Planet Internet (PI) PI is a public limited company. It is an internet service provider. The business provides fast internet connections to households within country X. Customers pay an average of $10 per month for the service. More than 80% of the households in the country can access PI's services. The business offers new customers 3 free months of internet service, if they sign a contract for a minimum of 12 months. Very few of PI's customers switch to a competitor's service after the minimum 12 month contract has finished. The internet service market is very competitive. PI has an objective to become the largest internet service provider in country X. The Marketing Director, Alisha, believes that if PI is going to achieve its objective then the company needs new customers. She thinks that the key to gaining more new customers is to focus on promotion. Alisha has prepared some secondary market research comparing PI with its main competitors in country X (See Table 2.1). Some of the directors are disappointed with the financial performance of PI compared to its competitors. Table 2.1: Research about the internet service providers in country X, 2018 | | Planet Internet (PI) | Totally Broadband (TB) | W Solutions (WS) | |---|---|---|---| | Market share | 31% | 32% | 15% | | Value of market share | $12.4bn | $12.8bn | $6bn | | Gross profit margin | 74% | 70% | 70% | | Net profit margin | 8% | 12% | 16% | | Working capital | ($45000) | $300 000 | $0 | | Current ratio | 0.9:1 | 3:1 | 1:1 |

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partial, vague or unfocused definition
3. [0] No creditable content
4. Content: The stated specific/measurable/achievable/realistic/time-based target(s) (1) that the business wants to achieve (1) in the future
5. *** If the student shows understanding and a purpose of the objective then 2 marks ***
6. Exemplar: A specific target a business wants to achieve [2] Both elements (minimum)
7. Exemplar: A specific business target [1] One element only
8. Exemplar: What a business wants to achieve in the future [1] One element (achieve and achievable are different)
9. Award one mark for each point of explanation:
10. [1] C* Example or some other way of showing good understanding
11. [1] B Understanding of secondary/that already exists
12. [1] A Understanding of collection of data
13. * Has to include at least one of points A or B
14. Content: Secondary marketing research (book research) finds data that already exists. It has already been collected by someone else for another purpose. Sources of secondary data can come from competitors, census, sales data etc.
15. Exemplar: Collection of information/data that already exists e.g. off the internet [3] A and B plus a basic example
16. Exemplar: Data that already exists, such as sales data [2] B and C only no understanding of collection
17. Exemplar: Data that already exists [1] B only
18. Exemplar: Sales data/internet [0] No A or B
19. [3] Correct answer with or without correct working or $ or BN
20. [2] Incorrect attempt using correct figures
21. [1] Calculation of rest of market share (i.e. 22%) OR Implied knowledge of total market value (i.e. 31.2bn)
22. [0] No creditable content
23. Formula: Individual market share values (added up) = total market value
24. Content: Total value of industry = 100% of market share
25. Content: PI = 31%
26. Content: TB = 32%
27. Content: WS = 15%
28. Content: Therefore other = 22% (100%-78%)
29. Content: 78% of the market = $31.2bn (12.4bn + 12.8bn + 6bn)
30. Content: $31.2bn / 78% = 0.4bn
31. Content: $0.4bn × 22% = $8.8bn
32. Content: $31.2bn + $8.8bn = $40bn
33. Answer = $40bn (3)
34. Exemplar: $40 bn/40bn/40 (no units or $) [3] Correct answer
35. Exemplar: 0.4*22 = $8.8bn [2] One mistake (+ 31.2)
36. Exemplar: 31.2/78% = 0.4bn [1] Incorrect attempt, two errors (× 22% + 31.2bn)
37. Exemplar: 31.2bn (with working) [1] Implied knowledge of formula
38. Exemplar: 31 + 32 + 15 = 22% (missing) [1] Worked out the missing percentage of mkt
39. Exemplar: 0.4 bn [0] Wrong answer - no working
40. [3] Explanation of one suitable way to measure the size of IP
41. [2] Identification of a suitable way to measure the size of IP
42. [1] Identification of one way to measure the size of a business
43. [0] No creditable content
44. NB Profit is not an acceptable measure of business size
45. Content: ∞ By revenue – PI charges its customers monthly (and we can presume its competitors do too) so this would be a good way to measure the size of the business
46. Content: ∞ By number of customers – The more households who choose PI to provide their internet the bigger the business, since this is the main source of revenue
47. Content: ∞ By coverage – over 95% of the households in country X can access PI's services. The more coverage the bigger the business.
48. Content: ∞ By market capitalisation – PI is a public limited company so sells shares. Value of the shares (NOT the share price) can be used to suggest how big the business is.
49. ARA Identification of a way (1 mark): By revenue [1] Explanation of a way (2 marks): As PI charges customers monthly [2] Explanation of a way in context (3 marks): So can compare against competitors [3]
50. ARA Identification of a way (1 mark): By customer numbers [1] Explanation of a way (2 marks): As internet provider is their largest source of business [2] Explanation of a way in context (3 marks): The bigger the number the larger the business [3]
51. ARA Identification of a way (1 mark): By coverage [1] Explanation of a way (2 marks): Over 95% of households can access PI [2] Explanation of a way in context (3 marks): The larger the number the larger the business [3]
52. ARA Identification of a way (1 mark): By market capitalisation [1] Explanation of a way (2 marks): Which shows the value of the PLC [2] Explanation of a way in context (3 marks): Which can be compared against competitors [3]
53. [4] Shows understanding of above and below the line promotion in context
54. [3] Shows understanding of above or below the line promotion in context
55. [2] Shows knowledge of above and below the line promotion
56. [1] Shows knowledge of above or below the line promotion
57. [0] No creditable content
58. Analysis (4 marks): Good analysis of one method of above and one method of below the line promotion in context [4]
59. Analysis (4 marks): Good analysis of one method of above or one method of below the line promotion in context [3]
60. Analysis (4 marks): Limited analysis of one method of above and one method of below the line promotion [2]
61. Analysis (4 marks): Limited analysis of one method of above or one method of below the line promotion [1]
62. Content: Above the line methods: ∞ Advertising - market is the whole of country X so although advertising is expensive it may be suitable.
