A-Level Applied Business

Transcription

1 A-Level Applied Business BS The Marketing Environment Final Mark Scheme 860 June 07 Version/Stage: v.0

2 Mark schemes are prepared by the Lead Writer and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all associates participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students responses to questions and that every associate understands and applies it in the same correct way. As preparation for standardisation each associate analyses a number of students scripts. Alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, associates encounter unusual answers which have not been raised they are required to refer these to the Lead Writer. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students reactions to a particular paper. Assumptions about future mark schemes on the basis of one year s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this mark scheme are available from aqa.org.uk Copyright 07 AQA and its licensors. All rights reserved. AQA retains the copyright on all its publications. However, registered schools/colleges for AQA are permitted to copy material from this booklet for their own internal use, with the following important exception: AQA cannot give permission to schools/colleges to photocopy any material that is acknowledged to a third party even for internal use within the centre.

3 ADDITIONAL GUIDANCE FOR MARKING SCHEME s The s represent those qualities which can be demonstrated in students work and which can be measured for the purposes of assessment. AO Knowledge, skills and understanding Students demonstrate knowledge and understanding of the specified content and relevant business skills. AO Application of knowledge, skills and understanding Students apply knowledge and understanding of the specified content and relevant business skills. AO Research and analysis AO4 Evaluation Quality of Written Communication Students use appropriate methods in order to obtain and select information from a range of sources to analyse business problems. Students evaluate evidence to reach reasoned judgements. The quality of written communication is assessed in all assessment units where students are required to produce extended written material. Students will be assessed according to their ability to: select and use a form and style of writing appropriate to purpose and complex subject matter organise relevant information clearly and coherently, using specialist vocabulary when appropriate ensure that text is legible, and that spelling, grammar and punctuation are accurate, so that meaning is clear. The assessment of the quality of written communication is included in 4. of 4

4 Total for this question: 7 marks (a) Use Item A to explain the degree of competition in the 0 UK market for chocolate confectionery. [4 marks] Uses Item A to explain the degree of competition. 4 AO Demonstrates a generic understanding of competition. AO Knowledge (AO) Degree of competition: monopoly, oligopoly, monopolistic competition or perfect competition (considering number of buyers in relation to sellers, nature of product, ease of entering the market etc). Competitive position, ie leaders, followers, challengers and nichers (considering the dominance of businesses and how other businesses react to this). Application (AO) Figure shows other as 5.5% which indicates that we could have had several (eg at least 0) additional businesses in the market, making it highly competitive. Market leader, Mars, and possible challenger Mondelez International, had roughly three times more market share than each of the other top four possibly having some dominance. Big brand names especially Mars and Mondelez so the leading businesses might have been considered to have had some control of the market, eg oligopoly. Advertising seemed important, as did brand loyalty, along with a range of product variations perhaps indicating monopolistic competition. 4 of 4

5 (b) Use Item A to analyse the strengths and weaknesses of Nestlé s position in the 0 UK market for chocolate confectionery. [8 marks] Level Descriptor Uses Item A to analyse the strength(s) and/or weaknesses of Nestlé s 0 market position. Uses Item A when describing Nestlé s market strength(s) and/or weaknesses. Demonstrates a generic understanding of market strengths and/or weaknesses. Marks 8 7 AO 6 AO/AO AO Knowledge (AO) Application (AO) Analysis (AO) Strengths: Focused advertising campaigns (eg Nestlé s use of specific internet content for products/regions). Strengths and weaknesses (S&W) part of SWOT analysis. S&W are internal to the business. Measured by considering market position in relation to customers, competitors and internal resources. Analysed to consider how a business might best respond to opportunities and threats. Had some well-known brands, such as KitKat and Smarties. Multinational business with considerable resources, eg cash reserves of 4.4 billion. Research and development (R&D) based in the UK and had a range of facilities, eg smallscale factory and staff training. Weaknesses: Only third in the market and significantly behind top. Key brand KitKat not developed since 999. Had to devote a high proportion of operating costs to maintaining brand loyalty. Did not have any of its own retail outlets (although could be a strength). Possible weakness due to reliance on supermarkets as significant buyers. Had some market share within the UK, but significantly behind Mars (.% lower) and Mondelez (8.7% lower), which might have meant that Nestlé was more of a follower than a challenger. Lack of development of key brand KitKat could be seen as a significant weakness which put its position at risk of competitor actions. The reliance on marketing and supermarkets also indicates a weakness of Nestlé s position, ie having to spend so much on brand image and at risk of supermarkets changing their purchasing decisions. However, did have considerable resources ( 4.4 billion cash), was multinational and had a wide product range this could have meant that Nestlé had the ability to create improved/new brands, with less risk, and increase its market share. Its focus on targeted advertising would also help, eg effective segmentation. R&D facilities based in the region with its own production facility could potentially successfully support this kind of marketing activity. 5 of 4

