A LevelBusinessCambridge (CIE)Exam Questions3. MarketingMarketing Analysis (A Level)

Marketing Analysis (A Level) (Cambridge (CIE) A Level Business): Exam Questions

Exam code: 9609

1 hour19 questions
Easy
Medium
Hard
1
3 marks

Case Study

George’s Gym (GG)

George identified a potential niche market for a new gym in his local area. He set up GG as a sole trader business three years ago. GG is a modern gym with the latest equipment.

George has recently gained planning permission to build a new swimming pool. George wants to open the swimming pool because a national competitor is planning to open a new gym close by and he wants GG to remain competitive. The swimming pool will cost $400 000 and George has yet to decide on the best source of finance. He has $50 000 in savings that he could use and he does not have any mortgage or loans. George is thinking about seeking a private investor but is unsure of the risks involved.

The local population is wealthy. Last year (2012), GG had 300 members who each paid a membership fee of $60 per month. George is thinking about new ways of increasing revenue such as offering additional ‘keep fi t’ classes. He also plans to increase the monthly fee he charges members to $66. His accountant has told him he needs to think about the price elasticity of demand before making a pricing decision.

Table 3 – Annual revenue and profit for the year for the previous 3 years ($000)

2010

2011

2012

Annual revenue

120

160

X

Profit for the year

20

50

80

George hopes that the information in Table 3 will help show any potential lender how attractive the gym is as an investment.

GG has a problem of a high labour turnover of personal trainers. Three of them have left in the last six months. He has just employed a new personal trainer, Sally. George needs to issue her contract of employment. George thinks that the reasons for the high labour turnover include:

  • George is always busy and so he can never offer an effective induction training programme for his employees

  • GG salaries are below average for the industry.

Explain how George might use the concept of price elasticity of demand in deciding whether or not to increase GG’s membership fee.

How did you do?

2
3 marks

Explain one way price elasticity of demand influences the pricing decisions of a business.

How did you do?

3
2 marks

Define the term ‘price elasticity of demand’.

How did you do?

4
3 marks

Case Study

UFilters (UF)

UF is a public limited company selling to an industrial market. It manufactures air conditioning units. UF produces two sizes of air conditioning units, medium and large. Most of its air conditioning units are sold for use in warehouses and computer server rooms. The units are expensive compared to competitors but UF believes its units are of a higher quality. Market research suggests that there is a growing demand for small air conditioning units to be placed in offices. To produce a new size of unit would require spending $180000 to purchase new machinery.

UF relies on customer recommendations for new orders. However, some customers have been dissatisfied with the service received. UF has received several complaints, including:

  • engineers turning up late or not at all

  • poor communication from UF

  • little choice in the size of units supplied

  • appointment times are not always convenient and can be difficult to change.

Sylvie, the Marketing Director of UF, is concerned about the sales data (Table 1.1) as sales have fallen 10% on the previous year.

Table 1.1: Selected sales data for UF, 2019

Unit size

Price ($)

Unit sales

Medium

900

3500

Large

2000

800

Sylvie is considering two options to increase sales (see Table 1.2).

Table 1.2: Options to increase sales

Option 1
Reduce the price of the units by 10%

  • Competitors’ prices are 8% lower on average.

  • The estimated price elasticity of demand is –0.8.

Option 2
Implement a performance related pay scheme (PRP)

  • Sales staff are currently paid a monthly salary.

  • To introduce a PRP scheme the monthly salary would be reduced by 10%.

  • Targets would be set and if sales staff met the targets then they would receive PRP increasing their monthly salary by 15%.

Explain the term ‘price elasticity of demand’.

How did you do?

5
2 marks

Read the following extract (lines 71–74) before answering

Calculate the cross elasticity of demand of the Hydrocamel following the price reduction of the Hippo Barrel.

How did you do?

6
2 marks

Define the term 'income elasticity of demand'.

How did you do?

7
3 marks

Case Study

Portland Appliances

Portland Appliances manufactures washing machines and refrigerators in country N. Its research shows the income elasticity of demand for its premium range is +2.4. Economists forecast that average incomes in country N will fall by 3% next year.

Explain one way in which the income elasticity of demand for its premium range may affect Portland Appliances' production decisions.

How did you do?

8
2 marks

Define the term 'promotional elasticity of demand'.

How did you do?

9
3 marks

Case Study

Juniper Air

Juniper Air is a budget airline operating in country V. It must decide six months in advance how many aircraft to lease for the summer season, and once signed, the leases cannot be cancelled.

Explain one reason why sales forecasting is important for Juniper Air.

How did you do?

10
3 marks

Case Study

Loxley

Loxley manufactures gardening tools in country E. Its sales have been flat for three years. The marketing director has suggested collecting ideas for new products from Loxley's own repair department, which sees which tools are returned as broken and how they have failed.

