TT is a brand of vegetable chips (crisps) owned by a large public limited company. The vegetables are thinly sliced, cooked, flavoured and then packaged in the TT factory. The factory uses flow production with a different variety of vegetable chips made each day. The factory runs for 24 hours a day, 5 days a week. TT's varieties and some market data is shown in Table 2.1. Table 2.1: Varieties and market data of TT's vegetable chips Variety | Annual sales (million units) | Estimated price elasticity of demand ---|---|--- Beetroot | 2 | -0.9 Parsnip | 3 | -0.8 Potato | 6 | -1.1 Carrot | 3 | -1.5 All the varieties are sold at a price of $1 per unit. TT branded products have a high profit margin. The owners of the TT brand would like to develop a new variety to expand the product portfolio. This new variety would be targeted at parents as a lunchtime snack for their children. The Marketing Director has been told to do some market research into potential new varieties of chips. A large supermarket group would like to start a joint venture with TT. The supermarket wants to buy TT's vegetable chips, but branded with the supermarket packaging. If the directors of TT agree, this is expected to increase TT's annual sales by 25% and improve the cash flow of the business. However, the joint venture would mean TT's profit margin for supermarket branded chips would be lower than TT's branded chips. The manager at the factory where TT's vegetable chips are produced also has other concerns about the joint venture.

Mark scheme

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

1. [2] The movement of money in and out of a business.
2. [1] An explanation of name/logo/design/feature etc.
3. [1] An explanation that it distinguishes from competition (unique).
4. [1] Example or some other way of showing good understanding.
5. [1] Formula or correct calculation of percentage change in P (10%)
6. [2] Correct calculation of percentage change in QD (-15%)
7. [3] Correct answer with or without correct working or m (2.55m units or a decrease of 0.45m units)
8. [1] Identification of one use of PED figures (e.g., To predict the effect of price changes / To predict changes in revenue/profit / To decide how to change/set a price / To understand the effects of a sale/promotional pricing)
9. [2] Explanation of one use of PED figures
10. [3] Explanation of one use of PED figures in context (e.g., Should not increase the price of carrot or potato varieties – will lose revenue because both PED are elastic)
11. [K] Survey - could survey current customers about new varieties they might like.
12. [K] Questionnaires – Could ask about new possible varieties.
13. [K] Focus groups – ask a group to try the new varieties and give feedback on them.
14. [K] Observation – could observe what potential customers are buying from retailers new varieties/flavours etc.
15. [K] Testing - could hand out free samples for feedback.
16. [APP] Asking parents about what varieties of chip their children like most. (Example for Questionnaires)
17. [AN] Which could give TT useful information about the new product so they can gain high sales.
18. [DEV] However questionnaires are expensive to ask enough people to make them representative so this could increase TT's costs.
19. [K] Printed - trade magazines, research done by competitors.
20. [K] Paid for - from market research agencies, census etc.
21. [K] Internet - demographics, new products in other markets etc.
22. [APP] To see what flavours of vegetable chips TT's competition are selling. (Example for The internet)
23. [AN] This would be a cheap way of finding out secondary data which lowers the cost of the research.
24. [DEV] however it will not tell TT about flavours which are in development so the research may be a waste of time.
25. [K] Will the factory have capacity to produce the chips for the supermarket – currently running 24 hours a day, five days a week – would it require producing less TT branded chips?
26. [K] Will the factory need to run at weekends – overtime payments? When would the machines be maintained/cleaned etc.?
27. [K] Might the 'own label' chips damage the TT brand if people found out they were the same?
28. [K] Would demand reduce for TT chips when the new supermarket chips are sold?
29. [K] Will the supermarket continue to stock TT chips if the business does not agree to make the own label chips?
30. [K] What will the profit margin be on the new chips? Would it make more profit to turn down the order and maintain the high profit margins?
31. [K] Will this stop the new variety being produced and therefore jeopardise the expansion of the product portfolio?
32. [APP] Which may mean that TT has to open the factory for six days a week instead of five.
33. [AN] This will increase TT's costs.
34. [DEV] And with a lower profit margin, TT may make a loss from this joint venture.
35. [EVAL] The biggest concern is likely to be about having to open an extra day each week.
36. [EVAL] However, in the long term a reduction in profit could be more of a concern, especially if it leads to the business shutting down.
37. [APP] Which may mean that TT cannot produce the new variety.
38. [AN] This might lead to less sales in the future.
39. [DEV] Which may damage TT's profit.
40. [EVAL] However, in the long term a reduction in profit could be more of a concern, especially if it leads to the business shutting down.