Cambridge A Level Business (for first examination in 2016) 9609 — 2018 May/June Paper 2 · Variant 2

1 Online Travel (OT) OT is a private limited company in country X that sells international holidays on the internet. All of OT’s current range of holidays are to sunny places with beaches. Customers can search and purchase the holidays through the OT website. Each employee at OT has a contract of employment. OT employees work in three main areas of the business: 5 • technical specialists who keep the website updated. The specialists work in shifts so that the website can be updated 24 hours a day, 7 days a week. • customer service employees who chat online and on the telephone to customers who need extra help to purchase their holiday. • operations employees who negotiate with the suppliers of holidays and carry out 10 quality checks. In recent years demand for beach holidays has fallen, particularly among younger consumers. Due to this fall in demand, OT has made the decision to make 20% of the workforce redundant. The Marketing manager has carried out some market research to identify new markets OT 15 might decide to enter (See Fig. 1). Fig. 1: Market research data Primary research: A quota sample, based on age (in years) Number of respondents who would prefer each type of holiday. Age 16–30 31–40 40+ 20 Skiing holidays 65 30 5 Safari holidays 15 40 40 Cruise holidays 20 30 55 Secondary research: Characteristics of each age group in country X Average number of holidays 25 Average annual salary $ taken each year 40 000 4 30 000 3 20 000 2 10 000 1 0 0 16–30 31–40 40+ 16–30 31–40 40+ Age Age The Board of Directors has decided to target the 16–30 age group with low-priced skiing holidays. There is a limited budget for the marketing of these holidays. OT will need to rely on the internet to develop the marketing mix. (a) (i) Define the term ‘private limited company’ (line 1). [2] (ii) Briefly explain the term ‘contract of employment’ (line 4). [3] (b) (i) Refer to Fig. 1. Identify the age group with the highest average income. [1] (ii) Refer to Fig. 1. Calculate the percentage of the whole sample who would prefer skiing holidays. [2] (iii) Explain one possible disadvantage to OT of using secondary market research. [3] (c) The redundancies at OT will affect the employees. Analyse the effect on two stakeholders, other than employees, of the decision to make 20% of employees redundant. [8] (d) Recommend how OT can use the internet in the marketing mix for holidays aimed at the new target market. Justify your recommendation. [11]

Mark scheme: Question Answer Marks 1(a)(i) Define the term ‘private limited company’ (line 1). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Note: A correct definition must distinguish a private limited company from any other legal structure on the syllabus, i.e. PLC, sole trader, partnership etc. Content A business where shares can be sold, but not to the general public. The owners benefit from limited liability. Accounts must be produced but not necessarily published. ARA Exemplar Rationale Marks A private limited company has Could only be a private shareholders but does not sell on 2 limited company the stock exchange Whilst this could be an It has limited liability and but LLP that structure is not 2 cannot sell shares to the public on the syllabus True but this could also A business which cannot sell be a sole trader or 1 shares to the public partnership True but this could also It has limited liability 1 be a PLC True but this could also Sells shares 1 be a PLC A business that is not owned by All true but could still be the government but can sell 1 a PLC shares A business that is owned by This is true but does not private individuals not the distinguish between any 0 government of the legal structures A tautology – just uses A company that is privately words form the question 0 owned so no understanding 1(a)(ii) Briefly explain the term ‘contract of employment’ (line 4). 3 Award one mark for each point of explanation: Knowledge Marks Example of the content of a contract or some other way C of showing good understanding e.g. a sense of 3 security, protection, example of contents Understanding that is between employer/business and B 2 employee Understanding of legal document/agreement or sets out A 1 terms and conditions of employment An agreement between an employee and employer Examples of content: • the business details • the employee’s details • job title or a description of work • start date • how much and how often an employee will get paid • hours of work • holiday entitlement (and if that includes public holidays) • where an employee will be working 1(a)(ii) ARA Exemplar Rationale Marks An agreement between a worker and an employer that shows the All three elements 3 details of their job An understanding of what the All three elements – employer must do and what the ‘must do’ covers 3 employee must do content just Employee signs a contract with an A and B 2 organisation It shows what an employee and A and B only 2 employer have agreed to at work A document stating terms and conditions between HR manager A mark only 1 and employee A mark only – must have an idea of An agreement about an employee 1 employee and employer for B mark States what a worker must do in C mark only 1 their job A contract of employment will Lots of C marks – include the details of the job, the can only be gained 1 employees hours of work, pay rate, once holidays etc.. 1(b)(i) Refer to Fig 1. Identify the age group with the highest average income. 