ZZ plc owns two hotels in the same city centre. The directors of ZZ plc located both hotels in the city centre as they think location is the most important factor for the success of their business. ZZ plc is concerned about the most recent information on its sales revenue, gross profit and profit for the year (net profit). Some comparisons to the previous year are shown in Fig. 3.1. SALES REVENUE down 13% GROSS PROFIT down 9% NET PROFIT down 11% [Figure 3.1]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [1] Shareholders
2. [2] Sales/revenue minus cost of goods sold/cost of sales (2); The profit that is left after the cost of goods sold (1)
3. [2] GP margin = 35% (2); Method 315 000 / 900 000 × 100 or correct formula (1)
4. [4] Loyalty rewards (1) reward points offered to customers that provide future discounts on hotel accommodation (1); Sponsorship (1) to raise awareness of hotel amongst a target group/market (1); Special offers/BOGOF (1) e.g. book a room and receive a free evening meal (1); Discounts (1) e.g. 40% off rooms in January (1); Gifts (1) e.g. free bathrobe (1); Discount coupons (1) to encourage customers to spend (1); Contests (1) e.g. customers might compete to win a weekend hotel break (1)
5. [6] Up to 2 marks for describing city hotel location factors
6. [6] Up to a further 2 marks for analysing other location factors and/or for a city hotel
7. [6] Up to a final 2 marks for evaluating whether or not location is the most important factor to the success of ZZ's hotels
8. [6] Location is important to hotels to be near to their target market, e.g. tourists or businesspeople, which should help to increase room bookings thereby increasing sales and profits. Hotels should also be located near a supply of skilled labour, e.g. chefs, so that customers are not disappointed. It is also important to be near transport links, e.g. motorways or railway stations, so they are convenient for customers to get to.
9. [6] Hotels will also have to consider the amount of competition. For instance, are there too many similar hotels in the area for the likely number of guests? If so ZZ may have to reduce prices which would affect profits. They may not be able to reduce prices because the costs of a city centre location are likely to be high and lower prices could imply a lower quality service and affect the hotel's ability to attract customers. Other factors may also affect ZZ's success, such as the personal preferences of guests, e.g. wanting to stay in a 4-star hotel, or a scenic location with attractive views. The hotel might not have enough capacity in terms of the number of rooms, restaurant seats or car parking spaces available. Also, if customer service, clean rooms and good social media reviews are key features why a person chooses a hotel, the location may not matter as much.
10. [6] Evaluation example: Overall, it depends on how success is measured. Location is undoubtedly important to gain more customers and thereby increase profits, but it is not the only factor that might make ZZ plc's hotels successful, they would still need clean rooms and good customer service to fill more rooms than their competitors.