IB Business Management HL 4.5 The Seven Ps of the Marketing Mix Topic Practice

Sigma Productions (SP)
Sigma Productions (SP), a market leader with a strong family brand name, develops and sells online computer games. The social, technological and competitive environment is changing rapidly. Product life cycles for online games are becoming much shorter. SP must keep innovating, but this process is costly and time consuming. It can take at least three years to develop and introduce a new computer game to the market.
One online game, Sigma Starfighter 1, was a major financial success. Now SP is developing a new version, Sigma Starfighter 2, which will be released in 2016. Its release is causing great excitement. Sigma Starfighter 2 will be priced using penetration pricing. SP's main source of finance has been retained profits.
SP is developing an application (app) for mobile phones. The app will allow users to access information about the company and try new online games through limited free trials. The app will also add value to the family brand. The app is expected to be launched before Sigma Starfighter 2 is released and will be given away for free.
However, SP's current cash flow position is weak. With high research and development (R&D) costs, SP needs additional capital to complete the development of the app and Sigma Starfighter 2. Four different banks have refused to provide finance. SP must urgently attract new investors.

Dean West Tutoring (DWT)
Dean West was an International Baccalaureate (IB) business management teacher in a developing country (country X). He also offered private tuition to students in need of additional support. Five years ago, he decided to leave teaching and set up Dean West Tutoring (DWT).
DWT has grown in the last five years and now employs ten tutors offering face-to-face tuition in a range of IB subjects. The tutors work part-time. DWT takes a percentage of the fees that students pay for the tutoring. To establish positive branding for DWT, Dean expects all tutors to follow a strict code of conduct. He also reviews each tutor's performance and student feedback every week. Some tutors are feeling demotivated.
With the worldwide growth of online learning in the last few years, Dean saw an opportunity to expand DWT. He discovered a large market in Asia, particularly in China. Online one-to-one tuition in Asia is charged at an hourly rate that is three times higher than that usually charged in country X. DWT would need to hire agents in Asia to find potential students who want to learn online.
As the new school year is starting soon in China, Dean will need to act quickly. He is considering drawing up a Gantt chart to assist his planning.
However, DWT's existing tutors are concerned about the expansion due to their lack of experience and equipment for online tutoring.
Dean is now considering two options to ensure that DWT has enough suitable tutors for expansion to online tuition:
- Option 1: Offer training and support to the existing tutors.
- Option 2: Recruit new tutors from anywhere in the world with online teaching experience.

Define the term branding.

Smith's Foods Ltd (SF)
Charles Smith and seven friends started a private limited company, Smith's Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark-up) pricing strategy, SF's mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.
Despite reliance on inexpensive social media marketing, SF grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF's Instagram page. Charles responded quickly to reassure customers and offered refunds. SF's response led to the company receiving an industry award for ethical behaviour.
Charles introduced flow production to reduce the cost of SF's meals, which changed SF's scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.
External stakeholders began to look into SF's operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF's meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.
However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.
* diabetes: a medical condition that causes a person's blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.

Sigma Productions (SP)
Sigma Productions (SP), a market leader with a strong family brand name, develops and sells online computer games. The social, technological and competitive environment is changing rapidly. Product life cycles for online games are becoming much shorter. SP must keep innovating, but this process is costly and time consuming. It can take at least three years to develop and introduce a new computer game to the market.
One online game, Sigma Starfighter 1, was a major financial success. Now SP is developing a new version, Sigma Starfighter 2, which will be released in 2016. Its release is causing great excitement. Sigma Starfighter 2 will be priced using penetration pricing. SP's main source of finance has been retained profits.
SP is developing an application (app) for mobile phones. The app will allow users to access information about the company and try new online games through limited free trials. The app will also add value to the family brand. The app is expected to be launched before Sigma Starfighter 2 is released and will be given away for free.
However, SP's current cash flow position is weak. With high research and development (R&D) costs, SP needs additional capital to complete the development of the app and Sigma Starfighter 2. Four different banks have refused to provide finance. SP must urgently attract new investors.

Identify the first two stages of the product life cycle.

Smith's Foods Ltd (SF)
Charles Smith and seven friends started a private limited company, Smith's Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark-up) pricing strategy, SF's mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.
Despite reliance on inexpensive social media marketing, SF grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF's Instagram page. Charles responded quickly to reassure customers and offered refunds. SF's response led to the company receiving an industry award for ethical behaviour.
Charles introduced flow production to reduce the cost of SF's meals, which changed SF's scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.
External stakeholders began to look into SF's operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF's meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.
However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.
* diabetes: a medical condition that causes a person's blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.

Define the term cost-plus (mark-up) pricing strategy.

EcoCycle
Dan Perdue is a sole trader who sells bicycles. His unique selling point (USP) is bicycles that are made from recycled materials using environmentally friendly processes. Dan's customers are willing to pay high prices for these types of bicycles, and they have a price inelastic demand. Currently Dan purchases the bicycles from GreenRide, a local manufacturer. GreenRide bicycles are well made, rarely have defects, and are well known to environmentally conscious cyclists. The income elasticity of demand for Dan's bicycles is greater than one.

