GKA is a food retailer. It has 300 shops located in areas where average consumer incomes are low. GKA sells a limited range of own-label products including breakfast cereal and toothpaste. GKA does no promotion or market research. The Managing Director said: 'Last year our market share increased to 5%. Profit increased by 40%. Keeping costs low means GKA can offer customers quality products at low prices.' GKA is planning to open 100 shops in areas with high average consumer incomes. The Managing Director must decide whether GKA should change its pricing strategy (method) as the business expands.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [2] Clear understanding: e.g. percentage or proportion of the total market sales [1] held by one brand or business [+1]
2. OR business sales/total market sales × 100
3. [1] Some understanding e.g. share of sales made / percentage of customers a business has
4. [1] inform / raise awareness / introduce new products
5. [1] create brand image / improve image
6. [1] compete with competitors
7. [1] persuade / increase sales / attract customers
8. [1] customer loyalty
9. [1] observation / visiting competition [k] other food retailers [app]
10. [1] questionnaires [k] about the low prices [app]
11. [1] surveys [k] about the own-label products [app]
12. [1] interviews [k] about the new shops [app]
13. [1] experiments / free samples / test marketing [k] the cereal [app]
14. [1] access government statistics [k]
15. [1] focus groups / consumer panels [k]
16. [1] use market research agencies [k]
17. [1] loyalty card data [k]
18. [1] articles / newspapers / magazines[k]
19. [1] Explanation in context (app)
20. [1] choose low cost locations [k] for all 100 sites [app] leading to lower fixed costs [an]
21. [1] pay minimum wage [k] to shop workers [app] keep variable costs low [an]
22. [1] economies of scale [k] (only once) for its limited range of products [app] leading to lower average costs [an]
23. [1] set lower marketing budget [k] as no money spent on market research [app]
24. [1] replace workers with machinery / automation / reduce workforce [k]
25. [1] cheaper supplier [k]
26. [1] close some locations [k] which would reduce electricity cost [an]
27. [1] set up online [k]
28. [1] reduce waste [k]
29. [1] Buy direct from manufacturer [k] so lower cost than buying from wholesaler [an]
30. [1] identification of a pricing strategy [k]
31. [1] actions of competitors [k]
32. [1] cost of new locations [k] in high income areas [app] may make it hard to control costs [an]
33. [1] diseconomies of scale [k] from extra 100 shops [app] leading to a rise in average costs [an]
34. [1] economies of scale[k] may allow them to charge lower prices[an]
35. [1] current prices give the image of poor quality [k] because they are low prices [app] so may not attract new customers [an]
36. [1] they would lose their USP if they change price [k] leading to a loss of the current customer base [an] in areas where average incomes are low [app]
37. [1] Award 1 mark for identification of relevant point (s)
38. [1] Award 1 mark for a relevant reference made to this business
39. [2] Award up to 2 marks for relevant development of point(s)
40. [2] Award up to 2 marks for a justified decision made as to whether GKA should change its pricing strategy as the business expands.