Business Oct 2023

Question_paper_-Unit_2_WBS12-_October_2023NEWUnit_2.pdf

Mark_scheme_-Unit_2_WBS12-_October_2023NEWUnit_2.pdf

Examiner_report_-Unit_2_WBS12-_October_2023NEWUnit_2.pdf

#Section A

Define the term ‘quality’. (Extract A, line 10) [2] - 3 minutes Qualitity is how good a product a product or service meets customer expectations and is free from defects and differniates itself from competitors. (not sure)

Using the data in Extract B, calculate to two decimal places the average daily capacity utilisation of services from Pristina to Tirana for Arditi Tours in April 2022. You are advised to show your working. [4] - 2 minutes,

42.22 percent (15+21+29+11)/(45*4) = 42.22 percent capacity utilisation

Capacity on bus services from Pristina to Tirana is frequently under-utilised. Analyse two possible reasons why Arditi Tours continues to offer four bus journeys a day in each direction. [6]

Since demand flucuates considerably throughout the year where some weeks it operates at full capacity and others at a quater capacity, adriti tours may keep continue to offer four bus journeys a a day in order to capitlise on any spikes of demand that are not seasonal essentially if they cannot accurately predict when demand spikes then they can just keep their lines always open and let the busy full capacity days subsidise/offset the loss from low demand days; this allows them to capture more demand and therefore more revenue and allows them to be a more successful business. The losses are offset at in 5 am only 15 people travel meaning they are 2 passengers away from break even and in 15:)) they are 6 pasengars away from break even that means they need in total 8 passengers over break even on any other trips and in 11:00 there are 29 passengars and since breakeven in 17 peassengars that means their losses are absorbed and roughly they have across all timings 8 peoples fares full of profit therefore meaning their net profit is 120 euro per day which workouts to be 43,800 euro per year. Since arditi gas several compeititors offering the same routes at various times each day, adriti needs to compete with its competitors as if it only offers one route a day say 11:00 then its competitors could offer more busses for cheaper at that time and run adiriti out of business as consumers would switch since they offer these busses at a cheap price we can assume that the demand for these is price elastic therefore if competitors offer cheaper prices for a similar service then non loyal customers would switch to the cheaper option therefore resulting in adiriti having less sales and therefore may be unprofitiable and could potentially be run out of business due to lack of demand therefore adiriti needs to compete with its comeptitors by offering more tours/jounreys in order to compete. 9 minutes

Using the data in Extracts A and B, discuss whether Arditi Tours should have been concerned about its margin of safety in April 2022. [8] - 12 mins Margin of safety is the difference between the break even point of sales and actual sales. On two times 5:00 and 15:00 aditrti operates at a loss as their breakeven point is 17 passenagers however their losses are offset by more profitable tiems such as 8 am or 11 am. At 5 am only 15 people travel meaning they are 2 passengers away from break even and in 15:00 they are 6 pasengars away from break even that means they need in total 8 passengers over break even on any other trips and in 11:00 there are 29 passengars and since breakeven in 17 peassengars that means their losses are absorbed (29-17-8+21-17) and roughly they have across all timings 8 peoples fares full of profit therefore meaning their net profit is 120 euro per day which workouts to be 43,800 euro per year. However since across the month of april, they were only 8 passengars over break even therefore having a small margin of safety If adriti is operating in one of their aforementioned quarter capacity weeks, then this low 8 passenger margin of safety is not a sign to worry as when they return back to full capacity, even if they operate at a loss and below their break even point, they can easily make up this money when they operate at full capacity in higher demand weeks. However this depends on the cash they have on hand where if they have low cash then even a couple weeks operating at a loss could be enough to run adriti tours out of business as their negative cashflow means that this could eat into their limited cash and could lead to the business closing however if they have signifciant cash reserves where they could survive weeks of negative cashflow then the business could surivive and make up these losses in the full capacity weeks, Overall, even if this is the lowest cashflow month, adriti has litttle reason to be concerned about its margin of safety as they still have a 8 passenger margin of safety. However if the rising disel price continues to rise then this cost that is fixed as in they are using disel busses and not electric busses would mean if the price of disiel rises above 1.58 euro then they would have higher variable costs and therefore result in a higher break even point which could eat into the margin of safety and potentially errode the full ammount leading to negative cashflow however this is only if the dieisl price signifantly increases otherwise adriti should not be concerned.

