Business 9609/32 May/June 2023: question paper and mark scheme

Mark scheme

1 Analyse two elements of OV’s marketing strategy that will need to change to sell successfully to retailers. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis Developed analysis that identifies connections between causes, impacts and/or consequences of two points. Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks Knowledge of two Application of two Limited analysis relevant points is relevant points to a Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. Application of one two points. Knowledge of one relevant point to a Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: If more than two elements are referred to, reward the best two. Focus of question is on elements of marketing that will need to change. L2AN (3 marks) is possible for just one point made. All annotation ( ) should be in the left margin. 1 Indicative content Responses may include: AO1 Knowledge and understanding Please note that transportation relating to place is not rewardable. Definition of relevant terms (max K 1 mark) Marketing strategy includes marketing objectives, budget and a coordinated marketing mix. Difference between B2B (a business selling to other businesses) and B2C (a business selling to consumers) Market research to understand the market. Knowledge of changes that might need to be made (max K 2 marks): Understanding of different techniques within the marketing mix such as different forms of promotion and pricing. For example: – Price discounts for bulk purchase. – Promotion through trade fairs and industry magazines. – Changes to packaging. – Product in different sizes, flavours, ingredients. – B2B marketing may focus on building personal relationships, for example, through sales people. AO2 Application Limited application, applies knowledge to OV once. Developed application, + applies knowledge to OV twice. Max one for application for the first element and max one for application for the second element. Application is making use of relevant case information not just repeating it. Marketing is currently B2C but targeting supermarkets will be B2B. Suitability of the existing marketing: premium prices, promotion via social media and digital platforms. Use of relevant information. For example: – Growing market for Greek yogurt ($9bn globally) – New competitors in the market – Competitive market for yogurt Alternative promotion applied: – Food industry magazines – Supermarket industry magazine Alternative pricing applied – need for supermarket to be able to make an attractive profit margin. 1 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Chains of reasoning highlighting likely elements of marketing strategy: Price reductions more important to allow a margin for supermarkets and therefore compete with existing products on the shelves. Promotion more likely to include trade shows, email marketing, trade (industry) press, website, production of brochures to target potential customers and therefore attract orders. Promotion on TV to build brand name and attract consumers so that there is demand to encourage supermarkets to adopt. Salespeople may be important for building trust and therefore motivating supermarkets to buy OV’s products. B2B marketers must persuade decision makers of a company therefore information must be concise and clear. Changes to product such as ingredients to meet the expectations of supermarket customers and therefore increase sales. Accept all valid responses.

Mark scheme

2 Analyse two benefits to OV of the methods it uses to communicate with employees. 8 Level AO1 Knowledge and AO2 Application AO3 Analysis understanding 2 marks 4 marks 2 marks 2 3–4 marks Developed analysis Developed analysis that identifies connections between causes, impacts and/or consequences of two points. Developed analysis that identifies connections between causes, impacts and/or consequences of one point. 1 1–2 marks 1–2 marks 1–2 marks Knowledge of two Application of two Limited analysis relevant points is relevant points to a Limited analysis that identifies connections used to answer the business context. between causes, impacts and/or consequences of question. Application of one two points. Knowledge of one relevant point to a Limited analysis that identifies connections relevant point is business context. between causes, impacts and/or consequences of used to answer the one point. question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: Only reward benefits. If more than two benefits are referred to, reward the best two. L2AN (3 marks) is possible for just one point made. 2 Responses may include: AO1 Knowledge and understanding Definition of internal communication and/or possible methods (max K 1 mark) Definition or explanation of internal communication – communication between different people or groups within the organisation – and possible methods including meetings, reports, notice boards, memos and email. Definition of one and/or two-way communication. Communication with employees could also be through external methods such as press reports and social media. Benefits of internal communication used by OV (max K 2 marks) Avoid misunderstanding of what is required. To allow coordination of activities within a business. To enable employees, have some input into business decision-making. To give managers feedback from other employees. To motivate employees or avoid demotivation. To avoid the spread of rumours and fake information. Cut costs. Low labour turnover. AO2 Application Limited application, applies knowledge to OV once. Developed application, + applies knowledge to OV twice. Max one for application for the first benefit and max one for application for the second benefit. Application is making use of relevant case information not just repeating it. Aluna meets with factory workers each week. Two-way communication encouraged in meetings – discussion of operational problems. Open-plan office giving team members access to directors. Intranet to provide company information and plans to employees. Monthly bulletin with contributions from employees. Inclusive culture that OV has developed. 2 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Greater commitment from workforce if they feel that their concerns are heard. This could result in lower labour turnover and higher productivity and therefore reduce costs and lead to an increase in profit. Employees more likely to provide ideas for improving operations resulting in more efficient production and lower costs . This can result in higher profit. Less chance of misunderstanding leading to industrial action and disruption to production and therefore dissatisfied customers leading to a reduction in sales. Development of a positive organisational culture resulting in greater efficiency in use of resources. Communication methods used will motivate employees (Herzberg, Mayo) and therefore increase productivity which will reduce unit costs and increase profit. Accept all valid responses.

