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Section A

1. (a) Define the term mass market [2]

A market for goods that are produced in very large quantities. Because of economies of
scale, products sold in mass markets are less expensive than goods produced for niche or
highly specialized markets.

Candidates are not expected to word their definition exactly as above.

Award [1] for partial understanding which may include some reference to either an
undifferentiated market or large volume operations. Award [2] if the candidate
provides an accurate and clear definition which includes references to products
sold in large quantities and reference to an undifferentiated market.

(b) (i) Construct a statement of forecasted profit or loss for the production of PP’s
new pie (show all your working). [4]

Statement of forecasted profit or loss for PP for the year ended December 2023

$
Sales revenue (8  42 000) 336 000
Cost of sales (4.20  42 000) (176 400)
Gross profit 159 600
Expenses (administration and marketing) (28 400  67 200) (95 600)
Profit before tax and interest 64 000
Interest (17 640)
Profit before tax 46 360
Tax @20 % (9 272)
Profit for period 37 088
Dividends to shareholders 10 % (3 708.80)
Retained profit 33 379.20

Award [1] for each correct calculation (if any calculations are needed in addition to
the construction of the P&L). In this question, cost of sales needs to be calculated.

If the profit and loss account is constructed following the IB format and is correct in all
respects with full working shown, award [4]. Apply own figure rule (OFR): if the candidate
incorrectly calculated cost of sales but otherwise the profit and loss account is
constructed following the IB format and is correct in all other respects, award [3] If the
answer is correct and done according to the IB format but no working is shown, award [3].

Award [2] if the candidate produces a profit for period figure (OFR regarding cost of
sales), but does not follow the IB format. Award [1] if the candidate shows some
understanding of what a profit and loss account is, but the actual account constructed
is not in the IB format and has numerous errors.
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(b) (ii) Calculate the forecasted gross profit margin for the new pie. (show all your working)
[2]

Gross profit margin  gross profit

 100
sales revenue
159 600
Gross profit margin   100  47.5 %
336 000

Award [1] for correct working and [1] for a correct answer with unit – allow for own figure
rule (OFR).

(c) Explain one disadvantage for PP of selling older non-current assets to finance the
production of the new pie. [2]

Selling assets to finance the new pie will reduce PP’s productive capacity. Even though sales of
their more expensive pies have fallen, PP will still have to produce a forecasted 42 000 new
pies.

PP sell the highest quality luxury pies. Reducing productive capacity may impact on
PP’s ability to continue to sell the highest quality pies.

Award [1] for an explanation of a relevant disadvantage with an additional [1] for
application to PP.

2. (a) Define Market Share [2]

Market share represents the percentage of an industry, or a market's total sales, that is earned by a
particular company over a specified time period. Market share is calculated by taking the company's sales
over the period and dividing it by the total sales of the industry over the same period

Award [1] for a partial description which may refer to the idea that states company’s
total share in the market. Award an additional [1] to include a full description of some
reference to the idea that company’s percentage of sales/revenue of market’s total
sales/revenue
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(b) (i) Describe how the mean sales of pairs of shoes per month for FS could have been calculated. [1]

The mean sales per month could have been calculated by adding together the total
sales for the year and dividing by 12.

Award [1] for a correct answer.

Candidates are not expected to word their description exactly as above.

(i) On the graph, plot the mean sales of pairs of shoes per year since 2014
(show your labelling clearly). [2]

Award [2] if both axes are clearly labelled, sales data clearly plotted, and line graph
drawn connecting all points as shown in the diagram

Award [1] if one of the above elements is missing.

Award [0] if two of the above are missing or the plotted points on the diagram are so
poorly presented that it is hard to verify accuracy easily
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(ii) On the graph you plotted in (b)(ii), construct a line of best fit through the
mean sales data. [1]

Award [1] for a correct line of best fit drawn with a ruler.

(iii) On the graph you constructed in (b)(iii), draw (extrapolate) a value for
mean sales in 2022 and 2023 from the line of best fit. [2]

From the graph, the extrapolated value of mean sales for 2022 is 11.7, or 1170 shoes,
while for 2023 it is 13.3, or 1330 shoes.

Award [1] for each correct extrapolated value, up to a maximum of

[2]. Allow OFR but note below;

If the extrapolated line is not accurately drawn but is a straight line and the candidate
has correctly and accurately produced an extrapolated value, then apply OFR.

Do not award a mark if the extrapolated value has been created by inaccurate use
of a ruler or the line of best fit has been extended inappropriately.

