Natural Care is a company that makes soap. The business always acts in an ethical way. It follows fair trade principles by paying fair prices to its suppliers. It uses a cost plus pricing method when selling its products. Table 2 gives data about the company's sales of soap and its share of the national market for soap. Table 2 Year Natural Care sales ($m) Market share of Natural Care (%) 2012 40 10 2014 44 7 The Marketing Director of Natural Care wants to introduce a new competitive pricing strategy to help regain market share. She also wants the Board of Directors to think about changing its ethical policy.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [2] Correct answer [2]: 400000000 OR 400 m ($ not required)
2. [1] Some understanding [1] e.g. method OR 40 ÷ 0.1
3. [2] Application [2 × 1] - award 1 mark per relevant reason.
4. Points might include:
5. Demand for rival products increased faster than NC sales / market growth higher than 10%
6. Increase competition in the market
7. Higher price than competitors
8. Lack of suitable marketing / promotion
9. Decline in quality in the product.
10. [4] Knowledge [2 × 1] - award 1 mark for each relevant advantage.
11. [4] Analysis [2 × 1] – award 1 mark for each relevant explanation showing how the factor creates an advantage.
12. Points might include:
13. Good public image / reputation [k] so customers are more willing to pay higher prices [an]
14. Management and owners feel 'happy' with the way the business operates [k]
15. Business more attractive to potential employees [k] as they will want to be associated with an ethical company [an]
16. Keeps suppliers happy / trusted [K] therefore less likely to lose their suppliers [an].
17. Note - do not reward discounts as the question is asking about fair pricing
18. [6] Knowledge [2 × 1] – award 1 mark for each way identified.
19. [6] Application [2 × 1] – award 1 mark if relevant reference made to this business/manufacturer.
20. [6] Analysis [2 × 1] – award 1 mark for each relevant explanation.
21. Points might include:
22. Reduce profit margins [k] as prices might fall below cost plus price [app] so need to sell more to make same level of profit [an]
23. Possible increase in sales [k] because prices could be lower[an] help increase its market share [app]
24. Impact on image [k] as might need to change from ethical suppliers [app] as need to lower costs to maintain competitive [an]
25. May loose suppliers [k] because they can no longer afford a fair price [app]
26. More competitive [k] as price is no longer a reason not to buy their soaps [app]
27. Need to find other way (other than price) to attract customers [k].
28. [6] Knowledge [2 × 1] award 1 mark for each issue identified
29. [6] Application [1] – award 1 mark if relevant reference made to this type of business
30. [6] Analysis [1] – award 1 mark for relevant development of point(s)
31. [6] Evaluation [2] – justified decision made as to whether customers always benefit from an increase in competition.
32. Points to include:
33. Competition increase choice [k] therefore they may gain a product that better suits their needs [an]
34. Leads to lower prices [k] which means more consumers can afford to buy [an]
35. Products become more consumer orientated [k] for examples they can buy soap for sensitive skin [app]
36. Lead to hidden quality cuts [k] as manufacturer looks to cut costs [an] to remain price competitive [app]
37. Too much choice can be confusing [k]
38. Firms will need to spend on promotion [k] therefore prices might rise for customers to cover the costs [an]
39. Lower prices [k] but firms may reduce the size of the product reducing value for money [an]
40. Firms reduce the size of the product [k] which means customers get less for their money
41. Could reduce choice [k] as smaller firms are forced out of the market [an].
42. Developed answer:
43. Competition generally lowers prices [k] as firms try to remain price competitive [app] customers they may gain a product that better suits their needs [an] customers may not benefit if firms reduce quality. [k] The extent to which they benefit depends on how firms compete [ev] and what customers value in the product [ev].