Mark scheme

3(a) Refer to Table 1.1. Calculate, for 2023, the current ratio. 1 Responses may include: CR = Current Assets / Current Liabilities 0.6 / 0.8 = 0.75:1 (1) Accept 0.75 OR 3:4 or ¾ (1) Note: 0.75m or 0.75 / 1m (0) 3(b) Refer to Table 1.1. Calculate, for 2023, the return on capital employed (ROCE). 3 Indicative content Responses may include: ROCE = Profit from operations / capital employed × 100 OR Capital employed = NCL + shareholder capital OR Capital employed = issued shares + reserves + non-current liabilities (1 mark if no relevant calculation) Note: ROCE = Net profit / capital employed × 100 is incorrect and not rewardable. CE = 7 + 3.2 = 10.2 (1) ROCE = 1.3 / 10.2 × 100 (2) = 12.7% OR 13% OR 12.75% (3) Accept 12.7 or 13 or 12.75 (3) Allow 12.8 (3) Alternative calculations 2022 ROCE is 9.9% (2) Accept 9.9 (2) 1.3 / 3.2 × 100 = 40.6% (2) NCL not included in calculation of CE 1.3 / 7 × 100 = 18.6% (2) Shareholder equity not included in calculation of CE 3(c) Evaluate whether shareholders will benefit from OV changing to a public limited company. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 3(c) Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of the key characteristic(s) of a public limited company or knowledge of shareholder goals. Developed knowledge + + will be demonstrated through knowledge of characteristic(s) of a public limited company and knowledge of impact on shareholders. Key characteristics of a plc Meaning of converting to plc – shares publicly available on a stock exchange. Process of becoming a PLC will include issuing a prospectus and having the share issue underwritten. Greater finance from shareholders as a plc. Advantages/disadvantages of ltd v plc legal status Greater divorce between ownership and control of business as a plc. Dilution of control as plc. Increased risk of takeover increased as plc Plc status and link to long term growth of business Reference to financial information and ratios e.g. gearing Greater access to external funding through debt finance AO2 Application Limited application, applies knowledge to OV once. Developed application, + applies knowledge to OV twice. Current gearing of 69% is high and has increased from 2022. Capital cost of expansion plans and additional budget required for marketing. Aluna is ambitious for OV to expand. Application of changes to financial performance e.g. changing profitability and liquidity. – Operating profit margin has increased from 9% of 10.8% – ROCE has increased from 9.9 to 12.7% – Liquidity has declined from 0.8:1 in 2022 – Cost of going public could be very high – Only three shareholders Dividends paid to shareholders unchanged at $100 000. 3(c) AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Gearing is high so expansion funded by borrowing would potentially be difficult as banks may consider the business too risky so conversion to plc could fund plans for expansion resulting in greater long-term success of OV which will benefit shareholders. Risk of takeover is increased if convert to plc and therefore Aluna and other shareholders could lose control of the business and therefore prevent her from achieving her objectives for the business to be more socially responsible. As a plc there may be increased tension between new shareholders who want high dividends / short-term profit and existing shareholder goals which will prevent existing shareholders achieving their objectives. Borrowing for expansion could result in greater reward for Aluna and other shareholders than raising capital through conversion as profits made will be shared by just the existing shareholders. Conversion to PLC will make it easier for existing shareholders to sell shares and therefore make a capital gain. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. A judgement over whether shareholders will benefit from conversion of OV to a plc. What the judgement may depend on: – Loss of control for existing shareholders. – What proportion of shares remain with the existing shareholders. – Likely impact on growth of OV and impact on profits. – Dividends paid are low. Will this be sufficient to attract shareholders who seek short term gain? – the potential conflict between the short-term profit objectives of new shareholders and OV’s sustainability culture. Weighing up of relevant arguments Short/long term impact on shareholders and the business Which is most important factor to shareholders? Reliability of financial data given in Table 1.1 will impact whether new shareholders benefit. Accept all valid responses.