Explain one benefit to Loxley of using its repair department as a source of ideas for product development.

How did you do?

1
3 marks

Read the following extract (Table 2) before answering

Calculate the promotional elasticity of demand (PrED) for Devonice ice cream.

How did you do?

2
2 marks

Read the following extract (Table 1.1) before answering

Using the data in Table 1.1, calculate the seasonal variation for 2022 Q2 (X).

How did you do?

3
3 marks

Case Study

Child Play (CP)

Su is a sole trader who started a business called CP which operates a play area for children. The play area is inside a building and includes toys and other play equipment. Customers book on CP’s website for each hour that they would like to use the play area. CP is two kilometres away from the nearest city which has a large population. Su does not pay for any promotion and she relies on recommendations and reviews from previous customers.

Su currently charges a price of $10 an hour for a group of up to 5 children. Only one group can book CP for each hour. Demand is greater than supply so Su may increase the price to $15 per hour. She has completed some market research to see if this is a good idea. Her findings are in Table 1.1.

Table 1.1: Market research about prices for CP

Price

Quantity (hours) demanded per day

$10

10

$15

6

Su is also thinking about expanding the business by opening a café targeted at parents with children.

The café would be located at the entrance to CP’s play area. There are many other cafés in the city centre two kilometres away. Su believes that product differentiation is essential for the profitability of the café.

Su plans to use CP’s working capital as the source of finance to open the new café. The café will need to earn revenue quickly, so she plans to open it in four weeks. She will need quick and low‑cost promotion methods if the café is to succeed.

Calculate the price elasticity of demand if Su increases the price from $10 to $15 an hour.

How did you do?

4
3 marks

Case Study

Snappy Box (SB)

SB is owned by Ralph who is a sole trader. The business prints photographs. Ralph has one shop on the main street of city D. Customers bring their saved digital photographs into the shop and these are printed on high-quality paper.

SB uses a large printing machine that can print on almost any size of paper to produce different sized photograph prints. The process is very capital-intensive and most customers request a batch of photographs to be printed.

SB is the only shop in city D that prints photographs. However, recently a number of online competitors have started to offer low-priced photograph prints to customers. Ralph has noticed that his sales have decreased significantly because of this competition. Ralph estimates the demand for his photograph prints has a price elasticity of demand of –4.

SB already has a low profit margin and Ralph is struggling to compete with the online retailers. However, Ralph has an idea to introduce job production into his shop. He could stop printing photographs and instead focus on framing individual photographs for customers. These frames will be made for any sized photograph or picture and can be made from a variety of materials chosen by the customer.

Ralph will need specialised equipment to allow him to make the frames. The equipment would cost $10000. He has identified two possible sources of finance for this equipment.

The first possible source of finance is for Ralph to lease the equipment from the company that produces it. The lease would be for five years at a fixed cost of $400 per month.

The second possible source of finance is for Ralph to sell the photograph printing machine for at least $10000, to purchase the equipment to make frames.

Use Ralph’s estimate of the price elasticity of demand to calculate the percentage change in demand for printed photographs if the price is reduced by 10%.

How did you do?

5
3 marks

Read the following extract (lines 67-76) before answering

Calculate the increase in revenue for GR if promotion spending is increased to $195 000.

How did you do?

6
3 marks

Read the insert before answering this question.

Calculate the price elasticity of demand (PED) for the smart thermostat

How did you do?

1
12 marks

Refer the following extract before answering

Evaluate the importance to FF of following the product development process before adding metal glasses frames to its product range.

How did you do?

2
12 marks

Case Study

Brackenfield

Brackenfield produces bottled fruit drinks in country P. Research carried out two years ago estimated the price elasticity of demand for its main product at -1.8. The marketing director wants to cut the price by 10%, expecting sales volume to rise by 18%.

Since that research was completed, two new competitors have entered the market with similar drinks, a government health campaign has discouraged consumption of sugary drinks, and Brackenfield has launched a reformulated low-sugar version of the product. Its factory is currently operating at 88% capacity.

Evaluate whether Brackenfield should rely on its price elasticity of demand estimate of -1.8 when deciding to cut its price by 10%.

How did you do?

3
12 marks

Case Study

Ashcroft Solar

Ashcroft Solar installs solar panels on homes in country Y. It forecasts sales using four-period centred moving averages drawn from five years of quarterly data. These show steady underlying growth and a strong seasonal pattern, with installations peaking in spring and summer.

The government has just announced that the subsidy paid to homeowners for solar installation will end in 18 months. The sales director argues the existing forecasting method is reliable because it is built on real data. The operations director argues that past data cannot capture the effect of the subsidy ending, and that the judgement of experienced installers should be used instead.

Evaluate whether Ashcroft Solar should continue to rely on time series analysis rather than qualitative forecasting when planning for the next two years.

How did you do?