Friendly Fit (FF) FF is a public limited company that owns a popular social media and fitness app. The app was launched five years ago and now has over three million users worldwide. The app allows users to upload and share pictures and short films of their favourite exercises. There are many other features which have been developed as the app has gained popularity. The app can be downloaded for free and users can access basic features without paying any money. However, to access all the features of the app, customers must pay a monthly fee of 10. FF also receives income from advertising revenue. Table 1.1 shows cost and revenue data for the app for the last two years. Table 1.1: FF's costs and revenue for the app for 2021 and 2020 2021 2020 (m) ($m) Revenue from monthly fees 1.6 1.4 Revenue from advertising 1.4 1.8 Total costs 2.0 2.0 Every month, FF carries out a survey of a sample of users to research new features which may be added to the app. The sampling process is outlined in Fig. 1.1. A stratified sample based on age. Those who respond are given one month's free access to all the features of the app. Survey sent through the app to 50000 current users. 15000 users usually respond to the survey each month. [Figure 1.1]

Mark scheme

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

1. [2] (a)(i) A correct definition should include the following elements: • an individual or business that purchases/buys products or services (goods) • from a business/firm/company/organisation/enterprise/market etc.
2. [2] (a)(i) Exemplar: Someone who buys a product from a business. Rationale: Both elements
3. [2] (a)(i) Exemplar: A purchaser of goods from a business. Rationale: Both elements
4. [1] (a)(i) Exemplar: A person who buys a product. Rationale: One element
5. [1] (a)(i) Exemplar: Someone a business sells to. Rationale: One element
6. [0] (a)(i) Exemplar: Someone who uses a product. Rationale: Confusion with consumer
7. [3] (a)(ii) Award one mark for each point of explanation: Knowledge A Understanding of a limited company, e.g. limited liability, continuity and a separate legal identity, has shareholders/ they sell shares. B Understanding of the specific nature of a public limited company, e.g. shares may be sold to the general public/through stock exchange, accounts must be published (not just made available). C Example or some other way of showing good understanding, this could be another element from A, as long as B has been awarded. Note: A and B marks must be gained before C mark can be awarded.
8. [3] (a)(ii) Content: A public limited company has shareholders who can purchase shares through a stock exchange. It also has limited liability, continuity and a separate legal identify. It differs from a private limited company by being able to sell shares to the general public (through a stock exchange) and in having to publish (not just made available) its accounts.
9. [3] (a)(ii) Exemplar: A PLC has limited liability (A) and can sell shares through the stock exchange (B). An example of a PLC is McDonalds (C). Rationale: All three elements
10. [2] (a)(ii) Exemplar: It is owned by shareholders (A) and anyone can buy shares (B). Rationale: A and B only
11. [1] (a)(ii) Exemplar: A PLC can sell shares (A) and has a separate legal identity. If an owner dies the business continues. It must produce accounts each year and has unlimited liability. Rationale: A only - do not award the C mark unless B has been awarded.
12. [0] (a)(ii) Exemplar: A PLC has unlimited liability, and the owners must draw up a deed. Rationale: Confusion with a partnership
13. [3] (b)(i) Rationale: Correct answer with or without correct working or %
14. [2] (b)(i) Rationale: Correct calculation of profit
15. [1] (b)(i) Rationale: Formula or correct calculation of TR
16. [0] (b)(i) Rationale: No creditable content
17. [3] (b)(i) Content: Total revenue – total costs / Total revenue × 100 1.4 + 1.8 = 3.2 (TR) 3.2 – 2 = 1.2 (profit) 1.2 / 3.2 × 100 = 37.5% Answer = 37.5% allow 38% (3)
18. [3] (b)(i) OFR: Answer = 37.5% allow 38%
19. [3] (b)(i) Common incorrect answers: Answer: 37.5. Mark: 3. Rationale: % sign not required.
20. [2] (b)(i) Common incorrect answers: Answer: 1.6 + 1.4 = 3 (TR) 3 – 2 = 1 (profit) 1 / 3 x 100 = 33.3%. Mark: 2. Rationale: Answer given for 2021 data. With working, this can be worth 2 marks for the two stages.
