UF is a public limited company selling to an industrial market. It manufactures air conditioning units. UF produces two sizes of air conditioning units, medium and large. Most of its air conditioning units are sold for use in warehouses and computer server rooms. The units are expensive compared to competitors but UF believes its units are of a higher quality. Market research suggests that there is a growing demand for small air conditioning units to be placed in offices. To produce a new size of unit would require spending $180000 to purchase new machinery. UF relies on customer recommendations for new orders. However, some customers have been dissatisfied with the service received. UF has received several complaints, including: • engineers turning up late or not at all • poor communication from UF • little choice in the size of units supplied • appointment times are not always convenient and can be difficult to change. Sylvie, the Marketing Director of UF, is concerned about the sales data (Table 1.1) as sales have fallen 10% on the previous year. Table 1.1: Selected sales data for UF, 2019 Unit size | Price ($) | Unit sales ---|---|--- Medium | 900 | 3500 Large | 2000 | 800 Sylvie is considering two options to increase sales (see Table 1.2). Table 1.2: Options to increase sales Option 1 Reduce the price of the units by 10% | • Competitors' prices are 8% lower on average. • The estimated price elasticity of demand is -0.8. Option 2 Implement a performance related pay scheme (PRP) | • Sales staff are currently paid a monthly salary. • To introduce a PRP scheme the monthly salary would be reduced by 10%. • Targets would be set and if sales staff met the targets then they would receive PRP increasing their monthly salary by 15%.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [2] (a)(i) A correct definition
2. [1] (a)(i) A partial, vague or unfocused definition
3. [0] (a)(i) No creditable content
4. (a)(i) Consists of businesses that sell to other businesses (B2B). One business is the consumer and another business the supplier. Examples.
5. [2-3] (a)(ii) Good explanation
6. [1] (a)(ii) Partial explanation/understanding
7. [0] (a)(ii) No creditable content
8. (a)(ii) Measures the responsiveness of demand to a change in the price of a product. Can be elastic or inelastic. Formula or worked example.
9. [3] (b)(i) Correct answer.
10. [2] (b)(i) Right method but mistakes.
11. [1] (b)(i) Attempt (e.g. formula or identifies data).
12. (b)(i) Answer $3 150 000 + $1 600 000 = $4 750 000 ($ not required)
13. (b)(i) Formula TR = P x Q (1)
14. (b)(i) Working $900 × 3500 = $3 150 000 (1)
15. (b)(i) $2000 × 800 = $1 600 000 (1)
16. [3] (b)(ii) APAP Explanation of a source of finance in context
17. [2] (b)(ii) AP Identification of source of finance in context
18. [1] (b)(ii) K Identification of a source of finance
19. [0] (b)(ii) No creditable content
20. (b)(ii) Any source of finance either external or internal for 1 mark but most likely share capital, leasing, bank loan, hire purchase
21. (b)(ii) Context likely to reflect UF is a plc so share capital or, because finance is required for a long-term asset – machinery - bank loan rather than overdraft, or leasing or hire purchase.
22. [7] (c) Justified evaluation based on arguments in context
23. [6] (c) Developed evaluation based on arguments in context
24. [5] (c) An evaluative statement based on arguments in context
25. [4] (c) Shows understanding of the impact of each option on sales in context
26. [4] (c) Arguments (two sided) based on of each option in context
27. [3] (c) Shows understanding of the impact of one option on sales in context
28. [3] (c) Argument (one sided) based on the advantages or disadvantages of one option in context
29. [2] (c) Identifies two ways to increase sales
30. [2] (c) One piece of limited analysis of the impact of two options on sales
31. [1] (c) Identifies one way to increase sales
32. [1] (c) One piece of limited analysis of one way to increase sales
33. [0] (c) No creditable content
34. (c) Option 1 - reduce price
35. (c) Customers might be happy as they complained about high prices, but will quality be compromised?
36. (c) Price-inelastic demand will reduce revenue. If costs stay the same profits will fall so lower dividends for shareholders, possible redundancies if revenue falls. More price-competitive so could take business away from other firms but competitors may also reduce price and start a price war.
37. (c) Option 2 - PRP
38. (c) Customer complaints about service so training would help address this issue but could be expensive.
39. (c) Employees unhappy if monthly salary reduced but may be motivated to improve performance with PRP which would give them an increase of 15% in their monthly pay, but would targets be realistic?
40. (c) If employees may resent the training or be unhappy with pay scheme so they may look for jobs with competitors taking their skills, experience and knowledge elsewhere.
41. (c) Costs of training and PRP scheme will increase costs so decrease profits and potentially reduced dividends for shareholders.
42. [4] (d) Shows understanding of two methods to improve customer relationships in context
43. [4] (d) Developed analysis of two methods to improve customer relationships in context
44. [3] (d) Shows understanding of one method to improve customer relationships in context
45. [3] (d) Developed analysis of one method to improve customer relationships in context
46. [2] (d) Shows knowledge of two methods to improve customer relationships
47. [2] (d) Limited analysis of two methods to improve customer relationships
48. [1] (d) Shows knowledge of one method to improve customer relationships
49. [1] (d) Limited analysis of one method to improve customer relationships
50. [0] (d) No creditable content
51. (d) Could choose any two of the 4Cs: Cost, Convenience, Communication, Customer solution
52. (d) Contextual analysis likely to come from:
53. (d) Business to business so must be convenient to market and size appropriate to premises.
54. (d) Are just two sizes appropriate for all premises? Maybe need another size? New product?
55. (d) Responding to customer complaints on the website.