Using the data in Extracts A and B, assess whether raising the price of a bus ticket by €1 is likely to be the best way for Arditi Tours to increase sales revenue. [10]

Increasing the price of bus tickets would result in an increase in sales revenue if demand for their service is price inelastic where an increase in price results in a less than propritoinaite decrease in demand and since the price only increases from 15 to 16 euro in other words a 6.67 percent increase in price which to consumers does not seem like a high price increase enough to sollicit changing bus ride providers due to this increase in price not being enough to overcome customer inertia. Therefore increasing the price of a bus ticekt would result in increased sales revemue.

However since they are operating inn a heavily saturated industry with alot of different firms operating in the industry offering a similar service, the demand for their product is probably elastic where an increase in price results in a more than proportionaite decerase in demand resulting in a decrease revenue therefore increasing their price may increase the profitablility per ticket however if demand for their bus rides is price elastic thhis would result in a net decrease in sales revenue.

Expanding their business by offering new routes or more busses or more times though costly, it increases their capacity and allows more customers to go on more rides which would allo

However this depends on if adriti has enough spare cash to invest in new busses, where if they do not have enough cash to buy or lease new busses

Overall, increasing the price of bus tickets is the best way for ariditi to increase sales revenue if demand is price inelastic. As this decreases their breakeven point and if demand is price inelastic it would result in an increased sales revenue as their is a less proprotinate decerase in demand in comparision to the increase in price by 6.67 percent.

#Section B

Define the term ‘brand’. (Extract D, line 4) [2] A brand is a logo or similar that differniated a company from its competitors.

The brand name of Salsa Valentina is a registered trademark in every country where it is sold. Explain one reason why Grupo Tamazula has registered a trademark for its brand, Salsa Valentina. [4] A trademark protects a companies brand from other companies using their name where if a company infringes on the trademark they have legal protection and can sue the offending company. As if a company made a cheap knock off of their salsa and used their name and customers tried it then they would get a bad impression of grupo tamzaula and not buy from them as grupo has a great reputation from using the finest ingridents and being thicker than its competitors. It is important to have a trademark in every country it is registered such as the US and canada so they can protect their brand identity from being infrigned on by competitors as a great brand helps to differneitate a firm from competitors and can increase sales.

A large number of businesses manufacture hot sauce in Mexico. Analyse two ways Grupo Tamazula may remain competitive [6] Grupo Tamazula can continue to provide an excellent product with the finest ingridents, and compete by differniating its hot sauce from comeptitors by providing a superior product that uses more fresh chilles and less vinegar. By differniating its product from competitors and providing a higher qualitity product, more quality and health concious consumers would choose grupo for their superior salsa as they provide a greater value for the price than competitors. Grupo Tamazula could also lower their prices where if they have a similar product to thier competitors who are similarily priced and assuming their product is price elastic (less than -1), lowering their price would lead to a greater than proportionate increase in demand therefore making grupo price competitive and since they have a massive factory over 26 sqaure kilometers they could likely take advantage of economies of scale and bulk purchasing of ingridents to lower their average cost which therefore means they could pass these savings onto consumers and still retain their profit margins therefore if their product is elastic then this would lead to an increase in revenue and an increase in profit if the profit increase surpasses the increase in variable costs.

