Ray's Taxis (RT) Ray is a sole trader providing a taxi service in city L. Recently, demand for Ray's taxi has fallen due to an increase in the number of competitors. Ray is thinking of joining Summus, who offer a smartphone app (application) which connects passengers to taxi drivers. Ray would be the first taxi driver in city L to join Summus. The app uses dynamic pricing to set the fare (amount paid) for a journey. Summus takes 20% of the fare and the remaining 80% is revenue for the taxi driver. Summus has provided forecast data in Table 1.1. Table 1.1: Forecast data about each taxi using the Summus app Average fare: $15 Average number of journeys per day: 16 Average distance travelled per journey: 5 km Ray has calculated costs, shown in Table 1.2. Table 1.2: Ray's costs Fixed cost per day: $42 Variable cost per km: $0.50 Passengers like the Summus app as it is easy to use, quick and reliable. Taxi drivers like it as they can decide when and where to work and they can earn more revenue. However, a recent article on a taxi drivers' forum suggested there are problems with Summus. • It signs up too many taxi drivers. • Taxi drivers are not employed by Summus and are not guaranteed any revenue. • Customers have to wait longer for a taxi when fares are low.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [2] A correct definition / to the same/ similar market
2. [1] A partial, vague or unfocused definition / same or similar product
3. [1] One mark for other businesses/individuals
4. [1] One mark for same/similar market; same/similar product
5. [1] Other businesses (1) offering the same product or service (1)
6. [1] Other similar businesses (1) that sell similar goods/services (1)
7. [1] A rival person/organisation/company/firm (1) in the same or similar industry (1) trying to reach the same/similar target market (1)
8. [1] Explanation point: Example or some other way of showing good understanding
9. [1] Explanation point: Understanding of dynamic (changes in response to market/demand/time of day etc)
10. [1] Explanation point: Understanding of pricing (allow any understanding of a quantitative value) e.g. quantitative value/amount/figure charged/cost
11. [1] Content: Varying what the customer pays
12. [1] Content: for a product or service to reflect changing market conditions
13. [1] Content: such as higher prices at peak times
14. [1] Content: to maximise revenue
15. [1] Content: e.g. often used on apps or websites
16. [1] Content: Allows firms to set prices according to demand.
17. [1] Content: Businesses adjust prices on apps or websites.
18. [1] Content: Flexible pricing in real-time.
19. [3] Level 2 (APP+APP): Explanation of a factor which would increase the profit margin in context
20. [2] Level 2a (APP): Explanation of a factor which would increase profit in context
21. [1] Level 1a (K): Identification of a factor affecting profit
22. [1] Content: Increase number of journeys without a change in taxi maintenance costs
23. [1] Content: Reduce costs without change in number of journeys/price eg buying an electric car
24. [1] Content: Negotiate a higher (than 80%) return from Summus
25. [1] Content: Work longer hours as Summus fixed costs do not change
26. [3] Correct answer with or without correct working or $
27. [2] Attempt with correct figures
28. [1] Formula/attempt to calculate
29. [1] Content: Revenue = (P × Q)
30. [1] Content: = ($15 × 16 journeys) = 240
31. [1] Content: = $240 × 80% = $192
32. [1] Content: = 192
33. [4] Level 2b: Shows understanding of two methods of pricing in context
34. [4] Level 2b: Developed analysis of two methods of pricing in context
35. [3] Level 2a: Shows understanding of one method of pricing in context
36. [3] Level 2a: Developed analysis of one method of pricing in context
37. [2] Level 1b: Shows knowledge of two methods of pricing
38. [2] Level 1b: Limited analysis of two methods of pricing
39. [1] Level 1a: Shows knowledge of one method of pricing
40. [1] Level 1a: Limited analysis of one method of pricing
41. [1] Content: Identification of pricing method (K): Competitive
42. [1] Content: Understanding in context (APP): As increasing competition (in city L)
43. [1] Content: Limited analysis (AN): Which would mean the USP may make them more popular
44. [1] Content: Developed analysis in context (Dev): Which would lead to an increase in demand/revenue
45. [1] Content: Identification of pricing method (K): Penetration
46. [1] Content: Understanding in context (APP): to increase brand awareness for taxi's (in city L)
47. [1] Content: Limited analysis (AN): Which would lead to an increase of customers in the short term
48. [1] Content: Developed analysis in context (Dev): And hopefully long term customer loyalty
49. [1] Content: Identification of pricing method (K): Skimming
50. [11] Level 7: A justified recommendation based on developed arguments
51. [6] Level 6: A developed recommendation based on developed arguments
52. [5] Level 5: A basic recommendation/evaluation based on developed arguments
53. [4] Level 4: Two arguments based on two elements of decision making in context
54. [3] Level 3: One argument based on one element of decision making in context
55. [1] Content: Knowledge and understanding - Factors affecting knowledge of decision making for a business
56. [1] Content: Application - Ray's demand has fallen
57. [1] Content: Application - Increasing competitors
58. [1] Content: Application - No other taxi drivers employed by Summus in city L
59. [1] Content: Application - App uses dynamic pricing
60. [1] Content: Application - Ray gets 80% / Sumus gets 20%
61. [1] Content: Application - Data from Table 1.1 and 1.2
62. [1] Content: Application - Passengers like Summus app
63. [1] Content: Application - Taxi drivers like Summus App
64. [1] Content: Application - Signs of too many taxi drivers
65. [1] Content: Application - Drivers not employed
66. [1] Content: Application - Drivers not guaranteed revenue
67. [1] Content: Application - Longer customer waiting times when fares are low
68. [1] Content: Analysis - Analysis of reasons for and against Ray joining Summus
69. [1] Content: Evaluation - A recommendation for Ray based on arguments in context as to whether he should or should not join Summus
70. [1] Content: Evaluation - A judgement over which argument is most important
71. [1] Content: Evaluation - An evaluation of the level of argument
72. [1] Content: Evaluation - What the judgement/evaluation might depend upon.
73. [1] K: More customers
74. [1] APP: As booked through app
75. [1] AN: Higher revenue
76. [1] DEV: Although dynamic pricing may reduce Ray's overall income if not a peak time
77. [1] EVAL: Ray should join Summus as customers like convenience and creating his own app would be expensive, however it depends on whether he is willing to work only at peak times and the revenue from Summus is likely to be above his sole trader revenue
78. [1] K: High total costs
79. [1] APP: As $42 per day + 20%
80. [1] AN: Which reduces Rays gross profit
81. [1] DEV: Which may be less than earnings as a sole trader
82. [1] EVAL: however it depends on whether he is willing to work only at peak times and the revenue from Summus is likely to be above his sole trader revenue