1 Answer = 40+ (1) (allow ‘oldest group’) Do not accept 40 (no plus) 1(b)(ii) Refer to Fig 1. Calculate the percentage of the whole sample which would 2 prefer skiing holidays. Rationale Marks Correct answer with or without working or % 2 Correct calculation of number of people who prefer skiing 1 holidays (100) AND total number of respondents (300) No creditable content 0 Content 100 × 100 = 33.33% (2) 300 Allow 1 mark for incorrect rounding supported by working (ie 100/300 × 100 = 34) 1(b)(iii) Explain one possible disadvantage to OT of using secondary market research. Level Knowledge and Application Marks Explanation of a disadvantage to OT of using 2b (APP) 3 secondary market research Explanation of a disadvantage of using secondary 2a (K+K) 2 market research Identification of a disadvantage of secondary 1 (K) 1 market research 0 No creditable content 0 Note: only mark the best disadvantage written by the candidate is there is more than one. Content • Not specific to the needs of OT in finding a new market segment • Can be ‘old’ – no date on the research – does it reflect recent changes in the holiday market? • No idea of the quality of the original researcher – is it biased? • Cost – OT may have had to pay for the research • Were the respondents the type of consumer to use the internet? ARA Possible disadvantage (K) Possible context (APP) OT need to identify a new market segment and this data is not specific to this Not specific to the needs of the business Is the data based on OT’s market of people who book holidays on the internet? May not reflect the holiday market as it is now Can be out of date Demand is falling No knowledge of the quality May not give OT good data upon which to base of the research their decision of a new market segment 1(c) Analyse the effect on two stakeholders, other than employees, of the 8 decision to make 20% of employees redundant. Knowledge and Analysis Level Marks Marks Application (4 marks) (4 marks) Shows understanding of Developed analysis of the effect of the the effect of the 2b 4 4 redundancies on two redundancies on two stakeholders of OT stakeholders of OT Shows understanding of Developed analysis of the effect of the the effect of the 2a 3 3 redundancies on one redundancies on one stakeholder of OT stakeholder of OT Shows knowledge of Limited analysis of the 1b redundancy and 2 effect of redundancies on 2 stakeholders two stakeholders Shows knowledge of Limited analysis of the 1a redundancy or 1 effect of redundancies on 1 stakeholders one stakeholder No creditable content 0 Note: The business (OT) is NOT a stakeholder Content: Customers – worse service leading to a poor experience using OT Owners – may have less profit as there are high redundancy costs. May eventually have higher profits as the business is more efficient. Managers – may have less workers to supervise Banks/lenders – may worry about the future of OT and not lend for any future ventures Local community – increased unemployment, lower average income Government – increased unemployment, lower income tax revenue. Competitors – OT may lose sales so the competitors may gain sales, competitors may gain new trained employees 1(c) ARA Examples of Example of Examples of Examples of possible effects on stakeholders application/context analysis stakeholder Because the Which means they are website may be frustrated because they Unable to down due the cannot use the website Customers book a redundancies and have to search for a holiday amongst the holiday elsewhere taking technical specialists extra time. Leading to a lower Dividends (OT is a income for the Ltd) may decrease Owners Less profit shareholders and a because of the extra chance that they will redundancy costs want to sell their shares Question Answer Marks 1(d) Recommend how OT can use the internet in the marketing mix for holidays 11 aimed at the new target market. Justify your recommendation. Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 marks) A justified recommendation based 7 on a developed argument A developed recommendation 6 based on a developed argument A basic recommendation/judgement based 5 on a developed argument Shows Developed argument based on the understanding of the use of the internet in one or more internet in one or 3–4 3–4 elements of the marketing mix for more elements of the OT marketing mix for OT Shows knowledge of Limited analysis of the use of the 1–2 1–2 the marketing mix internet in the marketing mix No creditable content 0 Note: Candidates can gain all the marks from use of one element of the marketing mix Content • Promotion – many ways in which the internet could be used, especially in this target market. Social media, viral marketing etc.. Allow use of specific platforms, such as Facebook, Twitter, Snapchat etc.. Relatively cheap methods of promotion, can show elements of the holiday (ie skiing) in videos etc.., good for targeting this age group and accessible on various devices. • Price – use of dynamic pricing to change prices based on demand, timing etc. Easy to adapt prices and change in short period of time. • Product – Could be tied into the product, so offer free WIFi with holidays, online catalogues and search facilities showing the product portfolio. • Place – can be sold through the internet, reduces labour costs, more likely to be suitable for this target market. 