21. [0] (b)(i) Common incorrect answers: Answer: 33.3%. Mark: 0. Rationale: Without working this can not be awarded marks.
22. [1] (b)(i) Common incorrect answers: Answer: 1.4 + 1.8 = 3.2. Mark: 1. Rationale: One mark for TR – rest is incorrect
23. [2] (b)(i) Common incorrect answers: Answer: 0.375 (with working). Mark: 2. Rationale: Candidate did not create a percentage
24. [0] (b)(i) Common incorrect answers: Answer: 0.375 (no working). Mark: 0. Rationale: An incorrect answer with no working
25. [3] (b)(ii) Level 2b (APP): Explanation of one way a business can use profit margin data in context [3]
26. [2] (b)(ii) Level 2a (K+K): Explanation of one way a business can use profit margin data [2]
27. [1] (b)(ii) Level 1 (K): Identification of way a business can use profit margin data [1]
28. [0] (b)(ii) Level 0: No creditable content [0]
29. [3] (b)(ii) Content: Knowledge of a use of profit margin data may include: • As a way of monitoring business success - to make business decisions • Identifying areas for the business to work on - to improve the costs of the business • To attract investors – to show that it is still a good profit margin for investors. • To find external sources of finance – banks for example would want to know how profitable the business is.
30. [3] (b)(ii) Application may come from the following points: • Use of Table 1.1 (including 33.3% profit margin in 2021) • FF is a public limited company • Owns a popular social media and fitness app. • App was launched five years ago. • Over three million users. • App is constantly developing features for users. • Revenue from advertising and sales/monthly fees.
31. [3] (b)(ii) ARA: Exemplar: To compare the profit margin for investors (K) to see that the margin has decreased by 4.2% (APP). Rationale: Knowledge and application to the data.
32. [2] (b)(ii) ARA: Exemplar: To attract investors (K) so that they know if the business is likely to give them a return (K). Rationale: Two pieces of knowledge, no context.
33. [1] (b)(ii) ARA: Exemplar: To compare previous years (K). Rationale: One piece of knowledge.
34. [8] (c) Level 2b (APP + APP) Knowledge and Application (4 marks): Shows understanding of two ways operations can add value in context [4]
35. [8] (c) Level 2a (APP) Knowledge and Application (4 marks): Shows understanding of one way operations can add value in context [3]
36. [8] (c) Level 1b (K+K) Knowledge and Application (4 marks): Shows knowledge of two ways operations can add value [2]
37. [8] (c) Level 1a (K) Knowledge and Application (4 marks): Shows knowledge of one way operations can add value [1]
38. [8] (c) Level 0 Knowledge and Application (4 marks): No creditable content [0]
39. [8] (c) Level DEV + DEV Analysis (4 marks): Developed analysis of two ways operations can add value in context [4]
40. [8] (c) Level DEV Analysis (4 marks): Developed analysis of one-way operations can add value in context [3]
41. [8] (c) Level AN + AN Analysis (4 marks): Limited analysis of two ways operations can add value in context [2]
42. [8] (c) Level AN Analysis (4 marks): Limited analysis of one-way operations can add value [1]
43. [8] (c) AO1 Knowledge and understanding: Knowledge of way(s) of adding value using the operations process may include: • Ways in which value can be added – i.e. extra features, etc. • Improve product • Process innovation • Add a feature/product/service • USP Allow anything that changes the app or service itself as this can be part of operations for a service/app.
44. [8] (c) AO2 Application: Increasing the features of the app • More social media features, such as chat, selling/sharing best exercise practice, creating groups, etc. • More exercise features, such as group exercising, online classes, features for trainers to sell their services, etc. Increasing the quality of the app • Reacting to any customer survey comments about the quality of the app • Reducing any connection issues with the app Reducing the costs of producing the app • Costs may include, software development, wage costs, capital costs, research and development costs, market research costs (survey), marketing costs
45. [8] (c) AO3 Analysis: Must be an impact on the business cost(s) or price to add value. Do not allow increasing revenue/customers, etc. – there must be a change in the distance/proportion between cost and price. • An increase in price, from $10 to $12, would increase the revenue of FF (AN) - as long as the costs were kept the same (DEV). • Improving the features of the app would allow FF to charge a higher price (AN) – as long as the price increase was more than the extra costs of developing the app (DEV). • Eliminate the free access to the app, forcing the users to pay $10 (AN) – as long as some of the users do not cancel their subscription (DEV). • Labour costs could be lower if FF make some of their app designers redundant (AN) – as long as FF maintain their price (DEV). Note: developed analysis must show understanding of adding value, not just increasing revenue / decreasing costs.
