CB is a public limited company that operates a chain of coffee shops in several countries. The company was founded in 2010 by two friends, Shopra and Ben. They share a passion for coffee and want to offer high-quality products to customers. CB started with one coffee shop in country Q and gradually expanded, always locating in high-income areas of major cities. CB operates in a dynamic business environment. There is a high level of competition from other well-known coffee shop chains. The company sources its coffee beans from fair trade suppliers who grow their coffee in an environmentally friendly way. CB offers a wide range of coffee products to the mass market. CB also offers other drinks and a variety of food items, such as sandwiches and cakes. Recent research shows that customers are now looking for healthy food options. CB's customers are mainly young professionals, students and tourists. Customers enjoy CB's inviting atmosphere, comfortable seating areas, free Wi-Fi access and music. Its staff are trained to be friendly, helpful and knowledgeable. Table 1.1 shows some financial data for CB for 2023 and 2024. Table 1.1 CB's costs and revenue for 2023 and 2024 | | 2024 (m) | 2023 (m) | |---|---|---| | Revenue | 50 | 44 | | Direct costs | 10 | 6 | | Indirect costs | 20 | 16 | Shopra believes that CB should continue to focus on the mass market. However, Ben thinks that greater use of market segmentation will be more successful.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [1] (a)(i) Identification of a feature may include: • can sell shares • has shareholders • limited liability • separate legal identity from its owners • must publish its accounts and report to its shareholders
2. [1] (a)(ii) A01 Knowledge and understanding (max 1 mark), including: • rapid / fast changing market • requires businesses to quickly adapt / be flexible. • changes may be internal or external
3. [1] (a)(ii) AO2 Application Explanation of internal changes (max 1 mark), including: • leadership or management changes • organisational restructuring • investment in technology
4. [1] (a)(ii) AO2 Application Application for internal changes (max 1 mark), including: • a new manager may bring a different vision or management style. • merging departments • upgrading equipment
5. [1] (a)(ii) Explanation of external changes (max 1 mark), including: • technological advancements • economic shifts • political and legal changes • social trends • environmental factors • new products /ideas/entrants • consumer tastes
6. [1] (a)(ii) Application for external changes (max 1 mark), including: • AI, automation • inflation, recession • new regulations, trade policies • consumer preferences, demographics • climate change, sustainability pressures • examples of dynamic markets • examples of factors meaning markets are dynamic e.g. competition
7. [1] (b)(i) Profit = Revenue – Total costs (1)
8. [1] (b)(i) Profit in 2023 = 44m – (6m + $16m) = $22m (1)
9. [1] (b)(i) OR Profit in 2024 = 50m – (10m + $20m) = $20m (1)
10. [1] (b)(i) Change in profit = Profit in 2024 – Profit in 2023 = $20m – $22m = –$2m (OFR applies)
11. [3] (b)(i) Answer = -$2 (3), $ not required. Accept text explanation, such as decreases, instead of minus sign. In brackets indicates a minus figure
12. [2] (b)(i) No minus sign or other indication of decrease 2 marks
13. [1] (b)(ii) A01 Knowledge and understanding (max 1 mark), including: Uses may include: • helps determine the price/set prices • ensure it makes a profit/improve profitability • ensures the business covers its costs and earns a margin on each sale. • respond to rising costs • reduce unnecessary costs • help identify profitable/loss making products • set budgets
14. [1] (b)(ii) AO2 Application Explanation (max 1 mark), including: • respond to rising costs by adjusting prices • identifying high-cost/profitable items allows the business to streamline operations or reduce waste. • accurate cost data helps the owner decide whether to introduce new products, offer discounts, or invest in equipment • can be used to help obtain external finance
15. [1] (b)(ii) Context (max 1 mark), including: • example of price-setting – e.g. CB calculates that the total cost of ingredients, labour, and overheads for one latte is $1.50. To make a profit, CB decides to sell the latte for $3.00. • if milk prices increase, the shop might adjust its pricing or switch suppliers. • operate in mass market • use of answer to 1(b)(i) (OFR)/reduction in profit (OFR)/profit change between 2023 and 2024 • use of information in Table 1.1 – direct costs increased by $4m (to $10m) and indirect costs increased by $4m (to $20m) • competitive market • considering market segmentation • demand for healthy food
16. [1-2] (c) A01 Knowledge and understanding (2 marks max) • improve the quality and consistency of its products and services • increase productivity • increase efficiency • motivate staff • develop new skills and knowledge
