FD is a private sector business that manufactures an international brand of carbonated drinks. Its slogan was 'A premium drink for premium customers'. The market for FD's drinks is very competitive, with 7 national and 12 international brands all competing in the same market. Recently FD lost the title of market leader to TR, one of its largest competitors. TR is a multinational public limited company. Two years ago, FD produced primary market research on customer preferences in the carbonated drink market. The report identified that FD still had a great brand name, high brand awareness and customer loyalty. The cost of raw materials has increased in recent years. To keep profit margins stable, FD reduced the quality of ingredients instead of raising the selling price, and reduced its marketing budget. Ted, Finance Director, used the evidence of high customer loyalty to justify the decision. The change in ingredients led to FD's products tasting similar to their competitors. Customers left feedback highlighting a 'flavourless drink', and demand fell rapidly. FD's good brand name and customer loyalty was lost. Currently FD is operating at 60% of maximum capacity. Table 2.1 FD financial data 2023 Total fixed costs (m): 15 Average variable cost per unit (): 1 Average selling price per unit ($): 4 Maximum capacity (m): 100 Employee morale has dropped as a result of the negative feedback. Key employees have left to work for FD's competitors. The lack of experienced employees has led to a drop in the productivity of the production process.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] Profit maximisation or satisficing
2. [1] Growth
3. [1] Increased market share/market leader
4. [1] Survival
5. [1] CSR
6. [1] Maximising revenue
7. [1] Customer satisfaction
8. [1] New product development/innovation
9. [1] Diversify into new markets
10. [1] Increasing shareholder value
11. Do not reward features of private sector businesses that are not related to the objectives
12. Accept all valid responses.
13. [1] (AO1) A consumer's desire to buy
14. [1] (AO1) Willingness to pay a specific price
15. [1] (AO1) Popularity of a product amongst customers
16. [1] (AO1) The quantity/number of customers looking to buy goods and services at a specific price
17. [1] (AO1) Demand varies with price – the relationship varies depending on the type of good, e.g. normal or inferior
18. [1] (AO1) Demand is at a specific point in time
19. [1] (AO2) Factors affecting demand (e.g., consumer incomes, price of substitutes, population size, fashion, quality, advertising, costs, inputs)
20. [1] (AO2) Demand for the drinks has changed since altering ingredients (applied to FD)
21. [1] (AO2) People buy more drinks when the weather is warmer (applied to FD)
22. [1] (AO2) FD's products taste similar to competitors after the change in ingredients (applied to FD)
23. [1] (AO2) Cost of raw materials increased (applied to FD)
24. [1] (AO2) High brand awareness and customer loyalty which increases/maintains demand (applied to FD)
25. [1] (AO2) Affected by costs and inputs e.g. reducing the quality of ingredients/raising the selling price/reducing the marketing budget reduces demand (applied to FD)
26. Knowledge & understanding (Knowledge of demand) [1 mark]
27. Explanation (Explanation of demand) [1 mark]
28. Context (Applied to a business context/business environment) [1 mark]
29. [1] Formula = current sales - breakeven point (1)
30. [1] Calculation of breakeven point
31. [1] Fixed costs: $15m
32. [1] Contribution per unit: selling price per unit ($4) – variable cost per unit $1m = $3m
33. [1] BE level of output: 5m units
34. [1] Current sales 100m × 0.6 (60% of maximum capacity) = 60m units
35. [1] Margin of safety = 60m units – 5m units (1 OFR for 60m units and 5m units)
36. Correct answer: 55m (units) allow 55 [3 marks]
37. To award two marks, there must be Both of the following: Correct calculation of the break-even quantity AND Correct calculation of current sales OR An incorrect answer with one mistake allowing OFR for final stage.