(c) Explain one diseconomy of scale that FS could experience. [2]

A possible diseconomy of scale occurs when the unit costs of production increase over the long
run. Sales at FS are growing at a dramatic rate and, with a small number of managers and
limited workspace, coordination and communication challenges may lead to rising unit costs as
the scale and sale of production of shoes increases.

Award [1] for a response which may include an application of a diseconomy of

scale to FS with an additional [1] for a clear theoretical explanation. For [2] there
must be some indication in the theoretical explanation that the diseconomy of scale
will lead to an increase in unit costs.
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Section B
3. (a) Define Market Segment [2]

A market segment is a group of people who share one or more similar characteristics.
Award [1] for a partial description with an additional [1] to include a full description

(b) Explain one advantage and one disadvantage for CD of using a premium pricing
method for the new ethical chocolate bar. [4]

Advantages

 An ethical bar will be a new venture for CD. The stimulus indicates the possibility
for a first mover advantage as there are no existing competitors. A premium pricing
method under these circumstances could allow CD to earn significant profits.

 If consumers are influenced by ethical and environmental considerations in their

purchasing habits then a premium pricing method (with some of the profits being used
to ensure sustainability of the crops) can be justified and could lead to brand loyalty.

 CD could become a price leader and influence the prices of its other bars and
positively impact on positioning.

Disadvantages

 However, given that CD’s current chocolate bar range is priced considerably lower,
a premium pricing method could discourage existing customers as the marketing mix
for the new bar is different. Overall sales volumes of CD’s bars may fall.

 The premium price method will impact negatively on the positioning of CD and may
cannibalize the sales of its existing bars in its portfolio.

 A premium pricing method will require an extension of promotional campaigns both

below and above the line to convince existing and potential customers that the
additional mark-up in price is appropriate and justified given the ethical and
environmental opportunities. This new promotional mix will add to CD’s promotional
budget and increase total costs.

Accept any other relevant response.

Mark as 2+2.

Award [1] for a relevant advantage/disadvantage, with an additional [1] for application to
CD and the new ethical chocolate bar. Award up to a maximum of [2].
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(c) (i) Comment on the market research results in Table 4. [2]

The results indicate that country X has the highest number of respondents who would
try or possibly try the new ethical chocolate bar at 92 % and the lowest negative
response at 8 %.

Country Y has a high level of response rate at 80 % for both try and possibly try but has
the highest response rate of those who would not try the ethical chocolate bar at 20 %.

Country Z has a low negative response (10 %) and a high positive result (90 % for those
who would try or possibly try). These results are close to that of country X.

The market research strongly supports launching in country X and Z.

Award [1] for a comment in context. An additional [1] if there is some mention of the
actual data in terms of a percentage from the market research.

(c) (ii) Explain one benefit for CD of collecting market research using random sampling. [2]

Random sampling is an unbiased method of market research because respondents are

equally likely to be chosen in the research process. CD will obtain unbiased responses
regarding their new brand. These customer responses to their new chocolate bar will help
CD with more realistic future sales, cash flow and profit projections.

Award [1] for a theoretical response, such as reduced bias, with an additional [1]
for application to CD.
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(d) Using the data provided in Table 4 and Table 5, and other information in the stimulus, recommend
which target country CD should launch its new ethical chocolate bar in. [10]

CD have three target countries and will be using a combination of market research and
information from an economics consultancy. Both agencies provided forecasts and, with the
launch of the chocolate bar being a new venture for CD, all decisions on which country in
which to launch the new chocolate bar must be taken in this context.

Country X seems a strong candidate. Market research indicating that 60 % of respondents

would try this new bar is the most favorable. The economy seems stable, but the probability of
success based on the experience of other companies is the lowest. The STEEPLE analysis
suggests that launching this product into country X will be met by a favorable attitude to the
business.

Country Y has a stable economy but with no clear trend in the STEEPLE and limited
technology; it must therefore be viewed as a less favorable proposition. The market research
for country Y is also less favorable than for country X: country Y has the highest rate of
respondents who would not try the new product.

Country Z clearly represents the biggest challenge and potential opportunity for CD. Market
research is not conclusive, and the STEEPLE raises concerns for the future. Information is
lacking about the impact of the declining economy in the short term.

Basing a judgement on these forecasts alone is not sufficient, and more information would be
required around the cultural preferences/barriers, consumer confidence and the inevitable
reaction by competitors. This is a new chocolate ethical bar and it is expected that competitors
will analyze CD’s success before making a decision, but competition is likely. The probability
of success for the chocolate bar also has to be treated with a note of caution. Country X seems
the safest bet, with country Z a close second. The company’s attitude to risk will be important
in determining the final decision.

Marks should be allocated according to the markbands on page 2.