The economy is forecasted to grow in the upcoming years. To take advantage of the growth potential, Dan is considering forming a partnership with David Brown, a skilled mechanic who knows how to manufacture bicycles. Both Dan and David would be equal partners and split the profits. The partnership will begin on 1 January 2016 and would trade under a newly created brand, EcoCycle. Recycled materials and environmentally friendly processes would be used to manufacture all the EcoCycle bicycles.

Dan, however, conducted primary market research which indicated that respondents were only willing to pay a much lower price for the untested, unknown brand EcoCycle.

Explain one benefit for Dan of the income elasticity of demand for his bicycles being greater than one.

Smith's Foods Ltd (SF)
Charles Smith and seven friends started a private limited company, Smith's Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark-up) pricing strategy, SF's mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.
Despite reliance on inexpensive social media marketing, SF grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF's Instagram page. Charles responded quickly to reassure customers and offered refunds. SF's response led to the company receiving an industry award for ethical behaviour.
Charles introduced flow production to reduce the cost of SF's meals, which changed SF's scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.
External stakeholders began to look into SF's operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF's meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.
However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.
* diabetes: a medical condition that causes a person's blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.

Explain two benefits for S F of using social media marketing.

Les Amis PLC (LA)
Les Amis PLC ( LA ) is a public limited company that sells casual clothes for men. Its target market is high-income professionals who value a personalized sales service. LA has developed brand awareness and operates 42 shops around the country. It owns 10 of these shops and leases the remaining 32 . LA employs 950 people, who receive a higher wage than the industry average. LA also pays commission to sales staff working in the shops. LA's organizational culture values the wellbeing and needs of its employees. Labour turnover is very low.
Recently, LA launched an online shop. Since then, online sales have increased considerably, while sales in LA's physical shops have fallen. Shareholders want LA to close all its physical shops and sell online only. However, many of the employees will be made redundant if the physical shops are closed.
LA's current chief executive officer (CEO), Marie Brossard, has a democratic leadership style, and she regularly meets with employees and encourages feedback. LA's managers and employee representatives have never had a conflict. Marie plans to discuss the shareholders' desire to close LA's physical shops with all the shop managers.
Customer returns of clothing orders at LA have increased substantially. Most returns are from online customers unfamiliar with LA's clothing sizes. Marie has consulted the e-commerce department on how to reduce the increasing cost of returns, and they have suggested investing in expensive software that will enable online customers to find their correct clothing size.

Discuss whether L A should close all its physical shops and sell only online.

Turners


Turners is a famous hotel located in a large city. It is positioned as having the highest quality of customer service and most of the employees have worked for Turners for over ten years. Regular customers like knowing the employees at reception and other areas of the hotel. Many customers have commented on the unique style of customer service at Turners. They like the fact that the people in the photographs used in promotional materials are actually the people they interact with when staying at Turners.
Turners has an expensive, award-winning restaurant. Turners had used a price skimming strategy with room rates at over $\$1000$ per night. However, new competition from three other recently opened hotels and other changes in the external environment have resulted in revenue becoming more cyclical. Profits are falling.
Surprisingly, the General Manager, Shane Peterson, also received some negative customer feedback from a random sample of customers. Firstly, they claim that Turners' online booking system is slow and unreliable. Customers complain of an overbooked restaurant and untidy leisure facilities. Business customers argue that the newer competing hotels offer better customer service, high-speed internet and other business services for no extra charge. As a result, Shane is reviewing Turners' marketing mix.
Shane has to focus on improving customer service as well as reducing costs. He is considering two options:
- Reducing labour costs by implementing Handy's shamrock organization.
- Outsourcing Turners' staff training programme. Currently, it uses an internal, on-the-job staff training programme where experienced staff train new employees.
The cost savings from using Handy's shamrock organization would reduce salaries and wages by 7 %. Outsourcing Turners' staff training programme would reduce training costs by 9 %. These combined savings could allow Turners to offer high-speed internet and other business services for no extra charge to customers.

Explain the importance of people, process and physical evidence for Turners.

Office Supplies (OS)


Office Supplies (OS) is a family-owned private limited company that, for 40 years, has operated three retail office supply stores in a small city. OS offers a wide range of office products (such as computer paper and stationery) and office machinery (such as computers and printers). When each store opened, OS purchased the buildings using long-term loan capital. OS's objective is to have enough profit to finance the company's working capital and pay annual dividends.
OS has no clear marketing strategy. Traditionally, OS competed with several other office supply stores operating in the same city. The market was not competitive, however, and most customers went to the nearest office supply store. OS's prices were comparable to those of other retail office supply stores, and the company did little promotion.
Nationally, the retail office supply store industry is declining. Many retail office supply stores have had to close, and new competitors have entered the market, many of which benefit from some or all of the following:
- Specialization in particular office products
- Economies of scale leading to more competitive prices
- Greater convenience, including e-commerce with door-to-door delivery
Like other physical retail stores, OS has seen its sales decline. Gross and net profit margins have fallen. Last year, to ensure enough funds for capital expenditure and revenue expenditure, OS's board of directors chose not to pay dividends. OS also anticipates the need for additional finance next year. OS's board is considering changes to the company's marketing mix in response to new competitors.

Discuss possible changes to any two elements of OS's marketing mix.