4.1 Introduction to Marketing (HL) | IB Business Management Question Bank

[Maximum number: 4]

Soft Skin Cosmetics (SSC)

Soft Skin Cosmetics (SSC) is a private limited company that produces a small range of face creams and soaps. Its products are designed and produced in the United States, and are made from safe, natural ingredients.
SSC has a product-orientated marketing approach. Tiffany Presley, one of the company's co-founders, believes that SSC's consumers value health above fashion. "The skincare market is full of toxic products, but ours are healthy even if they don't smell or look as nice," she says. Chelsea Presley, SSC's other co-founder, wants to develop the first sunscreen free of synthetic chemicals. However, product innovation is costly and risky. If the new sunscreen is a failure, several years of research and development costs will be wasted, which SSC cannot afford. SSC currently lacks the scale to innovate.
SSC does not pay for advertising. It relies on social media and word-of-mouth promotion. Its brand awareness is very high among young women, and customer reviews are very positive about SSC's quality and effectiveness. The company only sells online, not in retail outlets. To reach unsatisfied demand domestically and internationally, SSC would have to broaden its current distribution channels.
SSC practises corporate social responsibility (CSR). It does not test its products on animals, and supports several charities protecting endangered species. Pressure groups publicly recognize SSC's commitment to animal welfare.
Currently, multinational companies dominate the global skincare market. Small emerging companies rarely survive. Chelsea wants to convert SSC to a public limited company, but Tiffany disagrees: she argues that shareholder pressure toward profit maximization could jeopardize consumer and animal safety.

Explain one advantage and one disadvantage for SSC of having a product-orientated marketing approach.

Explain one advantage and one disadvantage for SSC of having a product

orientated marketing approach.

As a product-orientated business, SSC can:
- concentrate resources and efforts to produce high quality products. Customers reviews are very positive about SSC's quality ad effectiveness. It seems that SSC has built a good brand image and a good brand awareness by focusing on the product
- be the first to develop and produce innovative products, such as the first sunscreen free of synthetic chemicals, to get the first mover advantage in a highly competitive market
- avoid spending money in market research, to know what customers dictate or the type of products to develop. Market research costs are usually very high and SSC can devote more finance into research and development or into corporate social responsibility practices
- benefit from economies of scale. As SSC only produces a small range of high quality facial creams and soaps focusing on quality products, they can benefit from economies of scale due to greater product specialization
- can develop new products and be able to sell them with relatively little marketing. SSC has an established customer base that trusts them. So far they have relied on social media and word of mouth only.

However:
- SSC faces higher risks. Without market research, the risks that customers may not be interested or like their new products, such as the sunscreen free of synthetic chemicals, are higher. If the sunscreen free of synthetic chemicals doesn't sell losses could be substantial.
- Research and development costs are usually steep in the cosmetic industry. SSC is already facing difficulties in financing the development of new products.
- New ideas from customers may emerge from a market research. As a product-orientated business, SSC may not get this valuable information in a highly competitive market.

Accept any other relevant and applicable advantage/disadvantage.

Award [1] for identifying or describing the advantage/disadvantage of having a product-orientation and a further [1] for a development with respect/application to SSC.
Award a maximum of [2].
[2] cannot be awarded per advantage/disadvantage if the response lacks either explanation and/or application.

For example:
- for an identification or a description of an advantage/disadvantage with or without application [1].
- for explanation of an advantage/disadvantage with no application [1] for explanation of an advantage/disadvantage and application [2].

[Maximum number: 2]

Columbo Coffee (CC)
Columbo Coffee ( C C ) is a family business that produces four espresso coffee machines. C C 's objective is to provide the highest quality machines, but it is currently unprofitable.

Table for Question 4.1 Introduction to marketing question 2 — IB Business Management HL

A marketing audit of the four espresso machines had the following results:
- The Ventura was CC's best selling espresso coffee machine. It has the strongest brand loyalty of all four machines, but has been suffering from overseas competition. Many customers of The Ventura want a new, improved version. However, because of its weak financial position, the company has not been able to develop it.
- The Crema is CC's exclusive luxury espresso coffee machine. Considerable publicity for CC was gained when it featured in a recent popular television series. Sales of The Crema are forecasted to grow further despite its high price.
- The Rocket has been very successful. However, technical problems have resulted in many customers returning their machines. Reduced brand loyalty and quality control are significant concerns.
- The Fortuna is the company's newest model. It was developed to replace The Ventura but consumer resistance has forced C C to keep The Ventura in production. The Chief Executive Officer (CEO) of C C sees The Fortuna as a potential market leader, but to achieve brand awareness this would require most of C C 's limited marketing budget.

The CEO of C C is considering reorganizing the four espresso coffee machines into separate cost centres.

However, before any decision is made the CEO receives an offer from its main competitor to work together. As part of a strategic alliance, the competitor will provide funds to allow C C to finance extension strategies or enter new international markets. The only condition is that The Ventura is discontinued. The family is divided. Some family members are worried about the impact of the business losing its most recognizable brand. Others think the competitor's offer will allow CC's other three machines to achieve their full market potential.

Define the following terms:

market share

Market share is defined as the sales of an individual business expressed as a percentage of total industry sales.

Market share $=\frac{\text { total revenue the business generates }}{\text { total revenue the whole industry generates }} \times 100$

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

Award [0 marks] if the response by the candidate is that market share is defined as a company's share of the market.

Award [1 mark] for a basic definition that conveys partial knowledge and understanding.

Award [2 marks] for a full, clear definition that conveys knowledge and understanding similar to the answer above.

For only a relevant: example or application to the stimulus award [1 mark].

IB Business Management HL 4.1 Introduction to Marketing Question Bank

Covered syllabus points

Covered syllabus points

4.1 Introduction to marketing question 1

4.1 Introduction to marketing question 2