology or examples e.g. ecommerce/internet/social media
• Changes in legal controls / more or fewer regulations / government intervention in the market
• Transport improvements/infrastructure improvements Other appropriate responses should be credited.

Explain two ways a business could use to build customer loyalty. Which is likely to be the best way for a new 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 about which is the best way for a new business to build customer loyalty. Points might include:

• Offer good customer service / train employees [k] which can make customers feel valued / builds trust [an]
• Loyalty (reward) scheme / special offers/discounts to regular customers / membership discounts [k] so they have an incentive to return [an] but it takes time/cost to set up/operate [an]
• Build customer relationships / communicate with customer or examples e.g. use newsletters to communicate [k] so customers remember your business [an]
• Ask for feedback / carry out market research [k] so the items being sold match customer needs [an]
• Respond to complaints quickly [k] so that customers are less likely to go to other businesses [an]
• Offer extra services or examples such as after sales service / delivery / credit facilities [k] which show that the business cares [an] Other appropriate responses should be credited. Justification might include: One way is to offer good customer service [k] which can make customers feel valued [an]. Another way is to respond to complaints quickly [k] so that customers are less likely to go to other businesses [an]. Offering good customer service is the best way for a new business because this is likely to reduce the number of mistakes which can help reduces the likelihood of complaints [eval] and improve its reputation which could help the new business compete [eval].

Identify two reasons why consumer spending patterns might change. Award 1 mark for each reason (max 2). Points might include changes in:

• Price of product
• Price of competitors products/increased competition
• Incomes/wages/unemployment/business cycle or examples
• Population size/structure/life stage of consumers
• Taste/fashion/preferences
• Advertising/promotion
• Technology
• Taxation
• Interest rates
• Exchange rates
• Weather/season Other appropriate responses should be credited.

Explain two benefits to NFC of using market segmentation. Award 1 mark for identification of each relevant benefit (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:

• Can design/produce goods to meet specific needs of consumers/know what to produce [k] so that costs/materials are not wasted (producing wrong product) [an] especially as plan to develop new products [app]
• Help target advertising/marketing strategies [k] to ensure maximum number of people see the products [an] which is an aim of promotion [app]
• Identify gaps in the market/new opportunities [k] for its shoes [app] which can help spread risk [an]
• May make marketing expenditure more effective [k] so do not waste money/resources [an] Other appropriate responses should be credited.

Outline two advantages to Amir and Carla of operating in a niche market. Award 1 mark for each relevant advantage [max 2]. Award 1 mark for each relevant reference to this business [max 2]. Points might include:

• Can charge higher prices [k] for its luxury service [app]
• Fewer competitors [k] for the hotel [app]
• Focus on meeting the needs of customers / can target customers [k] through its 5 employees [app]
• Can survive in markets dominated by larger firms [k] which may increase the chance of expanding [app]
• Builds up specialist skills/knowledge [k] Other appropriate responses should be credited.

Consider the advantages and disadvantages for KH of selling in a niche 12 market and in a mass market. Should KH change to selling in a mass market? Justify your answer. Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of both types of market. Well-justified recommendation. Candidates discussing both types of market, in context and with a well-justified recommendation, including why the alternative type of market was rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one type of market. Judgement with some justification / some evaluation of choice made. Candidates discussing one or more types of market in detail and applying it to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding of 1–4 relevant business concepts. Limited ability to discuss the types of market with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both types of market in context should be rewarded with the top marks in the band. 0 No creditable response. 0 Relevant points might include: Advantages Disadvantages Selling in a • KH’s shoes are a better • May limit growth of KH niche market match to customer as the market for this needs – so more likely niche product is to increase sales as relatively small – may customers more likely to be little potential to choose KH first when increase sales in the buying shoes future

• Appeals to a specific • If KH wants to grow in type of customer the future it will need to wanting large sizes of start producing other shoes – brand loyalty sizes from satisfied customers • If demand for large size and good customer shoes falls, then KH will relations have a significant fall in
• Able to charge a higher sales – as only price for the larger specialise in this small sizes as most niche market manufacturers do not • May attract other supply these – leading businesses into this to a higher profit margin market – if KH charging
• Build market expertise a higher price and in their specialist field – higher profit margin – requiring different the increased specific designs to competition may force produce shoes made KH to reduce prices of natural rubber on a large scale
• Marketing budget well targeted and more cost effective – as targeted at specific market so does not need to advertise to the wider market Advantages Disadvantages Selling in a • Usually has a large • There may be high mass market number of potential levels of competition customers – may be with other shoe able to increase sales of producers in the mass all shoe sizes and market – competition therefore revenue – the may be a lot higher total market may be • Costs of advertising and very large promotion may be high -
• Targets a wider market as marketing to a much – greater opportunities larger market for shoes for increased sales of all sizes especially as their • Standardised shoes shoes are sold online may not meet the and customers are specific needs of familiar with KH consumers – leading to
• Standardised shoes lost sales can benefit from buying • Changes will be needed economies of scale – as to the production standardised products process which will produced on a large increase costs – as scale there will be the need to
• Lower unit costs for start production of standardised product different styles of
• Prices may be lower as shoes for the larger unit costs lower – market increased demand – increased revenue if price elasticity is high
• More opportunities for KH to expand and if consumer spending patterns change may have less effect on KH if it is selling to a mass market - as parts of the market may have a fall in demand but other areas may see an increase in demand Conclusion Justification might include:
• Continue to sell in a niche market as KH already has a good reputation for high-quality products and has many loyal customers. If KH went into the mass market, there are many competitors and it might be more difficult to increase sales. New products and operations would also be required to expand into the mass market, and this may be expensive and difficult to finance.
• Changing to selling in a mass market could be justified because it will be a larger market with more opportunities for sales of standardised shoes and higher revenue. This may be high enough to cover the higher capital costs for KH of setting up production of standardised products for sale to the mass market.

