Assume FWB increases spending on promotion by 20% and the promotional elasticity of demand is 0.8. Calculate the percentage change in FWB's revenue.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2023). The mark or mark type is shown in brackets.

1. [1] (a) 0.8 x 20 = 16%.
2. [1] (b) PED = Percentage change in Qd / Percentage change in price.
3. [1] (b) Percentage change in Qd = -10 / 180 × 100 = -5.56%.
4. [1] (b) Percentage change in price = 0.3 / 2.00 × 100 = 15%.
5. [2] (b) PED = -5.56 / 15 = -0.37 OR -0.4.
6. [1] (c) Knowledge of elasticity of demand: Promotional elasticity measures responsiveness of demand to changes in promotional spending.
7. [1] (c) Knowledge of elasticity of demand: Price elasticity measures responsiveness of demand to a change in price.
8. [1] (c) Knowledge of elasticity of demand: Cross-price elasticity measures responsiveness of demand to a change in price of another product.
9. [1] (c) Knowledge of elasticity of demand: Income elasticity measures responsiveness of demand to a change in income.
10. [1] (c) Knowledge of elasticity of demand: Understanding of inelastic (not responsive) and elastic (responsive) demand to change in price/promotion/income.
11. [1] (c) Knowledge of marketing mix: Marketing mix is part of marketing strategy to achieve marketing objectives within a budget.
12. [1] (c) Knowledge of marketing mix: Marketing mix consists of price, place, promotion, and product.
13. [1] (c) Application to FWB: Estimated PED is –0.37, indicating price inelasticity; a 15% increase in price would result in a 5.6% decrease in Quantity demanded.
14. [1] (c) Application to FWB: Daily revenue from coffee sales per van would change from $360 (180 × 2) to $391 (170 × 2.3), an increase of 8.6%.
15. [1] (c) Application to FWB: Estimated promotional elasticity of demand is 0.8, indicating demand is promotion inelastic (not responsive).
16. [1] (c) Application to FWB: A 20% increase in spending (an extra $40000) would theoretically result in a 16% increase in revenue (0.16 × 40.5m = $6.48m).
17. [1] (c) Application to FWB: FWB's objective is to increase revenue by 15%.
18. [1] (c) Application to FWB: Levels of income and unemployment vary, impacting elasticity measures and variety of customers.
19. [1] (c) Analysis: Knowledge of PED is useful for FWB in pricing decisions; low PED indicates a price increase would increase revenue and profit.
20. [1] (c) Analysis: Increasing coffee price will reduce quantity demanded, potentially reducing sales of complementary products like snacks, thus decreasing overall revenue.
21. [1] (c) Analysis: An increase in coffee price may lead customers to purchase drinks elsewhere, reducing FWB's market share.
22. [1] (c) Evaluation: In a marketing plan, FWB will also consider other factors like changing snacks or improving food quality, which can increase sales and profit.
23. [1] (c) Evaluation: A judgement about the usefulness of elasticity to marketing mix decisions.
24. [1] (c) Evaluation: A judgement about the most important factor influencing marketing mix decisions.
25. [1] (c) Evaluation: A judgement about the limitations of elasticity calculations.
26. [1] (c) Evaluation: Measurement of elasticity is difficult and likely to be inaccurate due to a large range of factors affecting outcomes, particularly competitor decisions, as other things don't remain equal in markets.
27. [1] (c) Evaluation: Factors influencing the judgement include the degree of competitive rivalry in the market.
28. [1] (c) Evaluation: Other elements of the marketing plan, such as an integrated marketing mix for consistent messaging, are important to attract sales.