63. Content: ∞ Television advertising
64. Content: ∞ Radio advertising
65. Content: ∞ Newspaper adverting
66. Content: ∞ Social media advertising
67. Content: ∞ ARA
68. Content: Below the line methods: ∞ Direct mail - relatively cheap way to target specific areas in country X. PI can target the areas where they have coverage, not waste money on areas without coverage.
69. Content: ∞ Trade shows/roadshows – stalls at shows/markets can be used to 'sign up' customers - effective because the service can be personalised to customer needs – employees could be paid on commission keeping costs low
70. Content: ∞ Leaflets - relatively cheap way to target specific areas in country X. PI can target the areas where they have coverage, not waste money on areas without coverage.
71. Content: ∞ Point of sale information – could be placed near computer sales in appropriate shops
72. Content: ∞ Social media – relatively cheap and targets people who like the internet. However, data suggests that households do not change provider, so if they already have the internet they are unlikely to swap.
73. Content: ∞ Putting together a package of existing services
74. ARA Example of an above the line method (K): Advertising [1] Examples of application/context (APP): Can advertise internet services to the whole country e.g. tv/radio [2] Examples of possible analysis (AN + DEV): It might be expensive (AN)but as the service is generic the price per customer is low (DEV)
75. ARA Example of an above the line method (K): Social media [1] Examples of application/context (APP): People who are interested in new internet deals may follow the company [2] Examples of possible analysis (AN + DEV): But research suggests few people switch providers (AN) so uptake may be low (DEV)nope,
76. ARA Example of a below the line method (K): Direct mail [1] Examples of application/context (APP): To the 95% of households they cover [2] Examples of possible analysis (AN + DEV): So do not waste money in areas without coverage (AN) where they could not fulfill orders (DEV)
77. ARA Example of a below the line method (K): Trade shows [1] Examples of application/context (APP): Can offer 3 free months service [2] Examples of possible analysis (AN + DEV): As direct contact can tailor orders (AN) to meet customer needs (DEV)
78. ARA Example of a below the line method (K): Leaflets [1] Examples of application/context (APP): Can highlight offers e.g. 3 months free service [2] Examples of possible analysis (AN + DEV): Can stimulate interest (AN) and meet the requirements of new customers (DEV)
79. ARA Example of a below the line method (K): PoS info [1] Examples of application/context (APP): Placed in computer sales shops [2] Examples of possible analysis (AN + DEV): Allows for upselling (AN) which can attract new customers (DEV)
80. [4] Shows understanding of two or more measures of financial performance in context
81. [3] Shows understanding of one measure of financial performance in context
82. [2] Shows knowledge of two or more measures of financial performance
83. [1] Shows knowledge of one measure of financial performance
84. [0] No creditable content
85. Analysis and Evaluation (7 marks): [7] Justified evaluation based on arguments in context
86. Analysis and Evaluation (7 marks): [6] Developed evaluation based on arguments in context
87. Analysis and Evaluation (7 marks): [5] An evaluative statement based on arguments in context
88. Analysis and Evaluation (7 marks): [4] Developed arguments based on two or more measures of financial performance in context
89. Analysis and Evaluation (7 marks): [3] Developed argument based on one measure of financial performance in context
90. Analysis and Evaluation (7 marks): [2] Limited analysis of two measures of financial performance
91. Analysis and Evaluation (7 marks): [1] Limited analysis of one measure of financial performance
92. Note: Market share is not a correct answer as it is not a financial indicator/measure of financial performance
93. Rationale - Cannot evaluate financial performance based off only one indicator i.e. GPM only
94. Content: ∞ GPM of PI is higher that the competitors – suggests that PI is efficient in terms of direct costs (economies of scale)
95. Content: ∞ NPM is lower than all of the other competitors – suggests that PI is inefficient in terms of indirect costs (diseconomies of scale)
96. Content: ∞ Working capital is negative – suggests that PI could struggle to pay short term debts. Does it have enough cash to pay for any promotion? Will IP be able to survive the short term? Will IP need a short-term source of finance?
97. Content: ∞ Current ratio shows that PI does not have enough CA to cover CL – Does it have enough cash to pay for any promotion? Will IP be able to survive the short term? However, TB seems to be holding too many CA – is this efficient?
98. Content: ∞ Web solutions has much better (twice) NPM than PI – how can this business be so much more efficient? Can PI copy any of its techniques?
99. ARA K: Gross profit margin [1] APP: PI has the highest GPM [2] AN: This means that they have low direct costs [3] DEV: Which could mean they have more efficient production [4] EVAL: PI has a good margin which is essential for a profitable business [5] However they may still face liquidation [6]
100. ARA K: Working capital [1] APP: Is the only one of the three that has a negative working capital [2] AN: Which may mean they can struggle to pay their debts [3] DEV: And not have enough money to spend on marketing [4] EVAL: PI has a good margin which is essential for a profitable business [5] However they may still face liquidation [6] This depends on whether their creditors insist on immediate payment [7]
101. ARA Routes to evaluation: ∞ Which firm is best/worst ∞ Which set of financial data is most important ∞ The relative importance of financial performance compared to other areas – i.e. sales performance