Analyse two benefits to APF of vertical integration.

Mark scheme

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

1. [1] (Knowledge) Integration with firms in the same industry between a customer and/or a supplier of the business.
2. [1] (Knowledge) Firms joining together at different stages of production.
3. [1] (Knowledge) Firms joining together which are in different sectors of the economy; primary, secondary, tertiary.
4. [1] (Knowledge) Provides a secure outlet for APF's own product.
5. [1] (Knowledge) Can control the promotion and price of its own product.
6. [1] (Knowledge) Control over quality, price and delivery of supplies.
7. [1] (Knowledge) Absorb profit margins of a customer business and/or a supplying business.
8. [1] (Knowledge) Competitive advantage.
9. [1] (Knowledge) Synergy.
10. [1] (Knowledge) Economies of scale.
11. [1] (Knowledge) Adds value to output.
12. [1] (Knowledge) Avoid supply disruption.
13. [1] (Application) APF farms fruit (primary producer) but also processes the fruit e.g. producing fresh chilled juice.
14. [1] (Application) Keeps profit that would otherwise go to processing business.
15. [1] (Application) Adds value to output of fruit through processing.
16. [1] (Application) Helps meet goal of increasing shareholder value.
17. [1] (Application) Gives control of sale of blueberries and avocados through the chain of retailers.
18. [1] (Application) Fruit farming is low added value relative to other stages of supply chain.
19. [1] (Application) Economies of scale reducing average costs by eliminating overhead by consolidating management and streamlining processes. Large scale operations may provide purchasing economies of scale.
20. [1] (Application) Lower pricing strategies can be used. A company that's vertically integrated can transfer the cost savings they create to the consumer.
21. [1] (Analysis) Higher value added will increase profit for APF which increases shareholder value. Fruit farming may have low value with most of the value added at the processing stage as with the chilled fresh juices.
22. [1] (Analysis) Cost of fruit is $0.35 but selling price of juice is more than double that.
23. [1] (Analysis) Can control pricing of fruit in retail chain owned, therefore, determine the margins earned and be more responsive to customer demands increasing sales and profit.
24. [1] (Analysis) Can be effective selling point within marketing as APF can claim to have greater control over quality of the end product which benefits the consumer and can increase sales.
25. [1] (Analysis) APF can control the branding of its products from the primary to the retail stage more effectively.
26. [1] (Analysis) Increases sales, reduces costs and increases efficiency leading to greater profit therefore improving shareholder value.