6 (c) What do you think were the most significant factors affecting Nestlé s ability to set prices in the 0 UK market for chocolate confectionery? Use Item A to justify your answer. [5 marks] Level Descriptor Uses Item A to analyse factor(s) affecting the ability of Nestlé to set prices in the 0 UK market. Uses Item A when explaining factor(s) affecting price in the UK market. Demonstrates a generic understanding of factors affecting prices. Marks 8 6 AO 5 AO AO Knowledge (AO) Application (AO) Analysis (AO) Competition affecting the price through reactions to any price changes, eg price wars where one business drops its price and followers/challengers react to this. Customers affecting price through willingness to pay, eg if popularity of product increases, then could increase price of the product. Cost affecting price through impact on profit, eg if operating costs go up, then price might have to be increased. Competitive market, so challenger (eg Mondelez) might have attacked leader (Mars) by reducing its prices; leader might have kept prices low to remain market leader. As supermarkets were significant buyers, they might have forced businesses to sell at a low price, eg Thorntons might have had to sell its chocolates below the price it would normally sell them at. Nestlé could have improved a product or created a new product so that it could have charged a higher price. High cost of marketing or product development could have increased the prices of Nestlé s products. Thorntons might have had to charge more because it had its own retail outlets to pay for. A fairly competitive market - brands such as Cadbury Dairy Milk would have offered considerable competition which would have been a factor reducing Nestlé s ability to set prices. Supermarkets were significant buyers. This would also be a factor reducing Nestlé s ability to set prices, eg supermarkets might bargain for lower prices on multipacks of KitKat Chunkies. Nestlé may well have had some brand loyalty plenty of money spent on focused marketing (KitKat website) and a R&D centre could have been a factor supporting its ability to set prices. Ability to engage in price wars with the other top 4 businesses might depend on internal resources, eg cash reserves Nestlé is a large multinational business and might be able to pursue this approach. 6 of 4

7 For AO4, you should award marks using the scheme below. Note: AO4 also assesses students quality of written communication. When deciding on the AO4 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. Judgement is being made on the significance of the factors affecting ability to set prices. To access Level, judgement must be made on the relative significance of these factors. Offers judgement with weighted justification. Ideas are communicated in a coherent structure with consistent and appropriate use of technical terms. There are few errors in conventions of written communication. 7 5 Offers judgement with supported justification. Ideas are communicated in a logical structure with some appropriate use of technical terms. There are occasional errors in accepted conventions of written communication. 4 AO4 and Quality of written communication Offers limited judgement. Ideas are communicated with some structure evident with occasional use of appropriate technical terms. There are some errors in accepted conventions of written communication. Evaluation: given its position as third in the market by a considerable amount it is difficult to see how Nestlé had freedom to set whatever prices it wanted to. This would be seen as a significant factor, but would depend on how aggressive Nestlé wanted to be marketing activities might create some brand loyalty and price setting power, but Mars and Mondelez perhaps advertise/market just as effectively so that it is difficult to create brand loyalty to a significant level? also significant is the role played by supermarkets as they purchased a high proportion of Nestlé s chocolate confectionery then they probably had their own power to set prices and this would be a significant factor when coupled with Nestlé s position as third in the market and not having its own retail outlets Nestlé s significant cash reserves with 4.4 billion it could engage in a price war with Mars and Mondelez. However, unlikely that any of the top three would benefit from this and perhaps this is not a significant factor? both Mars and Mondelez may well have had R&D centres (if not in the UK) and, if this is the case, Nestlé s Product Technology Centre probably was not a significant factor especially as it had yet to develop key brands such as KitKat overall, competition and supermarket buying power would seem to be the most significant factors both of which would diminish Nestlé s ability to set prices, eg might get greater price setting powers by a take-over of Mondelez. 7 of 4

