CAIE A-Level Business A2 8.1 Marketing Analysis Questions

Refer to Table 1.2. Calculate the price elasticity of demand (PED) for bespoke clothing.
Table 1.2 Data for price elasticity of demand

PED=% change in quantity demanded / \% change in price (1 mark if no relevant calculations)

\% change in quantity demanded = $-15 / 300 \times 100=-5 \%$ (1) (minus sign needed)

\% change in price $20 / 200 \times 100=10 \%(1)$

PED =-5 % / 10 %=-0.5 (4)

0.5 (3)

Incorrect units e.g. $-0.5 (3)

$0.5 (2)

produced clothing.
Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC's sales forecasting for mass-produced clothing.
Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC's sales forecasting for mass-produced clothing.

4(b)

OFR for 4(a)

Indicative content

Responses may include:

AO1 Knowledge and understanding

- Knowledge and meaning of PED and YED - responsiveness of demand to a change in income or price.

- Generic knowledge of PED and values, including price elastic/inelastic.

- Generic knowledge of positive and negative income elasticity and meaning of income elastic/income inelastic demand.

- Generic knowledge of reasons for sales forecasting and sales forecasting methods, such as extrapolation, correlation, time series analysis. (maximum 1 K mark)

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SCC once.

Developed application, ${ }^{\mathrm{APP}}+{ }^{\mathrm{APP}}$ applies knowledge to SCC twice

- The customers of SCC's mass-produced clothing are B2B budget brand companies, whereas the bespoke items are sold to consumers so B2C.

- Pricing should take into account the target market, but also in this case fast fashion is being sold 'in bulk', whereas bespoke items are 'one off'.

- Elasticity calculation suggest that mass-produced clothing has price elastic demand, but is also an inferior product, with demand increasing as real incomes fall.

- Mass-produced (fast fashion) clothing sales will be highly sensitive to changes in fashion and consumer tastes.

- Fast fashion clothing has a YED of -1.33 (inferior product).

- Calculations of revenue from table 1.2 before and after price increases:

Bespoke clothing $60000 increased to $62 700. Fast fashion $1000000 decreased to $900000

AO3 Analysis

Limited analysis ${ }^{\text {AN }}$ - candidate shows one link in the chain of analysis.

Developed analysis ${ }^{\text {L2 AN }}$ - candidate shows two or more links in the chain of analysis.

4(b)

- Development of application points, in terms of the likely usefulness of price and income elasticities in sales forecasting.

- Price elastic demand for mass-produced clothing suggests that B2B customers are price sensitive, and that decreasing prices is likely to result in higher revenues. AN This could mean that the currency depreciation will stimulate sales as it leads to cheaper export prices. L2 AN

- Negative income elasticity (-1.33) for mass-produced clothing suggests that falling real incomes may lead to higher demand ${ }^{\mathrm{AN}}$ as business customers opt away from higher priced suppliers, as they know that their customers will be looking for cheaper prices, this could also stimulate demand from the budget brand companies. L2AN

- Sunil has past sales data, so forecasting based on this may be a good starting point, such as time series analysis or simple extrapolation, will enable him to predict sales.

- However, markets are dynamic and the mass-produced clothing market is becoming more competitive. This may mean the likelihood of a price war. AN This would probably mean that elasticity data is not up to date and predicted demand may be lower, resulting in lower revenues. L2 AN

- Consumers are becoming more concerned about unethical business practises used by suppliers in developing countries. This could have a negative impact on SCC, especially if there is bad publicity or pressure group activity, leading to lower sales.

AO4 Evaluation

Limited evaluation ${ }^{\text {гval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\left\lfloor 3 \text { rvat }^{\text {® }}\right.}$ — supported judgement in context and/or reasonable evaluative comment in context.

- It will be useful for SCC to keep a close watch on response from customers to both price and income changes, as these will have big influences on their ability to buy.

- However, other parts of the marketing mix and strategy will also be important, especially keeping up with fashion trends.

- Currency fluctuations, such as the depreciation may be short or long term and will vary across different currencies.

- YED is especially unreliable, as mass-produced clothing will be a 'normal' good for low-income earners, but an inferior good for high-income earners.

- Many other external factors could influence the demand for SCCs clothing, other than price and income changes.

- Elasticity data goes out of date very quickly, given other changing influences.

Accept all valid responses.

$4.00 to $4.60

Indicative content

PED = \% change in Qd / \% change in price and/or \% change in Qd = PED × \% change in price (1 mark)

Percentage increase in price $=0.6 / 4 \times 100=15 \%(1)$

\% change in Qd $=15 \times-0.6$ (3)

\% change in Qd = 9% OR a reduction of 9000 units (4)

Evaluate the importance of new product development to CD's future success.

4(b)

Indicative content

Responses may include:

AO1 Knowledge and understanding

- New product development is the design, creation and marketing of new goods and services.

- Research and development is the scientific research and technical development of new products and processes.

Benefits of new product development:

- Attract repeat purchase by offering a product that is new and better.

- Meet customer needs more effectively.

- Gain a competitive advantage over competition.

- Product differentiation.

- Control over pricing.

