IB Business Management SL Unit 4 Marketing

Covered syllabus points

4.1 Introduction to marketing 4.2 Marketing planning 4.4 Market research 4.5 The seven Ps of the marketing mix

[Maximum number: 6]

KapTan

KapTan (KT), which manufactures rechargeable batteries for cordless consumer products like vacuum cleaners, began five years ago as a business with a product orientation. It sells business to business (B2B). Multinational companies dominate the rechargeable battery industry, and KT suffered from cash-flow problems in its first year of trading. Its profits are small and, in the last two years, have fallen.
KT has now developed an innovative battery that is small and lightweight. This battery is an emergency power source allowing electric cars to reach a charging station. However, the battery can only be used ten times before it runs out. KT has insufficient finance to create a battery that can be recharged an unlimited number of times.
Through market research, KT has discovered that:
- no other emergency batteries for electric cars exist
- owners of electric cars fear running out of power
- KT's new battery could be obsolete in five years.
KT has the capacity to produce 90000 of these new batteries each year. The average cost is $\$200$ per unit. KT has insufficient funds to invest in additional capacity.
KT is considering two options:
Option 1: Market and sell directly to existing car owners through business to consumer (B2C) at a retail price of $\$400$ . KT will need to borrow significant capital to finance this option.
Option 2: Accept an offer of a five-year strategic alliance with a manufacturer of electric cars. KT would provide its product exclusively at $\$250$ per unit. Sales are guaranteed.

$Table 2: \(\boldsymbol{K$

Table 2: \(\boldsymbol{K

(a)

Define the term product orientation.

[ 2 ]

(b)

With reference to Option 1, for K T, explain the relationship between the product life cycle, investment, profit and cash flow.

[ 4 ]

Initial research and development costs plus the costs involved in launching a product usually means a product will be a loss maker in its early years. Cash flows may be negative. As sales grow and the product moves into the growth phase, profits are likely to be positive but the company will require additional working capital Not until the product reaches the maturity phases of the life cycle are cash flows and profits likely to be positive. In the decline phase, cash flows and profits are likely to remain positive. The cash flows especially should be solid with the contraction of necessary working capital. For K T, the investment in R\&D for the new battery will have had a negative effect on cash flow and profits. Once the product is launched, Option 1 forecasts see quite large sales and therefore large cash inflows. However, we do not know about the marketing costs, which will increase cash outflows. Sometime in year 2, further investment would be needed if sales targets in years 3 and 4 are to be fulfilled as projected sales exceed capacity. This investment would increase fixed costs and reduce profits.

If a candidate shows some understanding the relationship between the product life cycle, investment, profit and cash flow, but with no application to the stimulus, award [1].

If the candidate shows clear understanding of the relationship between the product life cycle, investment, profit and cash flow, but with no application to the stimulus, award [2].

If the candidate shows some understanding of the relationship between the product life cycle, investment, profit and cash flow and has some application to the stimulus, award [2].

If the candidate shows clear understanding of the relationship between the product life cycle, investment, profit and cash flow and has some application to the stimulus, award [3].

If the candidate shows clear understanding of the relationship between the product life cycle, investment, profit and cash flow and has detailed application to the stimulus, award [4].

If a candidate writes or draws some sort of table (such as exist in several of the textbooks IB students use) listing the stages of the product life cycle and showing the relationship between stages of the life cycle and their relationship to investment, cash flow and profit, accept and award [2] marks if well executed with no application to the stimulus and award [1] if poorly executed with no application to the stimulus.

If the candidate applies to the stimulus, either by making inserts into the table or with commentary before or after it, award an additional [1 to 2] according to the depth and quality of the application.

[Maximum number: 4]

Other operating cost savings were made. However, Adriana decided to maintain PU’s aggressive marketing strategies in contrast to most other universities, which were cutting marketing budgets because of the economic recession. Adriana saw marketing expenditure as a worthwhile investment. The promotion emphasized PU’s achievements both in research and teaching, its services for students, its high levels of student satisfaction and its competitive fees.

Ethical issues PU’s mission statement is based on inclusivity, social responsibility, excellence, perseverance, commitment, resilience, ambition and creativity. The articles governing the university include transparency, freedom of speech and tolerance. Failure to achieve some of these articles has recently been alleged in social media and is now appearing in national newspapers: y A recent appointment as a trustee of the university, Di Jones, is causing controversy. Di is a director of a multinational computer company that is funding some of PU’s IT research. Political activists have discovered that Di is descended from a family that used slaves on their sugar plantation in the 19th century. The activists want her removed from her role. y The student Politics Society has invited a guest speaker who, in the past, has been accused of expressing antisemitic views in one of his books. The society is arguing that freedom of speech should be upheld, while other groups, including students and lecturers, say that the university should not be a platform for intolerant views. y One of the companies funding medical research at the university has been accused of exploiting least developed countries (LDCs) by over-pricing medicine in those countries and selling medicines that have not been approved in the European Union or the United States.

Describe two long-term benefits for P U of its marketing strategies.