38. To award one mark, there must be: One of the following: Correct formula for margin of safety (word or figures) OR Correct calculation of the break-even quantity or current sales
39. [1] (AO1) Types of intangible attribute, e.g. brand name, customer loyalty, quality, satisfies thirst, taste, reliability, image
40. [1] (AO2) Explanation of the identified intangible attribute, e.g., Brand name; because it can't be touched
41. [1] (AO2) Brand name; which contributes to the reputation of the business (applied to FD)
42. [1] (AO2) Quality; how the customer perceives the drink (applied to FD)
43. [1] (AO2) 'A premium drink for premium customers' reputation/helps become market leader (applied to FD)
44. [1] (AO2) Marketing budget reduced/erodes brand awareness (applied to FD)
45. [1] (AO2) 'High customer loyalty' ensures market leader status (applied to FD)
46. Knowledge & understanding (Knowledge of an intangible attribute) [1 mark]
47. Explanation (Explanation of an intangible attribute) [1 mark]
48. Context (Applied to a business context/business environment) [1 mark]
49. A01 Knowledge and understanding: Knowledge of productivity (max of 1 mark if no impact of a fall in productivity)
50. [1] Knowledge of productivity – the effectiveness of productive effort / ratio of outputs to inputs
51. [1] Producing fewer products / resources not being utilised to their maximum potential
52. [1] Measurements of productivity – average output/costs, time or resources incurred in a time period
53. [1] Producing output at the highest ratio of output to input (more out of less)
54. [1] Knowledge of possible impacts of a drop in efficiency
55. [1] Profitability
56. [1] Average costs of production
57. [1] Wastage of resources
58. AO2 Application: Context applied to an impact of a fall in productivity (max 2 marks), including:
59. [1] Loss of 'market leader' title
60. [1] Great brand name high brand awareness and customer loyalty lost
61. [1] Cost of raw materials have increased
62. [1] Quality of ingredients reduced instead of increasing selling price per unit
63. [1] Reduced marketing budget
64. [1] Lack of distinctiveness
65. [1] Falling demand
66. [1] Data from table 2.1
67. [1] Drop in employee morale and loss of key employees
68. AO3 Analysis: Impacts may include:
69. [1] Reduced productivity will increase the average cost of making each unit of output
70. [1] Lowers output per time period of fizzy drinks, which may lead to an increase in the unit cost which can further reduce the profit margin per unit which may lead to an increase in the selling price
71. [1] FD may run out of inventory if supply is not equal to demand, which may lead to an increased lead time for the customer order which may further increase consumer dissatisfaction and help the competitor strengthen their market dominance
72. [1] May lead to KPI's not being achieved which may impact on the financial reward for the employees which may persuade remaining employees to find alternative employment
73. [1] Unexperienced employees may be pressured to increase productivity, however without the prior manufacturing experience may make further mistakes which may negatively impact on the taste and therefore the already dropping brand name and demand which can affect cashflow and reputation
74. [1] Employee morale may fall further due to the fall in productivity
75. Limited analysis: candidate shows one link in the chain of analysis.
76. Developed analysis: candidate shows two or more links in the chain of analysis or a two-sided analysis.
77. Accept all valid responses.
78. A01 Knowledge and understanding: Knowledge of the features of marketing research methods to inform future marketing decisions (max 2 marks), including:
79. [1] Market research is the process of collecting, recording and analysing data about customers, competitors and the market
80. [1] Market research can be primary and/or secondary
81. [1] Market research data can be quantitative and/or qualitative
82. [1] Purposes of market research – understand the market, reduce risk, understand customers, predict trends
83. [1] Primary market research methods or examples
84. [1] Secondary market research methods or examples
85. AO2 Application: Context applied to features of market research methods to inform future marketing decisions (max 2 marks), including:
86. [1] International brand of carbonated drinks
87. [1] Research focused on customer preferences
88. [1] Slogan was 'A premium drink for premium customers'.
89. [1] 7 national and 12 international brands
90. [1] FD lost the title of market leader to TR
91. [1] Reduced its marketing budget.
92. [1] Evidence of high customer loyalty
93. [1] Change in ingredients led to FD's products tasting similar to their competitors
94. [1] Feedback highlighting a 'flavourless drink' and demand fell rapidly
95. [1] Brand name and customer loyalty was lost
96. AO3 Analysis: Impacts may include:
97. [1] Primary research data; understand customer needs so can increase sales
98. [1] Can help decide whether new business ideas are suitable/relevant; reduces long term costs of a failed product/brand
99. [1] Identify products customers find appealing; reduces marketing budgets
100. [1] Make packaging and branding decisions; attract customer interest
101. [1] May not provide much unknown data; data may already exist so not increase sales
102. [1] Is there marketing budget suitable; may not have enough finance
103. AO4 Evaluation: A judgement about the likely usefulness to FD of market research methods to inform future marketing decisions.
104. [1] Elements that the judgement could depend upon, available finance, brand reputation, competitor branding, taste, trust.
105. [1] Weighing up of the impacts on external factors to the proposed of market research methods to inform future marketing decisions.
106. L1: Market research methods are useful to FD.
107. L2: Market research methods are useful to FD because it can help the business make decisions to better meet customer needs.
108. L3: Market research methods are useful to FD because it can help the business make decisions to better meet customer needs and therefore regain its position as market leader.
109. L1: FD should not use market research methods to support future marketing decisions.
110. L2: FD should not use market research methods to support future marketing decisions in case the data is misleading.
111. L3: FD should not use market research methods to support future marketing decisions, such as reducing the quality of ingredients in its drinks, in case the data is misleading.
112. L1: In the short-term market research methods are a good way to inform future marketing decisions.
113. L2: In the short-term market research methods are a good way to inform future marketing decisions, but in the long-term changes in the external environment may reduce the value of the market research data.
114. L3: In the short-term market research methods are a good way to inform future marketing decisions, but in the long-term changes in the external environment may reduce the value of the market research data, especially as the market is competitive with 7 national and 12 international brands.