EDGE makes mobile (cell) phones. It operates in a competitive market. The Marketing manager believes that because EDGE is good at maintaining customer loyalty demand for its phones is price inelastic. Its best selling product, Z, is near the end of its product life cycle. The Marketing manager has to decide whether to spend money on developing new products or use extension strategies for product Z. [Figure 1.0] Z 40% T 15% X 20% Y 25% Total quantity sold: 800000 Fig. 1: EDGE – quantity sold by product type in 2015

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [2] (a) Clear understanding [2] e.g. A customer who returns and buys multiple times. Customer keeps buying the same brand no matter what the price.
2. [1] (a) Some understanding [1] e.g. Buy from you rather than the competitors, customer returns, customer keeps buying.
3. [2] (b) Good application [2] 320000
4. [1] (b) Some application [1] method e.g. 800000 * 40%
5. [2] (c) Knowledge [2] – identification of relevant points.
6. [2] (c) Application [2] – award up to 2 marks for relevant explanation in context of EDGE. Relevant points might include:
7. [K] (c) Lower revenue [k] as demand is price inelastic [app] the additional revenue will not make up for the reduction in price of phones [app]
8. [K] (c) Could attract more customers [k] increasing sales beyond 800000 [app]
9. [K] (c) Damage their image [k] leading to a reduction in customer loyalty [app]
10. [K] (c) Profit margin will fall [k].
11. [2] (d) Knowledge [2 × 1] - award 1 mark for each relevant point identified [max 2].
12. [2] (d) Application [2 × 1] – award 1 mark if relevant reference made to EDGE's business.
13. [2] (d) Analysis [2 × 1] – award 1 mark for each relevant explanation. Relevant points might include:
14. [K] (d) Boost sales [k] as existing customers would buy a new phone [an] [app]
15. [K] (d) Increase market share [k] by attracting customers away from competitor [an] as this is a competitive market [app]
16. [K] (d) Able to increase prices [k] as new technical features [app] can lead to greater customer interest [an]
17. [K] (d) Create additional consumer interest [k] as better range/more up-to-date products available [an]
18. [K] (d) Improve E's standing/profile in market [k] as seen as able to respond to market change [an] which can help maintain consumer loyalty [app]
19. [K] (d) Spreading the risk [k] so if product Z doesn't sell [app] others can help make up the shortfall in sales [an]
20. [K] (d) Need to replace old products [k] as Z is at end of product life cycle [app] this could help business survival [an]
21. [K] (d) Keep up to date with competitors [k].
22. [1] (e) Knowledge [1] – award 1 mark for identification of relevant strategy/point(s).
23. [1] (e) Application [1] – award 1 mark if relevant reference made to EDGE's business.
24. [2] (e) Analysis [2] – award up to 2 marks for relevant development of point(s).
25. [2] (e) Evaluation [2] – justified decision made as to which option it should choose. Relevant points might include:
26. [K] (e) Introduce new features/new versions [k]
27. [K] (e) Look for new target markets [k]
28. [K] (e) Rebrand [k] to appeal to new market segments [an]
29. [K] (e) Re-packaging [k]
30. [K] (e) Create new uses [k].