OT is a taxi business. OT is owned by two brothers who set up the business as a private limited company to benefit from limited liability. The majority of OT's customers are people travelling to and from the local airport. OT uses a competitive pricing strategy, charging customers $0.50 per kilometre travelled. OT has completed some market research to try and identify new market segments that the business could sell to (See Table 1). Table 1: Market research data on potential market segments | Market segment | Characteristics | |---|---| | Shoppers travelling to and from the main shops | • average journeys less than 3 kilometres <br> • travelling between 09:00–17:00 <br> • no brand loyalty <br> • pick up customers on street | | Business people travelling to and from the train station | • average journey 5 kilometres <br> • travelling between 06:00–08:00 and 17:00–19:00 <br> • high brand loyalty <br> • customers will telephone to book a taxi in advance | | People travelling to and from restaurants and theatres | • average journey more than 5 kilometres <br> • travelling between 19:00–02:00 <br> • some brand loyalty <br> • pick up most customers on street. Some customers will book in advance | OT owns four taxis. To be able to target a new market segment the business will need another vehicle. This would increase the number of journeys the business can make. OT has identified three possible options for the new taxi. Table 2 contains data about the three options. Table 2: Data for the new vehicle | | Vehicle X | Vehicle Y | Vehicle Z | |---|---|---|---| | Variable costs (per kilometre) | $0.25 | $0.20 | $0.30 | | Fixed costs (per month) | $500 | $660 | $380 | | Break even (number of kilometres each month) | 2000 | 2200 | X | OT does not currently have the $30000 needed to purchase the new vehicle outright. It will need to use external sources of finance.

Mark scheme

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

1. [2] A business whose shareholders/owners are not personally responsible for any business debts
2. [2] A business whose owners personal assets will not be used to pay business debts
3. [2] A business whose owners have a separate legal identity to the business
4. [2] A shareholder can only lose the capital invested in the business
5. [2] Limited liability for business debts
6. [1] When a business fails, the owners are not responsible for the debts
7. [0] A company is protected from financial loss
8. [0] No responsibility for business debts
9. [3] Basing the selling price in relation to the prices of competitors; e.g. a lower price to attract customers
10. [3] To identify competitors prices and then pricing lower to achieve more sales
11. [2] To set your prices lower than competitor businesses
12. [1] To set your prices in relation to competitor businesses
13. [0] A way of pricing your good to make it more attractive to purchase
14. [3] 1900 (with or without Km) (ignore miles, etc.)
15. [2] $500/$0.25 = 2000 (OFR for different car)
16. [1] Fc/contribution
17. [1] Revenue x profit margin
18. [3] Costs could change, especially with a new car which could have accidents, etc.
19. [3] Not just about the costs – quality/safety may be more important
20. [3] How long will each car last – what is the maximum mileage?
21. [3] Does not take into account profitability – If many miles above breakeven are completed then Car Y might be far more profitable
22. [3] E.g. a non-financial factor E.g. boot space (in a car)
23. [3] Which make the VC and FC change So on the price of replacement car parts may be important
24. [3] May breakeven but not make a profit As Car Y may be more profitable if more miles are covered As the VC is lower
25. Content: New shareholders – OT is a private limited company (LTD/LLC) so can sell shares but not to the general public. Loss of control of business.
26. Content: Bank loan – can be secured or not on the car
27. Content: Leasing - good option for a car as lower maintenance costs, etc.
28. Content: Debt factoring
29. Content: Hire purchase
30. Content: Grant/government finance
31. Developed analysis: New shareholders: In addition to the two brothers (context), Less future profits (analysis), Means they have to work harder (developed analysis)
32. Developed analysis: Bank loan: For $30 000 (context), Fixed monthly repayments (analysis), Help with budgeting (developed analysis)
33. Developed analysis: Leasing: saves $30 000 up front costs (context), Don't need up-front investment (analysis), No loss on control (developed analysis)
34. Developed analysis: HP: Don't need the full $30 k up front (context), Don't need up-front investment (analysis), Own the car at the end of the period (developed analysis)
35. Content: Shoppers: Short journeys – low revenue
36. Content: Shoppers: Long time period for journeys – could be higher number of customers
37. Content: Shoppers: No brand loyalty – taxis will need to be conveniently placed
38. Content: Shoppers: Taxis will need to be driving around to pick up customers – will increase variable costs
39. Content: Commuters: Longer journey than shoppers- more revenue
40. Content: Commuters: Shorter journeys than night time
41. Content: Commuters: Two relatively short periods for travel – could be too busy to cover with 5 taxis (or 1 taxi if only new taxi is used)
42. Content: Commuters: High brand loyalty - quality of service will be important
43. Content: Commuters: Booked in advance – so can plan other work (airports etc..) around pre-booked journeys
44. Content: Night-time: Longest journeys – highest potential revenue
45. Content: Night-time: Longer period for travel than commuters
46. Content: Night-time: Anti-social hours (and possibly anti-social behaviour)
47. Content: Night-time: Some brand loyalty – could build up a good reputation and perhaps lead to telephone bookings