Additional guidance:
If the candidate discusses one country only (with balanced and substantiated
arguments) then award a maximum of [5].
If there is no balance, then for a one-sided response where only one country is
considered then award a maximum of [3].
If the candidate makes no reference to the data provided by the STEEPLE or market
research, then the maximum mark to be awarded is [4] even if there is some balance.
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4. (a) Describe one feature of a product-orientated business. [2]

An approach by companies that focuses their attention and resources on the product that they
produce, typically by making the product as high quality or special as possible. Product-
orientated companies are generally not concerned about the quantity of sales or market trends
but rather that they are offering the highest quality or most special product for its target

Award [1] for a partial description, which may include reference to not being influenced by
customer or market trends, with an additional [1] where the description includes reference
to highest production quality.

(b) Explain one advantage and one disadvantage of secondary market research
[4]

Advantages

Secondary market research is more cost-effective and less time-consuming, and it is easier to
collect. Through secondary market research, QS has found that competition has intensified.

Disadvantages

Secondary data is that it may not be relevant, reliable, or accurate for your specific
research question or objective. Secondary data may be outdated, incomplete or biased.
Secondary Market research may not be specific to the market segment QS is catering.

Award [1] for a relative advantage/disadvantage with an additional [1] for application to QS.
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c. Explain one advantage and one disadvantage of targeting a new market segment. [4]

Advantage
Marketing segmentation allows management to focus on certain demographics or customers. Instead
of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach
that often costs less compared to a broad reach approach. Stronger brand image. QS has segmented market for
each of its scooter models.

Disadvantage
Market segmentation can sometimes become an expensive proposition. Targeting small market
segments can lead to unprofitable goals. Given that QS had very limited working capital to support all
four e-scooter models beyond providing some limited above-the-line promotion. Also Gamma model
even though targets a particular market segment, it is not profitable.

Mark as 2+2.

Award [1] for an appropriate advantage/disadvantage and an additional [1] for application
to QS. Award up to a maximum of [2].

(c) Using the data provided in Table 7, other information in the stimulus, and a Boston Consulting Group
(BCG) matrix, recommend to QS which e-scooter model should be removed from QS’s portfolio in
order for the company to remain profitable. [10]

The information in Table 6 indicates that total profit at QS has fallen from 14 m to 3.2 m in
only 2 years. Coupled with the stimulus which indicates that competition in this sector is likely
to intensify from other e-scooter manufacturers, the future of QS does not look positive
supporting three let alone a fourth e-scooter.

Given QS’s limited working capital and investment in Delta it would be unwise of QS not to
pursue launching Delta. Hence, a decision to withdraw a potential e-scooter falls on the analysis
of the other three e-scooters from the existing portfolio. To support this decision-making
process a potential BCG can be created from the information in
Table 7.

E-scooter Current market Future market BCG

share growth classification
Alpha High High Star
Beta Medium Low Cash Cow
Gamma Declining Declining Dog
Delta Medium Possibly high Problem child
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Alpha has a strong argument to be retained given its position within the BCG as a clear star product.
It easily has the greatest contribution to overall profitability. It really does not make any sense to
withdraw Alpha

The analysis would seem to boil down to keeping either the Beta or Gamma.

For Beta – its target market is adult females. This market is also overlapping with Gamma’s target
customer. As a cash cow, Beta will still generate sales possibly through brand loyalty and it does
make a contribution to fixed costs which is bigger than Gamma’s. Beta though has experienced the
biggest fall in profitability from the information in Table 6.

For Gamma, competition is likely to intensify. It has declining market share and future growth. It is
not making a contribution to fixed costs. However, if viewed as a ‘dog’ it could block outside
competitors from entering until Delta establishes itself in an intensifying market. Gamma represents a
potential ‘watch dog’ characteristic of the BCG and this could allow time for Delta to thrive.

However, as the financial situation is beginning to deteriorate and competition is intensifying, it would
seem appropriate, based on evidence from stimulus and the BCG matrix to withdraw Gamma from
the market. The information from Table 6 is particularly worrying even if Gamma converts into a
profit centre. We have little information from the stimulus of its chances of becoming sustainable. Its
future looks bleak and all other things being equal it should be withdrawn.

Marks should be allocated according to the markbands on page 2.

Additional guidance:
If the candidate discusses one scooter only (with balanced and substantiated arguments)
then award a maximum of [5]

To reach the 7–8 mark band, appropriate business language of the BCG matrix (star, cash
cow, dog, problem child) is expected to be used in the analysis.
To reach the top mark band requires that the candidate refers to at least two scooters with a
fully substantiated balanced argument.