Mark scheme

4(a) Refer to Table 1.3. Calculate, for location X, the accounting rate of return (ARR). 4 Rationale Content Marks Correct answer (units not required). ARR = 25% OR 25 4 Working not required. Statement of correct calculation OR ARR = 2 / 8 × 100 3 Average profit AND Average investment. $2m & $8m Profit used in final calculation OR 12 / 8 × 100 = 150% Capital cost used in final calculation OR 2 / 10 × 100 = 20% Capital cost not subtracted 3.67 / 8 × 100 = 45.9% Not multiplied by 100 2 / 8 = 0.25 Average profit OR 12 / 6 = $2m 2 Profit and capital cost used in final 12 / 10 × 100 = 120% calculation OR Capital cost not deducted and capital cost 3.67 / 10 × 100 = used in final calculation OR 36.7% Profit and average investment calculated $12m & $8m Profit OR 22 – 10 = $12m 1 Average investment OR (10 + 6) / 2 = $8m Correct formula: ARR = Average profit / average investment × 100 OR Average investment = (initial capital cost + residual capital value) / 2 No creditable content 0 Note: If correct answer of 25(%) is given, then 4 marks even if no working shown. All other answers must show working for reward or clearly identify what has been calculated e.g. average profit = $2m 4(b) Evaluate which location OV should choose to build its factory. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 4(b) Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of one factor in the decision. Developed knowledge + will be demonstrated through knowledge of two or more factors in the decision. Factors influencing choice of location: Costs Nearness to market Preferences of owner Competition Risk AO2 Application Limited application, applies knowledge to OV once. Developed application, + applies knowledge to OV twice. Location X takes 4 months less to build Capital cost is higher for Y. Link to gearing Capacity utilisation within three years higher at location X Lower wages at Location X Better availability of skilled factory workers at location Y ARR higher for Location X (OFR) CSR considerations: – Environmental impact of each option. X is on agricultural land. – High unemployment in Location X. Greater benefit to society to locate there. – Transport links and impact on pollution. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Higher capital cost of location Y (and high gearing) will make this a less attractive location due to need to raise more finance. 4(b) Location X will reach high-capacity utilisation more quickly which aids profit making but may limit the potential for growth of OV if marketing is successful. Estimated time to build will impact cashflow which could be important for OV as it has relatively low liquidity. Quicker time to build could also result in achieving payback more quickly. Location Y is a more sustainable option as it is in an industrial area and therefore likely to be less opposition from environmental groups. As Greek Yogurt has been criticised in media OV may wish to avoid making contentious decisions. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. Most important factor with justification. – Long term growth – Profit Location Y requires a higher capital outlay – are funds available internally or will this have to be borrowed? How significant is the difference in capital cost to the decision? Management attitude to risk. Y is better as it is potentially more profitable, and OV will aim for profitable growth. Short V Long term. X may be better in long term because it gives greater room for expansion. Balance of factors to consider. Accept all valid responses.