8 Total for this question: 9 marks (a) Use Item B to explain two possible effects of trends in the USA social marketing environment on Nestlé s sales. [6 marks] Uses Item B to explain two effects of trends on Nestlé s sales. 6 5 Uses Item B to explain one effect of trends on Nestlé s sales. 4 Demonstrates a generic understanding of the social marketing environment. AO AO Knowledge (AO) Attitudes towards consumption in terms of accessibility to products and services, eg how easy to prepare/access food/drink. Living standards and quality of life expectations, eg purchasing up-market products or products to enhance health. Environmental concerns, eg ensuring that ready meals do not have GM content. Application (AO) If trend is for greater proportion of spending out of home (bars and restaurants) and smaller proportion in-home (groceries), then sales of Nestlé grocery items could slow down (even fall, given stiff competition), eg prepared foods. Nespresso sales possibly strong because of the trend towards fresh products customers can experience out-of-home quality in their own homes. Trend might help overall sales. If trend is towards consumption of fresh foods, then Nestlé s sales might suffer as it only seems to offer processed foods coupled with the first trend, sales might actually fall (especially for prepared foods). 5 5 year olds driving this trend, so could be an increasing problem as they age and become significant purchasers increasing downward pressure on sales in the future. 5 5 year olds lack brand loyalty this could make things quite difficult for Nestlé s sales now and in the future, eg getting negative social media, such as ethical concerns, causing 5 5 year olds to switch to competitors products and reducing sales. 8 of 4

9 (b) Use Item B to analyse the possible effects of mergers and takeovers on Nestlé s ability to compete in the USA beverages and prepared foods market. [8 marks] Uses Item B to analyse the possible impact of mergers/takeovers on Nestlé s ability to compete in the USA beverages and prepared foods market. Uses Item B when explaining role of mergers/takeovers in the USA beverages and prepared foods market. 8 7 AO 6 AO/AO Demonstrates a generic understanding of mergers/takeovers. AO Knowledge (AO) Application (AO) Analysis (AO) A merger is when two or more companies combine ownership to operate as a single company. Can be horizontal integration (competitors) or vertical integration (suppliers or distributors). Can be hostile take-over. Part of an integrated growth strategy where a business, or businesses, attempt to gain greater control of a market, eg by reducing competition. Kraft Foods Group and Heinz operating in the same market so would be seen as a horizontal integration, ie two competitors joining forces. Indicated by new name Kraft-Heinz rather than just Kraft, for example. Enabled Kraft-Heinz to gain third place in the market combined forces created a greater market share. Possible take-over of Mondelez International by either Kraft-Heinz or Nestlé would seem to be a hostile take-over rather than merger illustrated by Kraft-Heinz. This could help to consolidate Nestlé s second place or even gain top place if Nestlé purchased Mondelez. Alternatively, if Kraft-Heinz carried out a take-over then this could threaten Nestlé s market position. Social trends could be placing pressure on Nestlé s sales in the USA beverages and prepared foods market. Presumably this would also be true for its competitors and perhaps that is the reason behind the creation of Kraft-Heinz to get costs down and reduce product prices, ie aggressive move to target a higher share of a possibly shrinking overall market. This would definitely affect Nestlé s ability to compete. It might not have a severe impact as it could depend on the brands offered by the competitors Nestlé has some popular brands (eg Nespresso). Mergers or take-overs might not impact on sales if brand loyalty is sufficient (not everybody is a 5 5 year old) Nestlé did not seem that bothered and were happy to follow a different strategy, ie diversification. 9 of 4

10 (c) To what extent do you think that Nestlé should continue to diversify? Use Item B, and your understanding of Ansoff s competitive strategies, to justify your answer. [5 marks] Uses Item B and Ansoff s competitive strategies to analyse the possible impact of diversification. Uses Item B when explaining the purpose of Ansoff s competitive strategies. Demonstrates a generic understanding of Ansoff s competitive strategies. 8 6 AO 5 AO AO Knowledge (AO) Application (AO) Analysis (AO) Market penetration existing products and existing markets. Market development existing products and new markets. Product development new products and existing markets. Diversification new products and new markets. Kraft-Heinz adopting a penetration strategy by operating in the same market but possibly reducing prices of products through operating cost reduction so that it can gain a higher market share. No evidence of any business using this strategy but this could occur if, given pressures in the USA market, Nestlé targets less developed markets, eg increasing marketing activities for prepared foods in other regional markets. Nespresso is a possible example of product development still targeting USA but with an improved product so as to achieve brand loyalty/higher sales/profit margin. Given the main product groups (food/drink), it would seem that Skin Health is diversification, ie new product and new market after taking over a pharmaceutical business. Provides Nestlé with a broader product range and makes it less reliant on drinks/foods which could be increasingly at risk from social trends and increased competition. Diversification might allow Nestlé to establish some brand loyalty and, if it enters the market before other businesses, gain a leading position in the market. This could reduce Nestlé s reliance on drinks/foods (including those for pets), ie to reduce the currently high proportion of 75%. Alternatively, inherently risky? Item says that some of the products considered as drugs and might face problems with regulatory authorities leading to risk of lower profits (and competition in 05). In addition, what is wrong with the product development strategy? Worked for coffee with Nespresso so why not with some of the food items, eg more up-market ready meals seen as fresher and/or healthier; posh pet food etc. See next page for Evaluation. 0 of 4

11 For AO4, you should award marks using the scheme below. Note: AO4 also assesses students quality of written communication. When deciding on the AO4 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. Judgement is being made on the suitability of the strategy. To access Level, judgement must be made on the extent to which the strategy was suitable. Offers judgement with weighted justification. Ideas are communicated in a coherent structure with consistent and appropriate use of technical terms. There are few errors in conventions of written communication. 7 5 Offers judgement with supported justification. Ideas are communicated in a logical structure with some appropriate use of technical terms. There are occasional errors in accepted conventions of written communication. 4 AO4 and Quality of written communication Offers limited judgement. Ideas are communicated with some structure evident with occasional use of appropriate technical terms. There are some errors in accepted conventions of written communication. Evaluation: facing pressure from both social trends and competition need to do something! perhaps it would be safer for Nestlé to continue to develop existing products rather than risk entering completely new markets with 75% of its sales focused on food/drinks, better to stick to what they know? Success of Nespresso would support that viewpoint however, did not start from scratch bought an existing pharmaceutical business, possibly keeping existing staff and their understanding of the market and this could reduce the risks the issue of prescription drugs might be considered a potential risk, sales growth in the USA have been greater than 0%, but competition affecting sales in 05 and could limit potential growth? competitive pressures from Kraft-Heinz would support the need to avoid a penetration strategy, but this does not mean that diversification is the only option overall, probably right to pursue diversification strategy alongside product and market development spread risks and possibly maximise sales/profit growth. of 4