Discuss the benefits for Grupo Tamazula of being a public limited company (plc). [8] Grupo being a public limited company allows them to have access to share captial where they can sell shares/a percentage of their business to the public in order to gain finance. They could in turn. use this finace to reinvest into their business such as expanind to more countries as they only operate in the us canada and mexico, therefore they could use this finace in order to expand to further countries and open new branches and factories in order to service more markets and therefore more consumers and therefore generate more revenue which they could further reinvest into RnD to make their product better or diversify or further expand their business to repeat this cycle leading to a postive feedback loop and exponetial returns assuming they continue to reinvest into the business and not pay their extra profit to shareholders. However this depends on if the grupo uses the funds from share capital to expand their business and not use these funds to pay short term reccuring debts where if they do this leads to a misallocation of funds where they are using external finace in order to meet short term liabilities which is an unsustainable business practice which could lead to business failure in the long run.

On the other hand, Grupo being a public limited company means they give a portion of control to shareholders who may have controdicting goals to the founder; where these shareholders may priortize profit and dividends over the quality of the salsa and may cutt back on using the finest ingridents and use cheaper more economical ingridents to boost profit margins. This is a contary to the founders beliefs and if the company

To render a final judgment, grupo tamzaula being a public company would allow it to further expand their business into more regions and invest into RnD to make their product better.

Assess whether Grupo Tamazula will find it difficult to keep waste to a minimum. [10] If grupo tamazula uses JIT production where resources arrvice just in time to start production meaning minimal stock is kept at all times and since grupo tamazula uses the finest ingridents such as chillies which are perishable, having a large buffer stock means that if they dont use them for a while or even if they use a first in first out model, these ingridents could expire before being used or are not of a viable enough qualitity to be used in their salsa. This means that grupo does not have a buffer stock and therefore are a leaner company and can easily mimise waste as JIT is particularly useful for companies that have perishabe inggridents such as fresh chillies. Grupo also uses the most modern equipment available and investment in technology meas grupo tamzaula keeps up to date and with this better technology such as more effiecent machines which therefore produce less defects and therefore produce less waste as these defects would have to be thrown away which would therefore lead to lower average costs from decreased waste and therefore meaning the business costs decrease and so does their breakeven point meaning more units would generate a profit assuming output and sales stays the same

However, this depends on, whether of or not they accurately implement JIT with good reliable suppliers where if they do not have reliable suppliers that regularly delay shippments of ingreidents then their delayed shippments if they use the same chillies that are now not as fresh and would impact the qualitity of the salsa meaning that that salsa batchc now uses lower qualitity ingridents and therefore if new or old customers try this then they may not like the salsa as much and have a ruined brand image and therefore choose to not purchase their salsa again or loose their brand loyal status which would lead to decreased sales and therefore decreased sales revenue and profit further to this this means grupo would have to spend more on advertising to aquire customers as they lost some reccuring customers.

To render a final judgement, grupo would have mild diffucultly managing waste thanks to the nature of their ingridents that include fresh chillies and vinegar that are perishable meaning if they keep too much buffer stock then some of their products could expire and not be used and therefore have to be thorwn away. This stuructural issue of their business combined with the growing demand from their expansion into the USA and canada markets means it is vital for them to adress this issue; and this is an issue that the latest up to date technology can not adress on its own and therefore they should implement other policies such as JIT if they can find multiple high qualitity reliable on time suppliers.

#Section C

Evaluate whether Amazon’s decision to stop selling its Kindle in China was due to internal or external causes of business failure. [20]

KAA For External External business failure particularly the strong domestic competitors such as xiaomi and huawei are a strong reason why amazon decided to stop selling kindle in china. Where amazon e-book revenue mainly came from china in 2019, however in the comming years it has lost signifcvant market share to domestic rivals who launched their own e reader devices such as xiami and huaweii and iflytek which captureed a signifcant portion of the 500 millino chineese users and the 6 billion sales revenue in china which increased more than 18 percent in one year. By amazons comeptitors offering superior products who all niched down in smaller portions of markets such as desktop sized screems amnd iphone sized readerse and colour e ink screens for comics all while amazon did not change and elolve with the market, therefore loosing customers to those who swicthed to superior products as customers in china do not have a stong brand loyalty to a foreign company but rather already prefer chineese products which are superior and therefore they swicthed to their comeptiotrs reducing amazons marketshare and decreasing their revenue and therefore their profit. This is signifcant beacuse amazon was opeating in a growing market which increased by 18 percent in one year to 6 billion dollars and they still lost market share from their competitiors which suggests an external issue and internal issue from not adpating their prodct to offer better libaries that include harry potter or offering e ink screens to give cutomers in china who love comics a reason to choose kindel as opposed to other projects which already have e ink screens from day 1.

