CAIE A-Level Business 1.3.3 Business growth

[Maximum number: 8]

MX Bikes (MXB)

MXB is a successful public limited company with many stakeholders. It has been trading for 15 years. It makes a range of bicycles and is currently the market leader for mountain bikes in country J. MXB's high-quality mountain bikes are sold at a high price to high-income leisure users. They are sold in a limited number of specialist bicycle shops.

Fig. 2.1 Annual revenue of mountain bike manufacturers in country J for 2022

To grow the business and improve the sustainability of operations, MXB expanded its product portfolio by launching a range of electric scooters. This is a new and expanding market in country J, targeting the urban youth market.

MXB's business objectives are reviewed regularly by Rani, the Managing Director.
Rani is concerned that MXB's sales of mountain bikes have declined by 12% over the past

Analyse one advantage and one disadvantage to MXB of growing by launching a new product range of electric scooters.

Figure for Answer to Question 1.3.3—Business growth question 1 — CAIE A-Level Business AS

Annotate the advantage in the left-hand margin and the disadvantage in the right-hand margin.

2(c)

Indicative content

AO1 Knowledge and understanding

Knowledge of advantages of launching a new product / growth / increasing product portfolio (max 1 s ), may include:

- Increase revenue / sales

- New target market

- Strengthen brand image

- Spread risk

- Reduce average costs.

Knowledge of disadvantages of launching a new product / growth / increasing product portfolio (max 1 s), may include:

- Increase costs

- Risk of new/unknown market

- Risk of damaging brand image

- Lack of market research / unknown market.

AO2 Application

Max one for application in the advantage and max one for application in the disadvantage.

- MXB's current market is high quality mountain bikes

- Current target market is high-income leisure users

- New target market is urban youth market

- Market for e-scooters is expanding in country J

- Use of Fig 2.1

- MXB has (successfully) traded for 15 years in current market

- $ 265000 sales revenue

- Static demand for mountain bikes

- Mountain bikes are currently sold in specialist bicycle shops

- Public limited company / shares sold publicly

- Sales revenue for mountain bikes fell by 12% over the past year

2(c)

AO3 Analysis

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

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

Analysis of advantages may include:

- A way to enter the electric scooter market. Electric scooters are becoming increasingly popular.

- MXB can develop new skills and product knowledge regarding the electric scooter market.

- May benefit from economies of scale - the products may use similar materials/components.

- Internal/organic growth is generally less expensive than external growth.

- Electric scooters target a different market segment which helps 'spread risk'.

Analysis of disadvantages may include:

- Urban youth market may not be attracted to MXB brand as the brand is associated with mountain bikes.

- The electric scooter market may be dominated by well-known/larger competitors so difficult to enter.

- MXB specialises in mountain bikes so has no knowledge/experience of the electric scooter market.

- MXB may need to purchase expensive new equipment and train its staff so they can create the electric scooters.

- High research and development costs from creating a new product.

- Internal/organic growth is generally a slower way to grow a business than external growth.

Accept all valid responses.

2(c)

Exemplar and annotations

1.3.3—Business growth question 1