Hannah started HH six years ago. HH operates in a niche market providing unique bags. The bags are made using job production. As demand grew for the bags, Hannah took on a partner, her brother Kwom. They both agreed to keep the name 'Hannah's Handbags' as it is an established, reputable and widely recognised brand. HH operates from a small workshop and showroom. Customers are encouraged to visit the showroom to discuss design and materials with either Hannah or Kwom. HH employs four highly skilled specialist production staff. Table 2.1 shows an extract from the latest income statement. Table 2.1: Extract of financial data for HH (year ended 30 October 2019) $000 Revenue | 980 Cost of sales | 588 Expenses | 245 A new product Hannah and Kwom would like to expand the business by producing a limited number of batch produced bags to sell online. Hannah has noticed other bag producers do this successfully. The new market has many more competitors, with 15 large businesses and many small ones. The bags would have to be priced competitively. Kwom estimates that this new venture would require additional finance of $350000. HH would also require a specialist IT provider to set up a website and a marketing agency to run a viral marketing campaign.

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) A financial statement that reports the revenue, cost of sales, gross profit, operating profit etc.
5. (a)(i) For full marks there should be some reference to revenue, cost of sales and profit.
6. [2-3] (a)(ii) Good explanation
7. [1] (a)(ii) Partial explanation/understanding
8. [0] (a)(ii) No creditable content
9. (a)(ii) Promoting a product using social networks. The name refers to how consumers spread information about a product to other people in their social networks. The basis of viral marketing is in the spread of information by word-of-mouth, nowadays mostly using internet-based applications such as email, social networking sites, web forums etc. Relatively low cost.
10. [3] (b)(i) Correct answer.
11. [2] (b)(i) Right method but mistakes.
12. [1] (b)(i) Attempt (e.g. formula or identifies data).
13. (b)(i) Answer = 392 000 / 980 000 × 100 = 40%
14. (b)(i) 392 000/980 000 = 0.4 (2)
15. (b)(i) 980 000 - 588 000 = 392 000 (1)
16. (b)(i) Revenue - cost of sales / revenue × 100 (1)
17. [3] (b)(ii) APAP Explains a benefit of accurate cost data to HH
18. [2] (b)(ii) AP Identifies a benefit of accurate cost data to HH
19. [1] (b)(ii) K Identifies a benefit of accurate cost data
20. [0] (b)(ii) No creditable content
21. (b)(ii) Set a price that provides a profit
22. (b)(ii) Set objectives
23. (b)(ii) Effective management of the business
24. (b)(ii) Provide partners with financial information
25. (b)(ii) Expensive product so need an accurate budget
26. (b)(ii) Inform expansion of the business / set up website
27. (b)(ii) Inform finance / budget for viral marketing campaign
28. (b)(ii) Ensure business can pay suppliers for expensive materials
29. (b)(ii) Ensure business can pay wages of production workers
30. (b)(ii) High (40%) gross profit margin
31. [4] (c) Shows understanding of one advantage and one disadvantage of using job production in context
32. [4] (c) Developed analysis of one advantage and one disadvantage of using job production in context
33. [3] (c) Shows understanding of one advantage or one disadvantage of using job production in context
34. [3] (c) Developed analysis of one advantage and one disadvantage of using job production
35. [2] (c) Shows knowledge of one advantage and one disadvantage of using job production
36. [2] (c) Limited analysis of one advantage and one disadvantage of using job production
37. [1] (c) Shows knowledge of one advantage or one disadvantage of using job production
38. [1] (c) Limited analysis of one advantage or one disadvantage of using job production
39. [0] (c) No creditable content
40. (c) Contextual advantages likely to come from:
41. (c) Luxury nature of the handbags
42. (c) Custom made designs – unique and made to customer specifications
43. (c) Flexible and possible to make changes during production if customer requires
44. (c) Hannah and Kwom can easily supervise and inspect the work
45. (c) Employee satisfaction – only 4 employees who can work as a team
46. (c) High gross profit margin of 40%
47. (c) The impact on HH reputation and brand as able to produce high quality products
48. (c) Success of the method in encouraging HH to expand
49. (c) Contextual disadvantages likely to come from:
50. (c) High unit costs compared to other production methods which might not be suitable for the new online range of bags
51. (c) Need highly skilled labour especially as a premium / high quality product
52. (c) Can take a long time to produce – 6 weeks, batch or flow would be quicker and more suitable for the new range
53. [7] (d) Justified judgement of the marketing mix in context
54. [6] (d) Developed evaluation of the marketing mix in context
55. [5] (d) Evaluation of the marketing mix in context
56. [4] (d) Shows understanding of more than one element of the marketing mix in context
57. [4] (d) Developed analysis of more than one element of the marketing mix in context
58. [3] (d) Shows understanding of one element of the marketing mix in context
59. [3] (d) Developed analysis of one element of the marketing mix in context
60. [2] (d) Shows understanding of more than one element of the marketing mix
61. [2] (d) Limited analysis of more than one element of the marketing mix
62. [1] (d) Shows understanding of one element of the marketing mix
63. [1] (d) Limited analysis of one element of the marketing mix
64. [0] (d) No creditable content
65. (d) Applies elements of the 4Ps
66. (d) Price - likely to be lower than current range as targeting a potentially larger online market and not custom made. Launch of a new product so possibly penetration pricing.
67. (d) Product - which designs to choose? Will materials be of same quality as custom made? Flow or batch production more suitable for new range so staff training in new processes required. Likely to need new premises as a building in the garden is not likely to be suitable for mass production.
68. (d) Promotion - via a viral marketing campaign, likely to be expensive as business intends to use a marketing agency. How effective and what budget?
69. (d) Place - online distribution but what about selling to shops as well? It could be another way of promoting as well as distributing.