IB Business Management HL 1.1 What is a business? Question Bank

1. Call it Magic (CIM)
Call it Magic (CIM) is an online jewellery store that sells silver earrings. It has completed its first year of trading, during which it sold 1000 pairs of earrings. CIM's selling prices are low compared to those of other jewellery stores. The average unit cost per pair of earrings is $5, and overhead costs are already at a minimum level.

1. Las Migas
Carolina plans to set up a bakery, Las Migas, in a small town. Competition from established bakeries is strong. Carolina has asked for a bank loan because her personal savings are insufficient. The bank manager requested the following information:
- a business plan
- a cash flow forecast for the first four months of operations.
Carolina has no experience with financial forecasts but she estimated the figures for Las Migas for the first four months of operations. These figures are shown in Table 1.

3. BVC
BVC manufactures canned energy drinks. It produces the market leading energy drink, Beta+, which is sold directly to, and exclusively in, sports clubs. BVC encourages intrapreneurship and innovation within its organization.
To purchase Beta+ legally, the consumer has to be over the age of 18. However, many younger teenagers illegally purchase these drinks. Sales of Beta+ have grown dramatically.
To have legal sales to teenagers aged 17 and below, B V C created Beta Lite, which has a much lower caffeine and sugar content than that of Beta+. Beta Lite will be sold using long distribution channels and to a range of retail outlets.
Initial sales of Beta Lite were disappointing. The marketing manager argues that Beta Lite is not innovative and is only adaptively creative. According to market research, consumers were confused between Beta+ and Beta Lite because the packaging is so similar. Many younger consumers were frustrated because they thought they were purchasing Beta+ when buying Beta Lite. Using social media, they launched a "Ban Beta Lite" campaign.
BVC's management were unprepared for this consumer reaction. To overcome this criticism and to boost sales of Beta Lite, two proposals are being considered:
- Proposal 1: launch a guerrilla promotional marketing campaign for Beta Lite.
- Proposal 2: completely redesign the packaging of Beta Lite.

4. Healthy Start (HS)
Tom Donat started Healthy Start (HS), a national chain of stores preparing and selling healthy snacks, which are produced in batches. HS's target market is teenagers and young adults. Tom was concerned about high levels of fast food consumption and youth unemployment. His vision statement for HS is: "To encourage life-long healthy eating habits and to train school leavers (drop outs) in acquiring work skills".
HS hires many school leavers without qualifications. Because of the valuable social service that HS provides, an independent online media provider will feature HS in a new online reality TV show.
All employees, including managers, start at the lowest level of the organizational hierarchy and train on the job. Job enlargement, job enrichment and intrapreneurship opportunities are available. 20 % of all profits earned are put back into HS to finance these opportunities. Staff turnover is lower than the industry average.
Competition from global fast food restaurants has intensified. Their economies of scale mean that HS struggles to increase its market share. Online reviews indicate that some customers perceive HS's snacks as healthy but overpriced and with small-sized portions.
Tom is considering two options:
- Option 1: Implement flow production. HS will buy new technology and assign each employee to a specific job on the production line. HS will increase portion sizes and keep prices the same.
- Option 2: Implement a new social media marketing campaign linked to the new online TV show. The campaign will focus on the health benefits of HS's snacks.

5. KapTan
KapTan (K T), 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 K T suffered from cash-flow problems in its first year of trading. Its profits are small and, in the last two years, have fallen.
K T 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. K T has insufficient finance to create a battery that can be recharged an unlimited number of times.
Through market research, K T 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.
K T 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.
K T 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. K T would provide its product exclusively at $ 250 per unit. Sales are guaranteed.

5. Kodak
Kodak, after decades as the leading American camera and photography company, went bankrupt in 2012. Despite its large research and development (R\&D) budget, Kodak concentrated on products related to its film-processing business, a market that Kodak had long dominated. However, digital technology had changed photography dramatically, and Kodak, unlike its competitors, failed to innovate.
At least three times, Kodak misunderstood consumer desire to interact with photos and the external environment:
- Digital cameras - In 1975, Kodak invented the first digital camera but did not sufficiently develop this technology. Its cameras were always perceived as satisfactory products, but "nothing special". Competitors innovated with features such as face-and-smile detection. Kodak only followed trends, never led them.
- Photo viewing - In 2002, Kodak entered the market of low growth, small margin products, such as digital photo frames. Kodak's products did not have a unique selling point (USP) and were unsuccessful.
- Photo sharing - In 2005, Kodak developed the first WiFi camera, but sales were disappointing. Shortly thereafter, a new business opened, Eye-Fi, which proved Kodak wrong about WiFi. Eye-Fi created a successful business based on WiFi memory cards for cameras - the concept that Kodak had abandoned and not patented.
The conclusions from Kodak's bankruptcy are clear:
- "Cannibalism" - do not be afraid to develop a new technologically advanced product even if it causes the decline of your existing products.
- Innovation - do not be afraid to take risks. Kodak's inability to give any of its digital products a USP shows its failure to take advantage of inventions. Innovation also requires strategic vision.
- New product design - do not be afraid if sales do not happen immediately. Kodak withdrew its WiFi cameras simply because the first model sold poorly.
As the evidence shows, not taking risks in new inventions will reduce profit margins in the long run. Small, innovative business start-ups such as Canon can often successfully penetrate markets dominated by big companies unless those companies use their resources to keep up-to-date.