IB Business Management SL 1.5.3 Reasons to Grow Questions
Practise IB Business Management SL 1.5.3 by explaining why a business may grow and evaluating a case decision to expand.
- Syllabus
- First assessment 2024
- Course
- Business management SL
- Level
- SL
Exam points
- Identify a reason for growth such as economies of scale, market opportunity or increased revenue.
- Explain one benefit and one risk of expanding a small business.
- Use case evidence to discuss whether the proposed growth decision is appropriate.
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IB Business Management SL 1.5.3 Reasons to Grow Questions question 1
[Maximum number: 10]
The Burnt Tomato (BTO)
In 2003, Ben opened a street-food stall selling vegan food. The food stall was successful. Ben spent little on marketing, mainly advertising on the food stall itself and relocating it to places or events where many consumers would pass by.
In 2008, Ben used the profits from the food stall to open a restaurant, The Burnt Tomato (BTO), which initially employed 16 people. In the following years, labour turnover was low. Employees received an annual bonus, which increased with each year of employment.
In 2015, Ben created a website and began to use social-media marketing. Customers were encouraged to rate their BTO experience online. Their reviews consistently rated BTO's experienced staff highly and showed that they thought the food was exceptional value. Ben replied to all reviews. Many BTO customers also joined a BTO social media group and communicated with each other and BTO regularly. For many customers, the total BTO experience of vegan food and social networking was like being in a club.
Unfortunately, high labour costs, reasonable profits and the use of high-quality ingredients meant that BTO's gross and net profit margins were below industry averages.
Aware of the growing demand for vegan food, Ben borrowed money from a family member in 2018 and opened two more BTOs in different cities, hiring 32 new employees. However, in January 2019, a long-time customer of the original BTO ate at one of the new restaurants and wrote a negative review. The review went viral and sales at all three BTOs declined.
Discuss Ben's decision to enlarge the scale of BTO from one restaurant to three restaurants.
Advantages of expansion include:
- Leveraging its brand and USP to reach a larger market.
- Potential economies of scale.
- Potentially increased revenue and profits.
Accept any other relevant advantage.
Disadvantages of expansion include:
- Loss of control, especially with respect to quality.
- Potential diseconomies of scale.
- BT loses its "small community feel."
- Increased costs for recruitment, induction, and training.
- New employees may not have the same attention to quality as long-time employees.
Accept any other relevant disadvantage.
It is expected that candidates provide a conclusion with a substantiated judgment.
Marks should be allocated according to the markbands on page 3.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
If a candidate addresses only advantages of expansion, award a maximum of [4].
If a candidate addresses either two advantages of expansion and only one disadvantage, or only one advantage of expansion and two disadvantages, award a maximum of [5].
A balanced response is one that provides at least two advantages of expansion and two disadvantages of expansion. However, if the candidate does not provide substantiated judgments, maximum award of [6].
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