IB Business Management SL 4.1 Introduction to marketing Question Bank

1. LuxEclairage (LE)
LuxEclairage (LE) was founded by Maurice Dahman, an Electrical Engineer from Algeria. He has a degree in electrical engineering and is fluent in French. In 2007, after 12 years working for a large lighting business in Luxembourg, Maurice established LE. His business produces energy-efficient parts for various indoor and outdoor lighting.
L E has a unique selling point (USP): the lowest price in the market. Although most sales are in Europe, all production is in Algeria, where costs are much lower. As a result, growth in sales revenue has been rapid and significant, and L E has gained market share each year.
Selected financial information for L E (all figures in €m):

With the rapid growth in sales revenue since it was first established, L E has experienced some diseconomies of scale, especially in the administration of the business. Production occurs in 12 small factories located around the city of Algiers, rather than in one large factory. Coordination between factories and the administrative offices is, therefore, complicated, and the internet is sometimes unavailable. Whereas French is the language used by managers and customers of L E, the workers generally speak only basic French and prefer to speak Arabic. In addition, patterns of non-verbal communication differ widely between Europe and Algeria.

ELE is continuing to focus on all three of its divisions.
Car rental division
In 2010, ELE owned 4.5\% of the European Union (EU) car rental market. In 2019, ELEs car rental division had revenues of EUR 0.9 billion in a market worth EUR 16.8 billion. Initially, ELE only provided car rentals in its gasoline stations in Belgium. By 2014, ELE had expanded the service to its stations in France, Spain and the UK. Giselle believes that maintaining high levels of customer satisfaction is an important factor in the car rental division's continuing success.
Zeat division
Zeat's MiniC production line, based in the UK, has 125 employees, most of whom have been with the business since 2000.
Currently, approximately 90 % of MiniC sales are to customers in the EU, and profit margins for the MiniC air compressors have fallen significantly due to rising costs in the UK. Lucas recommended to ELE directors that MiniC production be outsourced to a manufacturer in Hungary in the EU.
Gasoline station division
The gasoline station division accounted for 35 % of ELE's operating profits in 2021. Perrana PLC, a global supermarket chain, has offered to purchase all of ELE's gasoline stations. The offer significantly exceeds the current market value of ELE's gasoline stations.
Perrana would close the gasoline stations and open supermarkets on the sites. All ELE gasoline station employees would face redundancy. ELE's workforce will feel betrayed. Although Hugo is very unhappy about the proposal, Giselle has mixed feelings: she would need to find new locations for her 700 car rental offices, but the sale could help finance the expansion of ELE car rentals into India.

M M is reviewing its hotel and mining operations.
To understand customer opinions about its hotels, M M will distribute questionnaires at two of its hotels and use a convenience sampling method. M M is also considering introducing flexitime for hotel employees.
For its gold mining operations, M M wants to increase its market share worldwide to 1 % by 2030. In 2020, MM produced 17 tonnes of the global production of 3200 tonnes.
In another development, M M wants to enter the rapidly growing lithium market. M M has rejected the idea of buying an existing lithium producer and is considering two options: opening its own lithium mine in Australia or entering a joint venture with a lithium mining company.
Option 1: Open a lithium mine in Australia
M M has identified a site in Australia, and the Australian government, which is keen to develop its country's lithium mining industry, will approve a mining license for it. Development of the mine would take three years and cost $ 100 million. Table 2 shows the forecasted net returns for the first six years.

M M will sell the lithium to battery manufacturers in China, a market familiar to the Australian mining industry. Transport costs would be high. Environmental pressure groups oppose the mine because of the water and air pollution they think it would create.
Option 2: A joint venture with CanLith (CL)
C L, a lithium mining company, is seeking expansion with a new mine and needs finance. A joint venture with M M would bring M M 's expertise and corporate values to the expansion. M M and C L would have equal ownership of the new mine and jointly manage it. C L would appoint a board of directors. However, C L has attracted bad publicity because of its poor environmental record, and local people oppose the new mine. Information on the joint venture is shown in Table 3.