12 Total for this question: 4 marks (a) Use Item C to analyse how trends in the economic and social environment might affect the ability of businesses, such as Nestlé, to establish brand loyalty in China. [9 marks] Uses Item C when analysing impact of economic and/or social environment on establishing brand loyalty. Uses Item C when explaining relevance of trends in the economic and/or social environment for brand loyalty. 9 7 AO 6 AO Demonstrates a generic understanding of brand loyalty. AO Knowledge (AO) Application (AO) Analysis (AO) Brand loyalty achieved when customers equate a product to a particular business s offering, eg a customer might always buy Nescafé coffee. Establishing brand loyalty requires a business to use marketing activities to create a favourable view of its products compared with those of its competitors, eg product design, packaging, promotion etc. Economic Increasing average incomes meaning businesses have the possibility of establishing brand loyalty rather than just competing on price. Higher income groups want premium brands, which means that businesses could offer upmarket products for consumers to relate to. Social Environmental concerns also mean that businesses can add value to their products which offers the possibility of repeat purchase/brand loyalty. Retail experiences, such as that offered by M&M s World, means that consumers might be ready to establish brand loyalty increasing use of social media might also be advantageous for this. The Chinese social and economic environment is rapidly changing with high rates of economic growth forecasted to continue for several years. It would seem that many more households will be in higher income groups and this should increase the ability of businesses to establish brand loyalty. For example, Nestlé s range of premium Swiss chocolates - Chinese consumers ready to purchase quality brands and may be happy to pay a higher price. Increasing environmental concerns might also be of great benefit to businesses like Nestlé as it gives food businesses the opportunity to assure the quality of products costs can be increased because customers are increasingly willing to pay a higher price. of 4

13 (b) Nestlé wants to increase its sales growth in China. To what extent do you think that social media and e-commerce offer significant market opportunities for Nestlé in China? Use Item C to justify your answer. [5 marks] Uses Item C to analyse significance of social media and/or e-commerce for Nestlé s sales growth. Uses Item C when explaining how market opportunities could increase Nestlé s sales. Demonstrates a generic understanding of market opportunities. 8 6 AO 5 AO AO Knowledge (AO) Application (AO) Analysis (AO) Market opportunities represent possible directions/actions a business could take given trends in the marketing environment and the strengths and weaknesses of a business. It could be a market that the business might want to enter, new products that could be developed and other marketing activities designed to achieve the aims of a business. Forecasted as a significant sales channel by 00, so could help Nestlé to increase sales, eg through use of Alibaba e-commerce site. Could be a way of promoting its products, ie communicating the benefits of the products through web content and reviews on Alibaba e-commerce site. Used Amazon to sell its premium chocolates, so e-commerce probably seen as valid retail channel within China, adding to ability to increase sales. Social media might be a way to build closer links with consumers and focus on, for example, the environmental benefits of its food products so as to increase sales. Social media could help to communicate premium nature of its products and increase sales, eg premium chocolates. Mars has apparently coped more successfully in China. This might have been due to its focus on building a relationship with consumers, eg through its M&M s World store. As consumers in China are becoming more affluent, the importance of building these relationships could be increasing. With greater access to the internet and possibly nearly half of all sales online by 00 e-commerce and social media would seem to be highly significant. The ability to increase sales growth might depend on the premium nature of some of its products and the benefits offered by its wider range of products this needs to be communicated. Competitors might be offering similar products. Social media and e-commerce could help Nestlé to successfully compete for sales, maybe even just to maintain % sales growth let alone increase this. of 4

14 For AO4, you should award marks using the scheme below. Note: AO4 also assesses students quality of written communication. When deciding on the AO4 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. Judgement is being made on the significance of social media and e-commerce for sales growth. To access Level, judgement must be made on the extent to which these are significant. Offers judgement with weighted justification. Ideas are communicated in a coherent structure with consistent and appropriate use of technical terms. There are few errors in conventions of written communication. Offers judgement with supported justification. Ideas are communicated in a logical structure with some appropriate use of technical terms. There are occasional errors in accepted conventions of written communication. Offers limited judgement. Ideas are communicated with some structure evident with occasional use of appropriate technical terms. There are some errors in accepted conventions of written communication AO4 and Quality of written communication Evaluation: social media and e-commerce could be a market opportunity as they are increasingly important within China, but perhaps only in the sense of keeping up with competition would seem just as important to develop products which meet the expectations/needs of Chinese consumers, eg environmental concerns, product benefits and premium brands however, without effective use of social media and e-commerce, the relative benefits of Nestlé s products might not be seen by consumers overall, significant to the extent that it is probably necessary but without the right products could be a market opportunity exploited by competitors and, as such, eventually turn out to have been a threat Nestlé did not cope with Mars, so nothing to say that social media and e-commerce will improve things. 4 of 4