Su is a sole trader who started a business called CP which operates a play area for children. The play area is inside a building and includes toys and other play equipment. Customers book on CP's website for each hour that they would like to use the play area. CP is two kilometres away from the nearest city which has a large population. Su does not pay for any promotion and she relies on recommendations and reviews from previous customers. Su currently charges a price of $10 an hour for a group of up to 5 children. Only one group can book CP for each hour. Demand is greater than supply so Su may increase the price to $15 per hour. She has completed some market research to see if this is a good idea. Her findings are in [Table 1.1]. [Table 1.1]: Market research about prices for CP Price | Quantity (hours) demanded per day ---|--- $10 | 10 $15 | 6 Su is also thinking about expanding the business by opening a café targeted at parents with children. The café would be located at the entrance to CP's play area. There are many other cafés in the city centre two kilometres away. Su believes that product differentiation is essential for the profitability of the café. Su plans to use CP's working capital as the source of finance to open the new café. The café will need to earn revenue quickly, so she plans to open it in four weeks. She will need quick and low-cost promotion methods if the café is to succeed.

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [2] The ability and willingness for a business to produce products or services to the market at a given price.
2. [1] The quantity of products/services produced/able to produce/willing to produce.
3. [1] At a given price/over a period of time.
4. [1] (C) Example or some other way of showing good understanding.
5. [1] (B) Understanding of differentiation.
6. [1] (A) Understanding of product.
7. [3] The process of distinguishing a good or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own products.
8. [3] Correct answer with or without correct working or minus sign.
9. [2] Formula and correct calculation of one change percentage or correct calculation of both change percentages.
10. [1] Formula or correct calculation of one change percentage.
11. [1] Percentage change in quantity demanded / Percentage change in price (formula).
12. [1] -40% (calculation of change in QD).
13. [1] +50% (calculation of change in P).
14. [3] Answer = -0.8 (allow 0.8) OFR.
15. [3] Explanation of one factor in context (Level 2b APP).
16. [2] Explanation of one factor (Level 2a K+K).
17. [1] Identification of one factor (Level 1a K).
18. [1] Number of customers who book CP's services, or number of customers who use the café – because the more customers, the bigger the business is likely to be (Content).
19. [1] Revenue gained from selling CP's services or goods from the café – because the more revenue, the higher the value of goods and services and therefore the larger the business (Content).
20. [1] Size of the building owned (or rented), to compare against similar businesses – for example a café with twice the space of CP would be bigger (Content).
21. [1] Capital invested – for example the value of the building where CP is located - this reflects the assets of the business and therefore the size (Content).
22. [1] Number of employees – only Su appears to work for CP so must be a small business (Content).
23. [1] Market share – in comparison to competitors – CP's is likely to be small as only one store and is a sole trader (Content).
24. [4] Good analysis of one advantage and one disadvantage in context (DEV+DEV) (Level 2b Knowledge and Application).
25. [3] Good analysis of one advantage or one disadvantage in context (DEV) (Level 2a Knowledge and Application).
26. [2] Limited analysis of one advantage and one disadvantage (AN+AN) (Level 1b Knowledge and Application).
27. [1] Limited analysis of one advantage or one disadvantage (AN) (Level 1a Knowledge and Application).
28. [1] Working capital = current assets – current liabilities / the amount of internal finance available for day-to-day expenses (Content).
29. [1] (Advantage) No finance costs – as a sole trader, Su may not be able to afford extra costs in her business (Content).
30. [1] (Advantage) Immediately available – would allow Su to benefit from quicker income from the café, especially important as she plans to open it in four weeks (Content).
31. [1] (Disadvantage) May leave CP financially unable to face future issues – will Su have any funds left if CP needs extra money? What if the café costs more than she expects, does Su have any other funds to support this? (Content).
32. [1] (Disadvantage) May leave Su unable to pay CP's bills – this might lead to the cafe having to shut down which may lead to the end of the CP. Risking current business to fund new venture (Content).
33. [7] Justified evaluation based on argument in context (EV+EV+EV) (Level for Analysis and Evaluation).
34. [6] Developed evaluation based on argument in context (EV+EV) (Level for Analysis and Evaluation).
35. [5] An evaluative statement/based on argument in context (EVAL) (Level for Analysis and Evaluation).
36. [4] Argument based on two promotion methods in context (DEV+DEV) (Level for Knowledge and Application).
37. [3] Argument based on one promotion method in context (DEV) (Level for Knowledge and Application).
38. [2] Limited analysis of two promotion methods (AN+AN) (Level for Knowledge and Application).
39. [1] Limited analysis of one promotion method (AN) (Level for Knowledge and Application).
40. [1] Below the line methods are likely to be more cost effective and suitable than above the line – however, local above the line methods may also be suitable (Content).
41. [1] CP's website – already up and running and used by family customers. Low cost (possible zero marginal cost) but may not bring in enough new customers. Would it be enough to just have current customers? (Content).
42. [1] Local newspapers – likely to be low cost and target the local market – may be able to place advertisement in a part of the newspaper which would appeal to parents (Content).
43. [1] Local television – unlikely to be low cost or able to create within four weeks. However, could effectively show where the café is and communicate the USP (Content).
44. [1] Social media – could be effective in targeting parents (plenty of social media pages dedicated to this) but will it allow Su to focus on the local market? (Content).
45. [1] Word of mouth – this is what Su uses for the play area, but would this bring in enough customers to make the café a success? – only five children each hour in the play area, would need more than this to generate business for a café. Focused on target market, but can Su control this and rely on it? (Content).
46. [1] Posters in local schools/libraries/toy shops – likely to hit target market – but some of the places might have their own cafes and not be willing to advertise Su's (Content).