The Marketing MIx (AQA AS Business): Exam Questions

Rockall Ltd

Rockall Ltd is a family-owned business that has manufactured clothes for 30 years. The company has grown steadily without taking ‘excessive risks’. The business targets the 16–30 age segment of the clothes market where low prices are important to customers. Rockall is recognised in this market for its ‘good value’. To keep production costs low, basic materials and designs are used for all the products it makes. Rockall does not use advertising.

Table 1 Extracts from Rockall Ltd Income Statements 2019 and 2020

2020 was a busy year for Rockall:

• It doubled the size of its rented head office.

• Several new retailers signed contracts to sell its products. This resulted in larger purchases of materials allowing it to negotiate considerable discounts.

• It introduced lean production.

• It introduced a new layer of management.

Rockall is thinking about the future. In the last couple of years it has launched two new product ranges: sports shoes and jewellery accessories. It has now decided that, in addition to its clothing, it will increase its investment in just one of these new product ranges. Recently, Rockall completed market research that showed:

• total sales in the sports shoe market targeted by Rockall were double jewellery market sales last year

• many customers in the sports shoe market are in the 16–30 age range

• a number of large, well-known sports shoe brands dominate this market, spending several hundred million pounds on advertising

• the sports shoe brands charge high prices and make high profit margins

• its jewellery generally has a lower gross profit margin than its sports shoes

• there are many relatively small producers in the jewellery market.

Following its research , Rockall produced the Boston Matrix below relating to its existing products in the sports shoe and jewellery markets in 2019 and 2020:

Charlotte’s Sculptures

Charlotte is passionate about art and design. In 2014 she began producing and selling unique art sculptures. She was an art college student at the time with no business qualifications but did win a national art award. In 2016, Charlotte was offered a large contract from a national high street department store called Doyles. Charlotte has had to work long hours to meet the order but loves making the art. All of her sculptures are sold under the Doyles brand name.

To agree the contract, Charlotte met with a senior buyer from Doyles’ head office. Doyles centralises all its decisions about purchases, prices and inventory. The company has 3000 employees and 52 stores in the UK, based in many locations from wealthy large cities to smaller market towns.

The contract that Charlotte has means that she must sell her pieces exclusively to Doyles. She only receives her payments once the sale occurs in store.

At the end of this year the contract between Doyles and Charlotte must be renewed or terminated. Doyles’ senior management team is keen to renew on the same terms. The market for art sculptures is growing rapidly. Charlotte thinks there may be more money to be made by selling her products herself online. She has completed some estimates below:

As part of her research, Charlotte spoke to a jewellery business who started selling independently in 2015 after cancelling a contract with Doyles. After the conversation Charlotte noted the following points from the jeweller:

• online advertising costs are rising rapidly

• social media pages help advertising if they engage audiences with content daily

• strong branding is important; the jeweller had a campaign backed by a celebrity which boosted sales in one year by 300%

• the jeweller’s sales forecasts for the first year were far too optimistic

• four years later the jeweller’s sales are higher than they were under the Doyles contract.

The jewellery business owner had a degree in marketing and assistance from friends.

Sports Success

Sports Success plc is a well-known sports goods retailer operating in the UK and abroad. It employs over 20 000 people. In 2016, Sports Success was heavily criticised in the media for its treatment of staff in terms of their working conditions and pay. These announcements worried some shareholders because of the amount of negative publicity the company was receiving.

Sports Success responded to the media coverage by producing a report in January 2017 on its treatment of staff. This was seen as a positive move by the company. Although the company still does not negotiate with any trade union, it now:

• has one employee representative on the Board of Directors who is chosen by Board members. There are 11 other Directors, most of whom are senior managers

• has set up a feedback system called ‘Be heard’ for all staff, where they can email any issues of concern and make suggestions for improvements for staff. Senior managers have promised to read all the emails and said they will take action where they feel it is needed. Improvements that have occurred so far include free wi-fi and some improvements to the food in the canteens.

Over 20% of Sport Success’ sales are online; the rest are through its stores. The company has recently invested over £200m developing its major stores. These new stores have better designs and more space for well-known brands such as Nike and Adidas. They are situated in prime retail shopping areas or out of town destinations.