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:
- SVTs total sales revenue from home water filters was $ 4.9 billion
- the average revenue earned per water filter was $ 20
- 90 % of SVTs 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 SVTs vision and commitment to helping people in LEDCs, but others believed sales might fall, impacting profits in SVTs Consumer Products Division.

3. Ace Industries (AI)
Ace Industries ( A I ) manufactures plastic containers, mostly for the soft and fruit juice industries. The operations management department uses flow production for its standard-sized products and batch production for its customized products.
Al's sales are growing rapidly. It currently has a 6 % share of the plastic container market. However, it has recently struggled to meet customized orders on time. Some customers have complained about product quality. Currently, A I is organized by region, which allows the company to have strong relationships with customers, who feel that A I knows them and cares about their interests. The human resource department is proposing restructuring the organization by function. Not everyone at A I agrees with this change. Many think that the problems of late delivery and poor quality could be solved through greater delegation.
Lloyd Rinnegrat, Chief Financial Officer, has suggested that Al's management think more deeply about their rapid growth. Except Lloyd, most people at A I believe that rapidly growing sales are good - that by increasing its market share A I will, in the long run, benefit by being a large organization. However, Lloyd argues that being a small organization has many merits, as shown by the changes in Al's recent gross profit margins and net profit margins.

The marketing department has predicted that the soft and fruit juice industries are moving away from major mass-produced drinks and toward niche products, such as exotic fruit drinks and speciality beverages for very particular markets.

3. Top Star (TS)
Top Star (TS) manufactures sports footwear. Its products are sold through retail outlets and online. Sales of TS' footwear in retail outlets are falling. However, because e-commerce is growing rapidly, online sales are increasing. In 2018, TS' total domestic sales were $ 5000000 and total domestic market sales for the same time period were $ 50000000.
TS must consider several challenges:
- Some businesses in the sports footwear industry are finding that selling online leads to many problems and higher costs
- TS' website is not user friendly. Customer complaints about the website and ordering problems are increasing
- TS' presence in international markets is weak and its product range is limited. The directors of TS want to develop a new line of running shoes but the company has insufficient finance for research, development and creating brand awareness.
The directors think that T S should follow an external growth strategy. Two options are being considered:
- Option 1: Some directors propose a merger with a footwear manufacturer, the multinational company All Champion, which would allow TS to be more competitive
- Option 2: Other directors propose a merger with a footwear retailer that has a strong presence in domestic and international markets.
The finance manager believes that merging with All Champion could hurt TS' reputation. TS' factories may have to close, which the local population may resent.

3. Hums Athletics (HA)
Hums Athletics (HA) manufactures running shorts, sweat shirts, and sports bras. Operating only in the secondary sector, HA has a head office and three manufacturing facilities, one for each product. These are located in its home country in Europe. Labour costs are high. The quality of labour is excellent.
HA produces goods under its own HA brand, which it sells to wholesalers. HA also manufactures for other sportswear companies. HA puts the other sportswear companies' logos on the running shorts, sweat shirts, and sports bras. Sales to other sportswear companies are an important revenue stream for H A.
HA has many levels of hierarchy. Managers at each level have a narrow span of control, and the company is organized by product. HA's management believe that these features of organizational structure ensure product quality, which they view as essential for brand loyalty.
The sportswear manufacturing industry is becoming more competitive. Some foreign manufacturers have begun using penetration pricing to gain market share. For three years, none of HA's revenue streams have increased, despite increasing unit sales. HA's gross and net profit margins have declined. However, its sales have increased for the last three years. HA has had to raise additional external finance to increase production.
In response to the increasing competition, H A is considering two options:
- Option 1: Outsourcing some of its manufacturing overseas.
- Option 2: Entering the rapidly growing online business-to-consumer (B2C) retail market.
Market research has shown that consumers increasingly expect to buy online.

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 . K T 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.