Mark scheme

5 Evaluate the impact on OV of the growing importance of sustainability. 12 Level AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation and understanding 2 marks 2 marks 6 marks 2 marks 3 5–6 marks Developed evaluation in context A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. 2 2 marks 2 marks 2 marks 3–4 marks Developed Developed Developed Developed evaluation knowledge of application of analysis A developed judgement/conclusion relevant key term(s) relevant point(s) to that identifies is made. and/or factor(s) is the business connections Developed evaluative comments used to answer the context. between causes, which balance some key question. impacts and/or arguments. consequences. 1 1 mark 1 mark 1 mark 1–2 marks Limited knowledge Limited application Limited analysis Limited evaluation of relevant key of relevant point(s) that identifies A judgement/conclusion is made term(s) and/or to the business connections with limited supporting factor(s) is used to context. between causes, comment/evidence. answer the question. impacts and/or An attempt is made to balance the consequences. arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable No creditable response. response. response. response. 5 Indicative content Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of sustainability or knowledge of how the increasing importance of sustainability affects OV. Developed knowledge + will be demonstrated through knowledge of sustainability and knowledge of how the increasing importance of sustainability affects OV. Knowledge of sustainability Sustainability refers to activities that meet the needs of the present without compromising the ability of future generations to meet their needs. Link to corporate social responsibility. Impact on OV Need to consider environmental impact when making decisions to demonstrate commitment to sustainability. Increased costs. Enhance brand image. Support increase in price. Sourcing of supplies. AO2 Application Limited application, applies knowledge to OV once. Developed application, + applies knowledge to OV twice. Mission statement commitment. Organic nature of the product – more environmentally sustainable. Negative publicity regarding Greek yogurts regarding damage to environment: acid whey, water usage, sale of acid whey to farmers. Sustainability of distribution direct to consumer. Link to CSR – OV gives 5% of its profits to educational projects in low-income countries. Increasingly competitive market. Reference to development of plant-based yogurts. 5 AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. Developed analysis – candidate shows two or more links in the chain of analysis. Using local suppliers of milk to reduce the carbon footprint of transport. Will affect all strategic decisions as OV will need to consider the environmental impact. For example, the decision to open a new factory. OV may need to use materials that reduce environmental impact and ensure energy efficiency. This will impact costs. Need to conduct environmental audits to measure impact of OV and provide evidence of commitment to sustainability. Otherwise, the business may be open to criticism of greenwashing. Need to reduce carbon footprint will mean that OV has to change distribution channels of individual deliveries to consumers. Can OV continue to sell acid whey to farmers? Cost of not doing so. Stockpiling of acid whey will increase costs. R & D into alternative uses of acid whey will lead to an increases in costs. Benefits of sustainability in terms of promoting brand image and increasing sales as a result. How sustainability can give OV a USP and ability to take more control over pricing and therefore increase profits. Cost of sustainability – ingredient costs. Increased costs will reduce profit margins and could therefore reduce profit. Danger of claiming a sustainable approach if it is not followed. This could lead to backlash and loss of image and therefore sales. AO4 Evaluation Limited evaluation – limited supported judgement and/or a weak attempt at evaluative comment. Developed evaluation – supported judgement and/or reasonable evaluative comment. Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. Judgement on the balance between costs and benefits of sustainability to OV. Significance may depend on competitor behaviour. Can OV afford not to take sustainability seriously? Given the OV’s mission statement there is a need for OV to address the issues highlighted by the newspaper report. Risk of future legal changes to protect the environment so might be important to make product/production changes before these are proposed or introduced. Accept all valid responses.