1(d) Candidates can also use the 4C’s: • Cost to the customer • Convenience to the customer • Customer solution • Communication with the customer To award APP a candidate requires all three elements: • Marketing mix (the knowledge to back it up) • The target market (16–30) • Internet ARA

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2 Umpire Umbrellas (UU) UU is a private limited company that sells umbrellas with pictures it prints on them. All of the pictures on the umbrellas are printed using batch production. The umbrellas can be used to shelter from the rain or as a shade from the sun. The company has two main markets: consumer and business. UU sells individual umbrellas to consumers. These have pictures of famous people or places on them. They are mainly 5 sold through UU’s website. UU produces 20 000 of each design. The business market for UU is made up of businesses that want their logo printed on a large number of umbrellas. UU guarantees all business orders are delivered within 10 days. Recently, UU received an order from a large bank for 10 000 umbrellas with the bank logo printed on them. The bank gave an umbrella to any customer who opened a new 10 account. The fixed cost for the order was $2000 and the variable costs were $0.75 per unit. UU made $3000 profit on the order. UU’s Board of Directors has been considering two different options to grow the business. Option 1: UU would sell franchise opportunities to entrepreneurs who can print and sell UU branded umbrellas to the consumer market in the entrepreneur’s local area. These 15 entrepreneurs would pay a fee to UU as well as 10% royalties on the profits. In return UU would provide the machinery needed to print the umbrellas. The franchisee would be required to purchase all of their inventory from UU. Option 2: UU would increase its product portfolio by selling other goods to the business market, such as pens, USB sticks and clothing. This would require external finance to 20 purchase the machinery needed to be able to print on these products. The market for these is growing but is very competitive. (a) (i) Define the term ‘consumer’ (line 4). [2] (ii) Briefly explain the term ‘variable costs’ (line 11). [3] (b) (i) Calculate the total revenue of the order from the large bank (lines 7–12). [3] (ii) Explain one reason why UU needs accurate cost data. [3] (c) Analyse two advantages to UU of using batch production. [8] (d) Recommend which of the two options for growth UU should use. Justify your answer. [11]

Mark scheme: 2(a)(i) Define the term ‘consumer’ (line 4). 2 Knowledge Marks A correct definition 2 A partial, vague or unfocused definition 1 No creditable content 0 Content A person who purchases a good or service for personal use/enjoyment. A person who uses a good or service ARA Exemplar Rationale Marks A consumer is someone who A correct definition 2 uses a product A consumer is someone who Mixed up with customer 1 buys a good or service but a partial understanding One of the two main markets; Repetition form the case – 0 business and consumer no understanding 2(a)(ii) Briefly explain the term ‘variable costs’ (line 11). 3 Award one mark for each point of explanation: Knowledge Marks Example or some other way of showing good C 1 understanding (e.g. comparison with fixed costs) B Link to output changing 1 A Costs that change (allow vary) 1 Content A variable cost is one that changes as output changes. For example bread is a variable cost for a sandwich producer because the more sandwiches are made the more bread is needed. Exemplar Rationale Marks A cost that changes when a business produces more, for All three elements 3 example the material for each umbrella is a variable cost Variable costs change with The comparison with FC is output unlike fixed costs which good enough for the C 3 do not mark Costs that change like wages A and C marks only 2 Costs like wages and raw C mark only – do not 1 materials reward more than once ARA 2(b)(i) Calculate the total revenue of the order from the large bank (lines 7–12). 