17. [1-2] (c) AO2 Application (2 marks max) Max one APP for application in the first benefit and max on APP for application in the second benefit. • working in a coffee shop is labour intensive work. • highly paid employees would like to improve skills • mission statement refers to a unique experience for customers • CB face very high costs that they need to control • train staff to be helpful, friendly and knowledgeable • offers food as well as coffee • located in high-income areas of major cities • competitive/dynamic business environment • operate in several countries
18. [1-4] (c) AO3 Analysis (4 marks max) Limited analysis (AN) candidate shows one link in the chain of analysis. Developed analysis (DEV) candidate shows two or more links in the chain of analysis or a two-sided analysis. Analysis may include: • training improves the skills of employees – greater efficiency/productivity more customers served/more sales/ profit. • empowerment – may improve motivation by allowing employees to feel more knowledgeable e.g., advising customers on different products • can increase customer satisfaction and loyalty – enhance its reputation/revenue/profits • improve staff morale and retention – reduce turnover/absenteeism/recruitment costs • increased efficiency – reducing costs and increasing profits • build its customer base – attracting customers from the competition
19. [1-2] (d) A01 Knowledge and understanding (2 marks max) Responses may include: • market has smaller groups/sub-groups • used to better target marketing efforts • methods include geographic, demographic and psychographic Do not award K for product differentiation, must be market segmentation
20. [1-2] (d) AO2 Application (2 marks max) Limited applicatior APP applies knowledge of market segmentation to CB once. Developed application APP -APP applies knowledge of market segmentation to CB twice. • customers are becoming more aware of the health effects of consuming too much caffeine or sugar in their drinks. • operates in prime areas • use fair trade coffee beans • customers environmentally conscious. • highly competitive/dynamic business environment • currently operates in the mass market. • target young professionals, students and tourists • research shows customers want healthy food options • use of answer from 1(b)(i)/decreasing profit • use of information from table 1.1 e.g. rising costs/increasing revenue
21. [1-4] (d) AO3 Analysis (4 marks max) Limited analysis (AN) candidate shows one link in the chain of analysis. Developed analysis DEV candidate shows two or more links in the chain of analysis. Arguments for greater use of market segmentation: • Better targeting of customer needs – tailor products and marketing more effectively. • Improved marketing efficiency – marketing campaigns can be more cost-effective and impactful when aimed at specific segments. • Become more competitive – attracting a wider customer base
22. [1-4] (d) AO3 Analysis (4 marks max) Arguments against greater use of market segmentation: • increased complexity and costs – may require changes in product lines, marketing strategies, and store layouts, increasing operational complexity and costs. • further investment required – causing a strain on resources. • risk of alienating existing customers – might confuse or alienate loyal customers who value the current broad appeal. • maintaining a consistent brand image across marketing becomes expensive and challenging • limited capacity to implement segmentation – may lack the data analytics capabilities or marketing expertise needed to effectively identify and serve distinct segments.
23. [1-6] (d) AO4 Evaluation (6 marks max) Limited evaluation (EVAL) unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation (E) supported judgement and/or reasonable evaluative comment Developed evaluation in context (EE) supported judgement in context and/or reasonable evaluative comment in context. While market segmentation offers opportunities for CB to better meet customer needs and stand out in a competitive market, it also introduces risks and costs. A balanced approach may be most suitable – CB could begin with light segmentation (e.g. offering healthier food options) while maintaining its mass market appeal. This would allow CB to test the effectiveness of segmentation without overcommitting resources. Other evaluative arguments may include: • target market – how to identify and attract a different market segment and costs involved • selling at a lower price might damage the brand reputation. • choice depends on operating costs, and customer preferences • CB would need to conduct market research to determine which method would be more effective in increasing demand for its products • a recommendation which could be that related to one method or could be that a combination is better. this helps CB to appeal to customers with different needs. • yes, it should/should not with justification Evaluation must be clearly related to market segmentation Accept all valid responses.