IB Business Management HL 4.4 Market research Question Bank

1. 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.

2. Enjuice
Enjuice produces canned juices. The market for canned juices is very competitive. Each can is sold at $ 8. Enjuice's profit margins are falling. The marketing manager has conducted primary market research and suggested increasing advertising to increase sales. In 2018 Enjuice sold 360000 cans.

2. Sock Paradise (SP)
After conducting primary market research, Pam opened Sock Paradise (SP), which sells colourful socks. SP operates a retail stall in a large department store and sells online through its own website.
Table 2 shows selected financial data for SP for 2020.

At the end of 2020, the department store told Pam that it would increase rent by $14000 per year starting on 1 January 2021. Pam forecast total sales for 2021 as 18000 pairs of socks; other costs and prices were forecast to remain unchanged.

2. Aroma Corporation (AC)
Aroma Corporation (AC) is a mass-market cosmetics company that produces soaps. Concerned about falling market share and profit, AC conducted new market research.
The senior management team is considering two strategic options.
- Option 1: research and develop new environmentally friendly soaps
- Option 2: buy new machinery to produce more of the current products
The probabilities, forecast costs and revenues of each option are given below:

2. Icarus
Icarus is an adventure tourism company. It has developed a family brand of innovative tourism products, such as the World's first underwater theme park. Its next objective is to build the first hotel in outer space by 2016. Icarus conducted market research using stratified samples of businessmen/businesswomen and families with incomes over $ 10000000. Most said that they would pay the proposed price of $ 140000 per room per night. Although the hotel should create significant profits, Icarus' Board of Directors is concerned about both safety and financial risks.

Icarus has invested significant funds to develop safety procedures and to train the employees of the future hotel. Icarus wants to protect its brand image as the most trusted adventure tourism company in the world.

The hotel will have a capacity of 500 rooms. Originally (in 2012) Icarus forecasted the following (in $):
- price per room per night (room rate): 140000
- fixed costs: 10000000
- variable cost per room per night: 100000 .

Now (in 2013) the costs of construction, fuel and insurance have increased and affected the forecast. To ensure a 2016 opening, Icarus has identified a potential investor. The problem is that he expects a $ 2000000 guaranteed (target) profit in the first year, but Icarus has promised not to increase its room prices. The following shows the revised forecasted figures (in $):
- price per room per night (room rate): 140000
- target profit required by investor: 2000000
- fixed costs: 12000000
- variable cost per room per night: 108000 .

The Board of Directors are concerned that:
- keeping room prices the same will reduce profits
- other adventure tourism companies are considering entering the outer space tourism market
- withdrawing from the project would damage Icarus' brand image and would cost millions of dollars.

4. Music Mania (MM)
Music Mania (MM) is an independent store selling new and used music compact discs (CDs), DVD films and music vinyl records. It is a sole trader business owned by André, who has 25 years of experience in the retail and music business. M M has loyal customers but its total revenue is falling. The store currently has a low market share in DVDs and vinyl records.
André decided to conduct some primary and secondary market research, as the entertainment industry is changing rapidly. He discovered that:
- the market for DVDs is in rapid decline
- CD sales are declining slowly but new releases still sell well
- MM has had to stock computer games, which are selling out very quickly, and the sales of new vinyl records are growing slowly.
André is accustomed to variations in sales but the current sales forecasts are, in his experience, the most worrying. He has decided to create an e-commerce website to increase his sales of new and used vinyl records and CDs. André is also aware that new free online music streaming and gaming sites are being launched.
André has only limited internal sources of finance to set up the website. Two new tactics to ensure future success for M M being considered are:
- to stop selling DVDs
- to increase below-the-line promotional spending on vinyl records.

3. Toyota
Toyota is one of the biggest car manufacturers in the world. For decades it was known for production efficiency and car quality. Its Kaizen approach to manufacturing transformed car-making worldwide resulting in years of growth in sales and profits. With rapid global growth, Toyota began outsourcing production activities of some car parts to overseas manufacturers, with whom it had not worked before, resulting in a loss of quality control. In addition to this, it ignored employees' concerns about car safety and quality and was also slow in responding to customers' complaints.
In 2009, Toyota recalled 11 million cars worldwide due to various defects in car parts. The financial loss to Toyota from the recall and lost sales was US $ 2 billion. The total market value of Toyota's shares fell by US $ 20 billion.
Following the recall, company President Akio Toyoda said that in expanding too rapidly Toyota:
- Lost sight of its long-established customer focus.
- No longer stopped to study every defect, or problem to determine the causes.
- Forgot its core values of safety first, quality second and volume third. Its main strategic objectives became "world biggest" and profit.
He added that the situation is urgent and to recover its reputation and core values:
- New quality control standards will be put in place.
- New procedures will pay closer attention to customers' feedback.
- A team will be set up to investigate every defect reported within 24 hours.
- Change will be implemented more rapidly than normal.
Other famous car brands have also experienced product recalls. Regarding Toyota, analysts commented that Akio Toyoda understands the problems and has personal interest in Toyota, his name is on every car. Financially, Toyota created a US $ 1.4 billion provision for the recall and it has US $ 23 billion in reserve. In America, Toyota's sales were up 6 % in 2010 over the previous year.