3 Rationale Marks Correct answer with or without correct working or $ 3 Correct calculation of TC 2 Formulae or correct calculation or TVC 1 No creditable content 0 Content Formula: Price x quantity = total revenue OR Profit = total revenue – total costs, so total costs + profit = total revenue NB the abbreviation for profit is pi 10 000 × $0.75 = $7500 (TVC) – 1 mark with working $7500 + $2000 = $9500 (TC) – 2 marks with working $9500 + $3000 = $12 500 (TR) Answer = $12 500 (3 marks) Common answers Answer Rationale Marks 12 500 (no working) A correct answer 3 Missed out FC – one error (10 000 × $0.75) + $3000 Correct calculation of TVC 2 = $10 500 and then OFR for the final step $10 500 (no working) 0 No correct calculation of $2000 + $3000 = $5000 TVC or TC but OFR for 1 final step $3000 Just used profit figure 0 OFR applies 2(b)(ii) Explain one reason why UU needs accurate cost data 3 Level Knowledge and Application Marks 2b (APP) Explanation of a use of cost data in context 3 2a (K +K) Explanation of a use of cost data 2 1 (K) Identification of a use of cost data 1 0 No creditable content 0 Note: use of the answer to Q2(b)(i) is not required for context, but is an obvious way to contextualise an answer. Correct use of an incorrect answer to 2(b)(i) should be fully rewarded (own figure rule –OFR) Content • To set prices (e.g. the bank order has a 33.33% profit margin), so that UU does not make a loss • To plan resources (land, labour ,capital) • To make good business decisions • To ensure the business makes profit • To calculate break even ARA Reason (K) Possible context (APP) Each design may have different costs so the data is important to set the price To set prices The bank order has a 33.33% mark up – this may be the standard cost-plus pricing strategy of UU To plan what resources they need to make each batch of To plan products (the context here is batch as they are made by resources batch production) So that UU can decide how best to grow the business (i.e. To make good Options 1 or 2) business decisions To know which design of Umbrella is most profitable 2(c) Analyse two advantages to UU of using batch production. 8 Knowledge and Analysis Level Application Marks Marks (4 marks) (4 marks) Developed analysis of Shows understanding two advantages of 2b of two advantages to 4 4 batch production in UU of batch production context Developed analysis of Shows understanding one advantage of 2a of one advantage to UU 3 3 batch production in of batch production context Shows knowledge Limited analysis of two 1b specifically of batch 2 advantages of batch 2 production production Limited analysis of one Shows knowledge of 1a 1 advantage of batch 1 production processes production No creditable content 0 Note: give candidates the BOD if they have made a point which could apply to more than just batch production. Content • Cheaper than job production – important because UU produces 20 000 of each consumer design • Allows for economies of scale which can reduce the unit cost of each umbrella (currently $0.75 for the bank order) • Quicker than job production – important because of the 10 day delivery guarantee. • Allows for more flexibility than flow production – important because of the range of designs that UU have. ARA Examples of Examples of Examples of possible analysis advantages application/context Making a batch allows UU to make More sure each umbrella is the same standardised 20 000 made of quality so that customers are not quality than job each design disappointed, losing customer loyalty production and repeat sales. So UU can make the designs to the More flexible Business orders are customers specification, leading to than flow all unique with the increase customer satisfaction and production logo on more sales. 2(d) Recommend which of the two options for growth UU should use. Justify 11 your answer. Knowledge and Analysis and Evaluation Application Marks Marks (7 marks) (4 marks) A justified recommendation based on a developed argument 7 of both options A developed recommendation based on a developed argument 6 of both options A basic recommendation/judgement 5 based on a developed argument of both options Shows understanding of Developed argument based on Option 1 for growth and 4 the impact on UU of using 4 Option 2 for growth Option 1 and Option 2 Shows understanding of Developed argument based on Option 1 for growth or 3 the impact on UU of using 3 Option 2 for growth Option 1 or Option 2 Shows knowledge of Limited analysis of Option 1 and 1–2 2 business growth Option 2 Limited analysis of Option 1 or 1 Option 2 No creditable content 0 Content Option 1 • Risk of growth through franchise – may lose control of brand and image. • Only the consumer market – UU still retain control of the business market – but could poor image reduce this market too? • Less risk to UU because they have lower costs which will be covered by the fee and royalties. If the franchisee makes a profit UU gets royalties, however if the franchisee makes a loss UU are not affected. • Could this reduce UU’s consumer market through the internet (ie not localised). Option 2 • Increasing the range of the product portfolio reduces risk. • Could allow UU to expand into areas where Umbrellas are not appropriate or used. • Requires external finance which is likely to be expensive for UU and increase costs. • Very competitive market – low profit margins • Growing market – Boston Matrix starting out as a problem child (?). ARA

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