Rhiannon Enterprises manufactures ladies clothes. Its best selling products are fashion jeans and T-shirts. Figure 1 shows sales data for these products. In 2014 the value of the sales of these 2 main products was 50% of the total sales of the business. The market for ladies' clothes is very competitive. In 2013 the business reduced the price of its jeans by 25%. It is now trying to find low cost suppliers of cloth to increase its profit margins. Sales of some other products have been falling despite Rhiannon Enterprises increasing advertising spending on them. [Figure 1]

Mark scheme

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

1. [2] Clear understanding: e.g. a market with a large number of businesses [1] selling similar products / aimed at the same group of consumers [+1]
2. [2] OR many other businesses/intense rivalry in the same segment of the market
3. [2] OR Similar services are being offered [1] and that probably prices are keen. [+1]
4. [1] Some understanding: e.g. lots of rival businesses
5. [2] Clear application 600 000 ($ not required)
6. [1] Some application e.g. method OR 300 000 + 0.5 OR 300 000 × 2
7. Note: no marks for 300 000 alone as this does not answer question.
8. [2] Knowledge [2 × 1] – award 1 mark for each reason
9. [2] Application [2 × 1] – award 1 mark for each relevant explanation in context (i.e. explain why sales might fall)
10. Points might include:
11. Increase in competition [k] so customers have a wider choice of clothes to pick from [app]
12. Prices are too high [k] so customers choose from cheaper priced rivals [app]
13. Products don't meet needs/rivals sell better products [k] as fashion/tastes have changed [app]
14. Advertising is wrongly directed/advertising message is unappealing [k] so ladies are not aware of their products [app]
15. Poor quality [k] as clothing is not as good as other companies [app].
16. Do not accept Jeans and t-shirts as application as question states other products.
17. [2] Knowledge [2 × 1] - award 1 mark for each factor identified
18. [2] Application [2 × 1] – award 1 mark if relevant reference made to this business
19. [2] Analysis [2 × 1] – award 1 mark for each relevant explanation (i.e. focus on why these points matter)
20. Factors might include:
21. Cost / price charged [k] as RE wants to increase her profit margins [app] this might not be possible if charged a high price [an]
22. Terms of business [k] if offer good credit terms could help improve its cash flow [an]
23. Range [k] do they stock all the fabric / latest designs [app] otherwise might not be able to sell it [an]
24. Reliability / flexible [k] can company supply the right colours / styles [app] when needed so she can meet her orders [an]
25. Quality of products [k] if faults in the fabric / material [app] RE could get a bad reputation / lose sales [an]
26. Location [k] if import from other country will have to deal with tariffs / language barriers / exchange rates [an]
27. Cost of transport [k] could increase expenses [an] when trying to reduce her costs [app].
28. Do not accept cloth as application as it is stated in the question.
29. [2] Knowledge [2 × 1] award 1 mark for each point identified
30. [1] Application [1] – award 1 mark if relevant reference made to the business
31. [1] Analysis [1] – award 1 mark for relevant development of point(s)
32. [2] Evaluation [2] – justified decision made as to whether RE should reduce the price of all its products in 2015. Either viewpoint is acceptable.
33. Points might include:
34. Lower prices attract customers / increase competitiveness [k] might increase in volume of sales [an]
35. Cut profit margin [k] so need to sell more t-shirts [app] to make same level of revenue [an]
36. Depends on price elasticity of demand [k]
37. Other factors influence demand [k] such as fashion [app] so price charged might not be significant to sales [an]
38. Reaction of competitors [k] if rivals also cut prices, unlikely to see rise in sales [an]
39. Bad image / reputation [k] as see clothes as lower quality [app]
40. Application might include: makes ladies clothes, highly competitive, fashion, tastes, increase its profit margin, jeans sales increased due to price cut, advertising did not work for other products, low cost suppliers, use of data from figure 1.
41. Developed example:
42. Fall in price of products should increase competitiveness [k], which could lead more goods being sold [an]. However sales revenue might not increase [k]. If demand is price inelastic, they might sell enough extra to make it worthwhile [eval]. Evidence of the jean market does suggest that price cuts can appeal to customers [app] so a lower price could prove beneficial [eval].