46. [11] (d) Level EVAL + EVAL + EVAL Analysis and Evaluation (7 marks): Justified evaluation based on arguments in context [7]
47. [11] (d) Level EVAL + EVAL Analysis and Evaluation (7 marks): Developed evaluation based on arguments in context [6]
48. [11] (d) Level EVAL Analysis and Evaluation (7 marks): An evaluative statement based on arguments in context [5]
49. [11] (d) Level DEV + DEV Analysis and Evaluation (7 marks): Arguments based on two limitations of sampling in context [4]
50. [11] (d) Level DEV Analysis and Evaluation (7 marks): Argument based on one limitation of sampling in context [3]
51. [11] (d) Level AN + AN Analysis and Evaluation (7 marks): Limited analysis of two limitations of sampling [2]
52. [11] (d) Level AN Analysis and Evaluation (7 marks): Limited analysis of one limitation of sampling [1]
53. [11] (d) Level 2b (APP + APP) Knowledge and Application (4 marks): Shows understanding of two limitations of sampling in context [4]
54. [11] (d) Level 2a (APP) Knowledge and Application (4 marks): Shows understanding of one limitation of sampling in context [3]
55. [11] (d) Level 1b (K+K) Knowledge and Application (4 marks): Knowledge of two limitations of sampling [2]
56. [11] (d) Level 1a (K) Knowledge and Application (4 marks): Shows knowledge of one limitation of sampling [1]
57. [11] (d) Level 0 Knowledge and Application (4 marks): No creditable content [0]
58. [11] (d) Note: there must be a limitation of sampling, not just market research, to award K and APP
59. [11] (d) Knowledge of limitations of sampling may include: • Chances of bias • May be unrepresentative • May have a high cost • May take time • May lead to incorrect data.
60. [11] (d) Application may include: • Stratified based on age (example) • Current users only • Incentive to complete the survey • Only 30% actually completed survey • Survey was sent to only 1.67% of users • Only completed by 0.5% of total users • Allow use of Table 1.1 (including OFR from Q1bi)
61. [11] (d) Analysis may include: • May not help FF to design features which will attract new users because they have only asked current users • Small sample size (AN) – is this representative of the entire customer base (DEV)? • Poor take-up of the survey – does this make the survey representative, and will the data actually give FF useful information? • Incentive may encourage positive answers which tell FF what they want to hear to encourage more 'free' months • Low take-up of the survey leading to increased costs (AN) – which may reduce the profitability of FF (DEV) • Might be more useful to hear from unhappy customers who are not using the app, as opposed to those who do use the app.
62. [11] (d) Evaluation may include: • A judgement limitations of FF's sampling methods • Evaluation of the relative impact of different limitations • Elements that the evaluation/judgement might depend upon – other research that might have been done, competitors actions/research, whether the sample is still representative after those who did not choose to answer, future revenue (falling at the moment if this continues may not be useful), end results of the research.
63. [11] (d) Examples of how an answer could develop and how it should be annotated. K: It may be biased. APP: because FF is giving a month’s free access. AN: This might lead to respondents only giving positive replies to get more free access to the app. DEV: Which leads to FF introducing expensive new features which do not attract new customers. EVAL: The biggest limitation is the bias, because FF may make poor decisions about developing the app. This is likely to have a bigger effect on the costs than the free months access. However this depends on how biased the data actually is.
64. [11] (d) Examples of how an answer could develop and how it should be annotated. K: It has a high cost. APP: To send 50 000 users a survey and the free month’s access. AN: This may lead to FF spending more to find out if users like the features. DEV: than they gain in extra revenue.