Background given in the case study: P U's marketing strategies are "aggressive" (line 60) and P U, unlike its competitors, keeps investing a lot in its marketing ("Adriana saw marketing expenditure as a worthwhile investment", (lines 62-63)), especially in terms of promotion (communicating actively on PU's "achievements both in research and teaching" (line 63) and on its "competitive fees" (line 64)).

Long-term benefits include:
The main anticipated long-term benefit (ie the strategic aim that justifies these marketing strategies) is to get more students (as they are the 'customers' of P U ), both local students (as "many local students have decided to postpone their studies for a year", (lines 52-53)) and international students (as they "pay higher fees to the university than the fees that the university receives from local student" (lines 54-55)). For P U, more students mean more revenue (more income), which improves the cash-flow situation (very important, as PU has "cash-flow problems", as repeated several times, lines 57, 69 and 85).

Other long-term benefits of P U 's marketing strategies include:
- other external stakeholders will be aware of P U's success - stakeholders from the private sector (eg Di Jones who is "director of a multinational computer company that is funding some of $P \cup$ 's IT research", (line 108)), or in the public sector (local and regional politicians, so that they remember P U and keep supporting it);
- attracting new staff to P U, as its intensive promotion indirectly showcases it as a potential employer of choice.
N.B. The question is not about the marketing mix ( 4 Ps , or even 7Ps). If the answer is just an outline of P U 's marketing mix (describing P U 's Product (high quality courses), Price (competitive fees) etc);
award up to [2], as it shows some understanding of marketing, but not of the topic of strategy, nor of the notion of long

term benefits. Likewise, answers about ATL and BTL forms of promotion and answers that use the Ansoff matrix (eg product development: PU offering new courses) may also be partially credited, as they display knowledge of marketing.

Accept any other relevant long-term benefit.
If a candidate provides context that provides a benefit, but the benefit is not explicitly stated, the "second" mark can be awarded i.e. [0] + [1].

Mark as a [2] + [2].
Award [1] for each appropriate benefit identified and [1] for some description and application. Award a maximum of [2] for each benefit. Maximum [4] for two benefits.

[Maximum number: 4]

As a result, Pablo set up Pablo’s Peanuts (PP) as a private limited company. He then purchased a food truck (a large vehicle equipped to cook and sell food). From Tuesday to Sunday, he drove to different Latin American markets in the Miami area to cook and sell his product. PP soon became profitable, but meeting demand was difficult. Pablo wants PP to grow. To do this, he needs a second food truck and an employee. The second truck would require an investment of $100 000. Pablo’s break-even analysis shows that the expected increased output would more than double PP’s profits if the cost of fuel for the food trucks remains constant.

Option 1: A local Miami bank, clearly impressed by the break-even analysis data, is willing to lend Pablo $100 000 with a 10 % interest rate.

Pablo recently emigrated from Argentina to Miami, Florida, which has a large Hispanic* population. However, he could not find caramelized peanuts – known as garrapiñada –at any of the Latin American markets in Miami. These tasty sweet snacks, sold by street vendors, are very popular in Latin American countries. Pablo began testing different recipes to make the snack himself. Once convinced he had the perfect product, he conducted primary market research in several Hispanic neighbourhoods. He was overwhelmed by the positive response.

Pablo's Peanuts (PP)
Pablo recently emigrated from Argentina to Miami, Florida, which has a large Hispanic* population. However, he could not find caramelized peanuts - known as garrapiñada -at any of the Latin American markets in Miami. These tasty sweet snacks, sold by street vendors, are very popular in Latin American countries. Pablo began testing different recipes to make the snack himself. Once convinced he had the perfect product, he conducted primary market research in several Hispanic neighbourhoods. He was overwhelmed by the positive response.
As a result, Pablo set up Pablo's Peanuts (PP) as a private limited company. He then purchased a food truck (a large vehicle equipped to cook and sell food). From Tuesday to Sunday, he drove to different Latin American markets in the Miami area to cook and sell his product. PP soon became profitable, but meeting demand was difficult.
Pablo wants PP to grow. To do this, he needs a second food truck and an employee. The second truck would require an investment of $\$ 100000$ . Pablo's break-even analysis shows that the expected increased output would more than double PP's profits if the cost of fuel for the food trucks remains constant.
Pablo is considering two options to finance the second truck:
- Option 1: A local Miami bank, clearly impressed by the break-even analysis data, is willing to lend Pablo $\$ 100000$ with a 10 % interest rate.
- Option 2: A business angel, Ana Perez, with a strong portfolio of Latin American food products, has approached Pablo. She is offering $\$ 100000$ for 35 % of shares in PP.

Table 4: Financial data related to both options

* Hispanic: relating to Spain or to Spanish-speaking countries, especially those of Central and South America

Explain two reasons why Pablo conducted primary market research.

All question bank results loaded

IB Business Management SL Unit 4 Marketing Topic Practice

Covered syllabus points

Question 1

Question (a)

Question (b)

Question 2

Question 3