Explain two benefits and two limitations of a business operating in a 8 niche market. Award 1 mark for each benefit/limitation (max 2 benefits/2 max limitations). Award a maximum of 1 additional mark for each explanation of the benefit/limitation. There are no application marks for this question. Relevant benefits might include:

• Fewer businesses may be competitors in this part of the market – less need to spend on marketing the product
• The needs of the consumer can be more closely focused on – therefore their needs will be met giving high consumer satisfaction
• Increased sales and revenue as product meets customer needs
• Higher price can be charged – as product may be seen as high-status or exclusive
• Increased customer loyalty Relevant limitations might include:
• Niche markets are usually relatively small – therefore sales are likely to be smaller than in a mass market
• Limits potential growth in the market – profits may be limited in the future
• May mean the business specialises in one product – increased risk if the product has a fall in demand
• Small size of the market means that economies of scale are unlikely – resulting in higher unit costs
• High profits may attract competitors into the market – prices may have to be reduced For example: The business can focus more closely on customer needs (1) therefore their needs will be met giving high consumer satisfaction (1).

Explain two reasons why customers might buy from ES rather than from 8 one of its competitors. Award 1 mark for each reason why customers may be more willing to buy from ES rather than one of its competitors (max 2). Award a maximum of 3 additional marks for each explanation of the reason - one of which must be applied to this context. Reasons might include:

• ES has a brand name that is well-known so makes it easy to identify – its brand name makes the business stand out from competitors – customers more likely to choose the branded boats over less well-known ones
• Customers are assured of the quality they expect to receive – so may attract more customers – as boat is less likely to have faults or errors in the manufacture
• Customers may think the quality is higher than unbranded products – may be more willing to pay a higher price – feel confident that the boats have been manufactured by skilled employees
• ES has a good reputation – giving customers confidence that ES is a reliable business to buy from – feel reassured that ES will meet their needs
• ES’s products may be cheaper than its competitors For example: ES has a brand name that is well-known so makes it easy for customers to identify it (1) as its brand name make the business stand out from competitors (1) so customers more likely to choose ES over a less well- known competitors (1) when they are buying a new boat (app). Application might include: boats; 20 years’ experience; started own business 4 years ago; sailing; 12 skilled employees; may use social media to promote the business; 4 new employees; high quality; well-established brand; voted 3rd best in the country; promotion in sailing magazines; information from Appendix 2 or Appendix 3.

Explain one advantage and one disadvantage of PF selling its products 8 in a mass market. Award 1 mark for each advantage/disadvantage of selling in a mass market (max 2). Award a maximum of 3 additional marks for each explanation of the advantage/disadvantage of selling in a mass market – one of which must be applied to this context. Relevant advantages might include:

• Total sales in the market may be very high – giving the potential for high revenue – possibly leading to high profits if costs are kept under control
• May be able to benefit from economies of scale – as production is on a large scale and so may benefit from purchasing economies – leading to lower costs per unit / lower average costs
• Risks are spread if several variations of the mass market product are produced – less likely to be affected by changes in consumer spending habits – so sales and revenue remain high even if the sales of one product fall
• Opportunities for the business to grow as high sales/large customer base/high demand
• Can produce a standardised product – production costs are lower than if many variations of the product are produced Relevant disadvantages might include:
• Likely to be high levels of competition between businesses selling similar products – may need to reduce prices to remain competitive / reduce costs – may lead to lower profit margins
• High costs of advertising and promotion – as need to attract a much wider market to see the adverts such as on TV – so advertise using many and varied types of promotion to ensure the product is seen
• The products are standardised so unlikely to meet the specific needs of all customers or potential customers – so some potential customers may not purchase the product – leading to a loss of potential sales
• May reduce opportunities if consumers are demanding more variety in the products they buy – preferring niche market products – so may lose out to sales from many smaller competitors For example: Total sales to the market may be very high (1) which is likely to give the potential for high revenue (1) from the high sales of shoes (app). Possibly leading to high profits if costs are kept under control (1). Application might include: rubber shoes; natural rubber raw material; building a new factory; rubber is grown locally; increase in taxes; bank loan for new factory; sister wants to invest in the business; $100 000; operates in a very competitive market; started 10 years ago; information from Appendix 3.

Explain two benefits of market segmentation for VV. 8 Award 1 mark for each benefit (max 2). Award a maximum of 3 additional marks for each explanation of the benefit of market segmentation – one of which must be applied to this context. Relevant benefits might include:

• Gain more sales – by appealing to the specific needs of customers in this segment – better meets customer needs
• Attracts new customers – may find it easier to fill a gap in the market currently not being met by other businesses
• May be able to charge higher prices – as customers willing to pay higher price for specific product – increases revenue
• Increases customer loyalty – service can be designed to meet the exact customer needs of the market segment
• May make it easier to compete with businesses that serve the mass market
• Marketing budget may be used more effectively – marketing strategies can be focused on the specific target market For example: VV may be able to charge higher prices (1) for the vegan meals served in the restaurant (app) because customers may be more willing to pay a higher price for specific products that meets their exact needs (1) which may lead to higher revenue for VV (1). Application could include: restaurant; vegan target market; plant-based ingredients; meals; fruit and vegetables; $50 000; chefs; working 40 hours a week; 12 employees; increasing trend for people eating vegan meals; eating less meat is good for the environment; menus; recipes.