Practise explaining and evaluating cost-plus, penetration, predatory, psychological and price-skimming strategies for IB Business Management SL.
SVT’s product penetration in Europe and the United States of America (USA) is high and growing but low in the rest of the world. In 2022:
• SVT’s total sales revenue from home water filters was $4.9 billion
• the average revenue earned per water filter was $20
• 90 % of SVT’s home water filter sales were to Europe and the USA.
In 2022, SVT announced the closure of its European and USA water filter manufacturing factories. Water filter profit margins had fallen for three years, partly because of increasing costs of energy, rent and labour. SVT has since built a huge new factory in Asia to manufacture home water filters.
In 2022, the global home water filter market was $14 billion.
SVT's product penetration in Europe and the United States of America (USA) is high and growing but low in the rest of the world. In 2022:
- SVT's total sales revenue from home water filters was $4.9 billion
- the average revenue earned per water filter was $20
- 90 % of SVT's home water filter sales were to Europe and the USA.
In 2022, SVT announced the closure of its European and USA water filter manufacturing factories. Water filter profit margins had fallen for three years, partly because of increasing costs of energy, rent and labour. SVT has since built a huge new factory in Asia to manufacture home water filters.
SVT's market research, using quota sampling, found that 80 % of households that purchased an SVT water filter:
- had an above-average income
- owned two or more cars.
In January 2023, SVT:
- launched an advertising campaign in Europe and the USA highlighting the lack of potable water for millions of people in less economically developed countries (LEDCs)
- announced a 5 % worldwide increase in the price of its home water filters.
SVT committed to use the revenue from the 5 % price increase to provide two million free WF15 water purifiers annually to charities in LEDCs. It costs SVT $10 to make a water purifier.
Some disagreement occurred among the board of directors regarding this price increase. Some directors felt it would highlight SVT's vision and commitment to helping people in LEDCs, but others believed sales might fall, impacting profits in SVT's Consumer Products Division.
Discuss whether SVT should have increased the price of its home water filters.
Possible arguments in favour:
- enabled them to launch advertising campaign which would potentially benefit millions;
- enabled some filters to be provided free to charities in LEDCs;
- fits in with SVTs CSR ideas;
- good for SVTs reputation;
- 80\% of SVT's customers in Europe and the USA have above-average incomes and can afford the price increase from $20to $21.
Possible arguments against:
- many customers may not be able to afford the increased price;
- sales might fall;
- say lead to lower profits;
- some directors disagree.
Accept any other relevant arguments.
Marks should be allocated according to the markbands on page 4 with further guidance below.
Theoretical answer or context limited to naming the business or lack of development max [4].
Discussion of only one option marks limited to [5].
Discussion but no clear balance [6].
Options considered, good use of evidence, particularly from section B, but no effective conclusion award a maximum of [8].
For [10] the answer needs to be clearly relevant to SVT with good use of context and a clear sense of whether or not SVT should have increased its prices.