- Refresh the brand.

- Cost of product development.

AO2 Application

Limited application, ${ }^{\text {APP }}$ applies knowledge to CD once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to CD twice.

- Competitive market.

- Consumer product tests showing CD products not as good for cleaning.

- Environmental credentials of CD have been questioned.

- Cost of R&D - increase in expenditure to 3% of revenue (that would be $ 639000 in 2024).

- Shareholder pressure for returns.

- Reference to price inelastic demand (-0.6).

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Improvements in cleaning power of products will maintain consumer interest and prevent the product becoming less effective relative to products of competitors AN. This will result in higher sales and increased profit L2AN.

- R&D can improve sustainability of CD's cleaning products further differentiating them from MNCsAN and attracting customers L2AN.

4(b)

- R&D can enable CD to launch new products and maintain growth in revenue AN which can help meet shareholder expectations for higher returns L2AN.

- Improved products could make CD's detergents more price inelastic AN.

- R&D is costly and may therefore negatively impact CD's cashflow and liquidity AN.

- R&D may be classified as an operating expense and can therefore result in a decrease in profit AN.

AO4 Evaluation

Limited evaluation ${ }^{\text {Eval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation $\left.{ }^{\text {L2 }}\right|^{\text {Evat }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\left\lfloor\mathbf{L 3}^{\text {Eval }}\right.}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Without product development CD will lose its competitive edge in the market. Products need to be continually improving.

- Can R&D match the results of the spending by MNCs which will be significantly more than CD can afford?

- R&D is risky and may not bring improvements to products.

- Is product development the most important factor to future success:

- Role of marketing to support new products.

- Role of marketing research as part of NPD.

- Competitor decisions.

Accept all valid responses.

Refer to Table 1.1. Calculate for quarter 1, 2023, the seasonal variation.

Seasonal variation $=16-23.75=-7.75 \mathbf{O R}-7750 \mathbf{O R}(7.75)(1)$

Note:

No mark for 7.75 OR 7750.

Refer to Table 1.1. Calculate for quarter 2, 2023, the centred quarterly moving average.

For anything other than the full mark answer there should be relevant working.

Evaluate the usefulness to SF of sales forecasting.

3(c)

0 &
0 marks

No creditable response.

0 marks

No creditable response.

0 marks

No creditable

response.

0 marks

No creditable response.

\end{tabular}

Indicative content

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of sales forecasting or knowledge of the usefulness or limitations of sales forecasting to SF.

Developed knowledge K+K will be demonstrated through knowledge of sales forecasting and knowledge of the usefulness or limitations of sales forecasting to SF.

- Sales forecasting involves making a prediction of future sales.

- Time series analysis is a method of forecasting based on extrapolation from past data.

- Benefits of sales forecasting include:

- Contribution to workforce planning

- Planning purchase of resources

- Greater accuracy in cash flow forecasting

- Aids operational decisions such as need to increase capacity

- Aids decisions about pricing

- Drawbacks of sales forecasting include:

- Inaccuracy

- Dynamic market

- Doesn't take into account qualitative factors

- Past can't predict the future

- Moving averages are based on past data

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SF once.

Developed application, ${ }^{\triangle \mathrm{PP}}+{ }^{\triangle \mathrm{PP}}$ applies knowledge to SF twice.

- Reference to current capacity utilisation of over 90%.

- Need for forecast of sales if start to export to country D.

- Role of market reports and market research in forecasting.
\end{tabular}

3(c)

- Identifying likely demand for tofu and Sosoy Ice Cream.

- Identifying employees needed in factory and decision about employment contracts to use.

- Inability to control the weather.

AO3 Analysis

Limited analysis ${ }^{\text {AN }}$ - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Helps ensure efficient use of labour and machinery helping to control costs of production ${ }^{\text {AN }}$ and therefore increase profit L2AN.

- Contributes to creating cash flow forecast which will help ensure that SF has sufficient finance in place to deal with future needs AN.

- Sales forecasts for entering country D will help evaluate whether break-even can be achieved ${ }^{\mathrm{AN}}$ and therefore whether exports are likely to be successful L2AN.

- Because the market is dynamic it could lead to misallocation of resources such as having too many peripheral employees in the factory AN which would lead to increased costs ${ }^{\text {L2AN }}$.

AO4 Evaluation

Limited evaluation ${ }^{[\text {vxil }]}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {L3 }}{ }^{\text {vast }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Using 4 period moving average fits the data well as there are clear seasonal variations ensuring that the technique is more likely to give reliable results.

- Unexpected changes in the external environment such as entry of a new competitor will result in the predictions being incorrect and therefore less useful in making the best decisions.

- TSA relies on future events behaving as in the past so may not be reliable as markets are dynamic.

- May be advisable to introduce an element of probability to the forecasts - what if analysis?

- The longer the time frame the less useful the forecast is because there are more likely to be external events that impact the forecast.

- Using simple moving averages and a line of best fit may be too simplistic.

- Usefulness is limited if managers don't use the sales forecast to make decisions.

- Should be used in conjunction with qualitative data and current market data to improve usefulness.

Accept all valid responses.