Luxury Carpets (LC) LC is a large public limited company operating in country B. LC produces and sells a range of luxury carpets and other floor coverings. The carpets are sold to households through the many shops that LC has in country B. LC also sells directly to business markets including hotels, offices and restaurants. Aziz, the Marketing Director, uses market segmentation. Table 2: Percentage of LC's revenue by market segment for the year ended 31 December 2017 Market segment Percentage of revenue Households 20% Hotels 40% Offices 20% Restaurants 20% The Finance Director, Sam, has produced the following information: • Total revenue from LC's income statement (for year ended 31 December 2017) was $50000000. • Over the last four years, revenue has increased by 25% in total. • There has been no change over the last four years in the percentage of revenue earned from each market segment. The production process to manufacture carpets in LC's factory is capital intensive and uses a flow production method. The Production Director, Sally, has recently installed a new machine, which cost $300000, to improve productivity. LC employs 500 production workers. Many of the workers are unhappy about their working conditions and their pay. Workers feel that the directors care more about productivity than they do about them. They complain that communication between management and workers is poor.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2018). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partially correct definition
3. [0] No creditable content
4. [Max 2] A correct definition should cover both of the following aspects of productivity: A measure/ratio of the efficiency of inputs (e.g. labour, capital, time etc.)
5. [Max 2] A correct definition should cover both of the following aspects of productivity: Of a business/machine/capital/labour/outputs.
6. [Max 2] Could give formula for calculating labour or machine productivity. A correct formula would cover both aspects.
7. [1] A: Owned by shareholders/sells shares
8. [1] B: Sold on the stock exchange/to general public
9. [1] C: Example or some other way of showing good understanding, such as: Limited liability, Continuity, Separate legal identity, Corporation tax must be paid (not income tax), Accounts need to be published, Run by a Board of Directors, Dividends may be paid, Legal formalities (i.e. Articles, Memorandum etc.)
10. [Guidance] C mark cannot be awarded until both A and B marks have been awarded
11. [4] Correct answer (no $ required) with or without correct working
12. [3] Good attempt at calculation
13. [2] Reasonable attempt at calculation
14. [1] Some attempt at calculation
15. [0] No creditable content
16. [1] (A) Correctly calculate revenue from hotel sector ($20m)
17. [1] (B) Attempt at calculating revenue four years ago
18. [1] (C) OFR correct attempt at calculating 25% of revenue
19. [Calculation Step] Revenue is currently $50 000 000; hotel 40% so now segment is $20 000 000
20. [Calculation Step] It has increased by 25% in 4 years so 4 years ago total revenue was $50 000 000 × 100/125 = $40 000 000
21. [Calculation Step] hotels 40% four years ago so $16 000 000
22. [Calculation Answer] Was $16 000 000 now $20 000 000, answer is $4 000 000
23. [2] Explanation of one way LC could use the information in context (Level 2 APP)
24. [1] Identification of one way LC could use the information (Level 1 K)
25. [0] No creditable content
26. [Guidance] The income statement already includes calculations of gross profit, operating profit, profit for the year etc.
27. [Use] To calculate profitability (profit margins)
28. [Context for Profitability] Of different market segments (households, hotel, offices, restaurants)
29. [Context for Profitability] Impact of increase in revenue over last 4 years (increase of 25%)
30. [Use] Analyse changes
31. [Context for Changes] Between segments
32. [Context for Changes] After introduction of new machine
33. [Use] To see trends
34. [Context for Trends] In segments
35. [Context for Trends] In costs of manufacturing the carpets
36. [Use] To compare
37. [Context for Compare] Over past four years whilst revenue has increased
38. [Context for Compare] Between segments
39. [Context for Compare] With other carpet manufacturing firms
40. [Use] To measure performance
41. [Context for Performance] Revenue increase by 25%
42. [Context for Performance] Shareholder value
43. [Context for Performance] Of different segments
44. [Use] To see if objectives have been reached
45. [Context for Objectives] PLC so could link to shareholder objectives
46. [4] Good analysis of two benefits of increasing worker participation in context
47. [3] Good analysis of one benefit of increasing worker participation in context
48. [2] Limited analysis of two benefits of increasing worker participation
49. [1] Limited analysis of one benefit of increasing worker participation
50. [0] No creditable content
51. [Context] 500 workers – case says they are unhappy about their pay and working conditions
52. [Context] Poor communication and feel directors do not care about them
53. [Benefit] Improved communication between directors and workers
54. [Benefit] Could help improve productivity alongside the capital productivity from the machinery
55. [Benefit] Could help avoid any labour turnover issues
56. [Benefit] Could help avoid any quality concerns if employees are demotivated and not feeling cared for
57. [Benefit] May help alleviate concerns with pay if workers can see conditions improving or directors are starting to listen to and respond to worker concerns.
58. [7] A justified judgement of the importance of market segmentation to LC based on the given arguments
59. [6] A developed judgement of the importance of market segmentation to LC based on the given arguments
60. [5] An evaluative statement/judgement of the importance of market segmentation to LC based on the given arguments
61. [3-4] Argument based on the use of market segmentation in context
62. [1-2] Limited analysis of market segmentation
63. [0] No creditable content
64. [Why important] matching of customer needs especially given proportions of sales to business markets, need to understand what hotels want that could be different from restaurants/office for example.
65. [Why important] Enhanced profits/revenues for business, revenue has increased by 25% over the last four years, likely as LC knows its customers and their needs well
66. [Why important] Better opportunities for growth/more customers, each segment will be different so if more hotels opening and so on then LC can 'tap into this' and therefore could be reason why revenue has increased.
67. [Why important] Target marketing communications so that LC can have the right message for the right segments e.g. in marketing to restaurants or offices.
68. [Why not important] Segmentation increases costs. LC makes carpets, this will increase the costs such as research and product development for the carpets and business customers will need different sales techniques
69. [Why not important] Larger inventory has to be maintained by LC to cover the segments
70. [Why not important] Promotion and distribution costs increase as LC will need different marketing campaigns for the different segments, for example, TV advertising for the showrooms and personal selling for the business markets.