Eval In the short run, amazon may have disregarded comeptition as they were in a growing market and assumed that their market share would remain steady however in the long run they were disproven as they lost market share to their competitiors. This is mainly dependent on if the chineese products were actually bettter than kindle and offered more comprehensive e libairies than amazon as amazon did not even have harry potter where many other chineese brands did have them. Where if chineese products were better this means that even if chineese consumers knew about the kindel they would choose the superior chineese prodcut from xiamoi therefore amazon not gain a sale and therefore not gain sales revenue from that person and prexisting customers who now know about the superior xiaomi products as they could spend their increase profits on better advertising and since they are a chineese firm that knows how to market better to the chineese, the pre exsiitng kindel customers would swicth to xiaomi and therefore meaning amazon has a reduced cusomter base who would pay for their books on the kindel store and therefore loose revenue adn therefore profit and leading to a reduciton in market share which is signficant due to amazon being the globablly biggest e reader retailer.

KAA For Internal Internal business failure and particularly ineffective marketing startergy as most chineese people only learnt the kindle reader was for sale in china by reading amazons leaving notice is a strong reason why amazon decided to stop selling the kindle in china. This is because ineffective markeeting can be seen that a vast majority of customers did not know about kindle and therefore could not purchase it; therefore by ineffective marketing and customers not knowing about kindle but only chineese e readers such as xiuaomi they could not purchase the kindle reader assuming they would have if they knew essentially this looks like aritifically lower sales in the 500 millino chineese userse who use e readers. This is signifcant as if the 500 million people who already use the prodcut in china do not know about the kindel then they cannot purchase it essentialy making amazon loose on billinos in market share.

Eval However this would have been contignet on if they could have accurately marketed to chineese customers who have signicantly different values and needs from a product than a american/western cusomter. Since china is a multi billion dollar company offering in multiple countries they should have had a team just for china oversseing the 6 billion dollar market and effectively adapting their marketing and avertising stratergy however if it apparent theat they did not effectively do this where there could have been an attempt but the strong reason was that of they lacked the vision to properly tailor the advertisement to the chineese and the budget to make it a big enough scale for national recognition as most people did not actually know about kindel operating in china apart from when amazon redrew their product therefore if their team lacked teh vision to implement then it would lead to customers not knowing about kindel and therfore choosing comapnies like huaweii with great marketing camoaguns as they understa d the chineese as they are a chineese frim therefore they capture more market share from amazon and therefore are a more succsesful company as they are capturing millions of customers from amazon.

Final Judgement To render a final jdugement, amazons final decisecsion was primarily due the external causes of business failure particularly their strong domestic comeptitors such as xioami and huawei and the external structural cause where unlike the us print books, chineese print books are cheap and easy to order online therefore leaving the main USP of amazons e books with a limited price advantage. Therefore external cuases of business failure were more weighted in amazons decision in leaving the chineese market for e readers than internal causes. However this only holds true if the competitors products were stronger than kindle where if not then the lack of the marketing and advertising would have been a greater reason as amazon lost market share eventough the market grew by 18 percent from 2020 to 2021 to 6 billion dollars meanning that competitors actively ate up and stole their marketshare. If amazon wishes to re enter the chineese e reader marketm they should heavily focus on information campaigns to better spread awareness then essentially market market market their product and spend a signifcant portion of their funds on advertising to get the kindle name out and then they should alter their product and offer a reigional product with an e ink display to support comics and mangas and they should also offer seperate sizes and offer major book names such as harry potter. By using all of these and their superior product and the heavy marketing they should efffectively poach most of non loyal customerse from xiaomi and huaweii and regain market share and increase their revenue however this holds true only if they properly market as that was their main source of internal failure.