Business 9609/33 October/November 2023: question paper and mark scheme

Mark scheme

1 Analyse two constraints on HP of changes in its external environment. 8 AO1 Knowledge and AO2 Application AO3 Analysis Level 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 between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • Only reward constraints. • If more than two constraints are referred to, reward the best two. • All annotation ( ) should be in the left margin. 1 Indicative content Responses may include: AO1 Knowledge and understanding • Definition of external environment: those factors outside the control of a business. • Constraints: those external factors that might hold the business back or put limitations on its activities. • Meaning of external factors such as economic and political factors and competition. • Impact of external factors such as: – laws limiting business activity – cost (inflation) – limiting HP’s growth – limiting demand for HP’s products. AO2 Application Max one for application for the first constraint and max one for application for the second constraint. • HP is facing more competition from multi-national companies who have entered the market in response to increased demand for pet products, this is likely to continue (link to labour turnover). • Many pet care products, especially organic pet food may be regarded as ‘luxury’ items, the same may be said of pet ownership to some extent (link to demand if real incomes decrease due to inflation). • Increasing inflation (link to costs of organic inputs for HP). • Central bank decision to increase interest rates in the near future (link to demand for pet food or plans to borrow for factory modernisation). • Plans to automate production (link to employment law). • Competition law and takeovers such as Organic Pet Foods. 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. • The entry of multi-national companies into the market for pet-care products may well offer lower prices due to their economies of scale , leading to lower sales and profits for HP. • Inflation and higher interest rates will reduce HP’s growth because consumer disposable incomes and confidence will decrease, leading to lower demand, especially for highly income elastic products such as organic pet food. • Higher interest rates may make expansion plans more expensive therefore delaying factory modernisation and resulting in lower growth for HP. • Increasing competition from multinational competitors will impact labour costs as labour turnover increases and this may force HP to increase wages to retain employees. Accept all valid responses.

Mark scheme

2 Analyse two benefits to HP of its coordinated marketing strategy. 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 between used to answer the business context. causes, impacts and/or consequences of two points. question. • Application of one • Limited analysis that identifies connections between • Knowledge of one relevant point to a causes, impacts and/or consequences of one point. relevant point is business context. used to answer the question. 0 0 marks 0 marks 0 marks No creditable response. No creditable response. No creditable response. Note: • If more than two benefits are referred to, reward the best two. 2 Indicative content Responses may include: AO1 Knowledge and understanding Definition of relevant terms (max K1 mark) • Meaning of coordinated marketing strategy – different elements of marketing strategy working in tandem to achieve marketing objectives. • Meaning of customer relationship marketing – using marketing activities to build and establish good customer relationships. Benefits of a coordinated marketing strategy (max K2 marks): • 4Ps aligned with each other to avoid an inconsistent message to customers. • Promotion tactics will be coordinated with the promotion budget. • Marketing mix will be coordinated with marketing budget. AO2 Application Max one for application for the first element and max one for application for the second element. • The coordinated marketing strategy includes a wide range of pet related products, knowledgeable sales assistants the ‘Happy Pet Club’ and buy in store or online and click and collect. • Different products in mix, including ‘premium’ organic pet food. • The Happy Pet Club is a good way to keep record of customers and their pet care spending patterns. • Link coordinated marketing mix with HP’s ‘one stop shop for pet products’ mission. • The benefits to customers such as advice, special offers and vouchers will keep pet owners returning to HP. • It will be easy to promote ‘new’ products or services to pet owners, as the target market is already identified. • The Happy Pet Club card can be used for in-store sales and ‘click and collect’. 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. • Knowledgeable sales assistants will increase customer’s confidence and trust in HP resulting in higher sales and therefore profit may increase. • Happy Pet Club loyalty card records can be used to personalise marketing communications, for example sending cat owners special offers for cat food, which should lead to more customers using their vouchers and increased sales. • Tracking loyalty card sales will be a useful way of spotting demand trends, such as increasing sales of organic products. This means that HP can react to these trends quickly, gaining ‘first mover advantage’ and increased sales. • Coordinated marketing strategy will ensure that different elements of the marketing mix support each other which will lead to a more efficient use of resources such as budget resulting in more sales for each dollar spent. Accept all valid responses.

Mark scheme

3(a) Refer to Table 1.1 and lines 49 to 51. Calculate the forecast capacity utilisation in 2024. 3 Table 1.1 HP’s capacity and output data Actual Forecast 2023 2024 Maximum capacity (units) 15 million Output (units) 14 million 16 million Responses may include: (Forecast) capacity utilisation = (Forecast) output / maximum output × 100 (1 mark if no relevant calculation) The maximum capacity in 2024 is 15 million + 20% = 18 million (1) Forecast output is 16 million so 16million / 18 million × 100 (2) = 88.89% or 88.9% or 89% (3) Alternative answers: 14/15 × 100 = 93.3% (2) 16/15 × 100 = 106.7% (2) