Explain one cost and one benefit for PPE of developing a new product.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] Cost: Costs of carrying out market research - to research the target market - to identify the size of the potential sales.
2. [1] Cost: Costs of product development / producing trial products - produce prototype - cost of materials and components for trial products / time-consuming.
3. [1] Cost: Risk of failure of the business if the product is unsuccessful – due to lack of sales giving no revenue.
4. [1] Cost: May damage image of the business and other brands if product is unsuccessful.
5. The explanation for a cost is awarded up to [3] marks, including application to the case study context.
6. [1] Benefit: Unique Selling Point [USP] may give business a competitive advantage – consumers may think the business produces up-to-date products – making them more popular than competitors that are seen as old fashioned.
7. [1] Benefit: The business will have a more diversified range of products – spreads risk – reduces chances of business failure if one product fails.
8. [1] Benefit: May attract more customers – increase sales.
9. [1] Benefit: Business may expand into new markets - increases sales.
10. [1] Benefit: Business may expand in existing markets.
11. The explanation for a benefit is awarded up to [3] marks, including application to the case study context.
12. [1] Cost-plus - Advantages: Easy to apply to individually produced playground equipment.
13. [1] Cost-plus - Advantages: Can have different mark-up in different markets.
14. [1] Cost-plus - Advantages: Each product makes a profit for the business.
15. [1] Cost-plus - Disadvantages: The costs of producing the new product may be high and so the price of the final product may be too high to be competitive - loses customers - as there are many competitors.
16. [1] Cost-plus - Disadvantages: Profit will only be made if sufficient playground toys are sold to break-even.
17. [1] Cost-plus - Disadvantages: May not give the brand image of the high-quality product.
18. [1] Cost-plus - Disadvantages: Time is taken to research and calculate cost prices.
19. [1] Cost-plus - Disadvantages: No incentive to reduce costs.
20. [1] Penetration - Advantages: Low price attracts customers and increases sales of playground equipment.
21. [1] Penetration - Advantages: Helps to ensure a successful launch into a new market.
22. [1] Penetration - Advantages: Quickly builds market share.
23. [1] Penetration - Disadvantages: Low price will mean low profit per unit.
24. [1] Penetration - Disadvantages: Customer may expect prices to remain low and therefore not purchase the toys when the price is raised at a later date.
25. [1] Penetration - Disadvantages: Consumer may think low price is due to low-quality product.
26. [1] Skimming - Advantages: Customer may think the playground equipment is of high quality.
27. [1] Skimming - Advantages: High research and development costs will quickly be recovered.
28. [1] Skimming - Advantages: The product is new and unique on the market, then high prices may be paid by customers leading to high profits before competitors produce a similar product.
29. [1] Skimming - Disadvantages: High price may put off potential customers.
30. [1] Skimming - Disadvantages: The high price and possible high profit per item of playground equipment may encourage competitors to quickly enter the market taking away its advantage of being first with the new product.
31. [1] Recommendation: Cost-plus pricing as the product is new so there are no other competitors to compare prices and at least this ensures that a profit is made per unit sold. Price skimming may be too high an initial price and therefore there would be low sales and penetration pricing may not result in any profit if too low.
32. [1] Recommendation: As the product is new then penetration pricing might be the best one to choose to get the playground equipment established in the market. There are other playground products being sold and so it will get this product well known.
33. [1] Recommendation: Skimming because Kaari wants to create an image of high quality for the new playground toy and this is emphasised in the advertisement in Appendix 1.