A carpet wholesaler wishes to insure its warehouse and stock against the risk of fire and theft. Fig. 2.1 shows the annual insurance premiums quoted for this. [Table data: Warehouse value $760000 annual premium $1 per $1000; Stock value $622000 annual premium $5 per $1000] Fig. 2.1 Insurance premium quotation Use Fig. 2.1 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [3] Amount of annual fire and theft premium = $3870
2. [1] Method 1 x $760 = $760
3. [1] 5 x $622 = $3110
4. [1] Premiums are affected by the level of risk
5. [1] using statistics
6. [1] the higher the risk, the higher the premium
7. [1] there is a greater risk of fire and theft to stock
8. [1] stock is easier to steal
9. [1] less risk to warehouse
10. [1] there may more previous claims on stock
11. [1] higher compensation to pay out.
12. [1] Storage / keeps (1) carpets / excess carpets / tools
13. [1] Goods are available (1) to meet demand / waiting for delivery
14. [1] Protection / safety (1) from damage / theft / weather
15. [1] To help in stockpiling (1) act as a reservoir for production ahead of demand
16. [1] Enables goods to be bought in bulk (1) at lower prices / needs large space
17. [1] Place for processing to be carried out (1) packaging / branding / labelling (1) will help with transporting / advertising
18. [1] To even out supply (1) so prices are kept stable
19. [1] Provide a place for buyers to inspect carpet (1) and buy/choose carpets from
20. [1] Enables production ahead of demand (1) somewhere to store carpets until required
21. [1] To meet unexpected demand (1) for example, new homes in the area
22. [1] Acts as a reserve (1) e.g. if main shopping outlet burns down.
23. [Yes point 1] It will cut out the retailer enabling the wholesaler to increase their profit / sell at lower prices which will attract customers.
24. [Yes point 2] It will allow wholesalers to control the whole operation, promote carpets more / have brand control and not have to wait for the retailer to order goods from them.
25. [Yes point 3] It will have quicker access to the market compared to retailers, leading to increased sales. Improving relations with customers could lead to increased customer loyalty / direct customer feedback leading to increased sales.
26. [Yes point 4] Customers will receive carpets directly, as there is no retailer involved so the wholesaler will receive revenue more quickly.
27. [Yes point 5] There will be direct contact with customers which improves relationship.
28. [Yes point 6] Can obtain information on customer wants so can target them better.
29. [No point 1] However, wholesalers would not want to compete with their own customers, the retailers, who then might decide to use the services of other wholesalers instead.
30. [No point 2] The wholesaler might need to have two different kinds of premises, one consumer retail outlet in a shopping area and a warehouse on an industrial estate. This would push up costs, which the wholesaler might not be able to afford.
31. [No point 3] Operating both would increase the workload, requiring different / more skills with extra staff being needed. Staff would require training in retail customer service.
32. [No point 4] More deliveries will be required resulting in higher transport costs.
33. [No point 5] It would be time-consuming for wholesalers to provide personal services, such as after-sales service, e.g. carpet fitting.
34. [Evaluation point 1] On one hand it is a good idea for wholesalers to sell carpets direct to the public as they are under increasing pressure to survive and compete against large-scale and online retailers.
35. [Evaluation point 2] However, it can be very risky as they may lose their existing retailer customers who regularly buy from them.
36. [Up to 2 marks] for describing wholesalers / chain of distribution
37. [Up to a further 2 marks] for analysing whether (or not) a wholesaler should sell direct to the public
38. [Up to a final 2 marks] for evaluating whether (or not) a wholesaler should sell direct to the public.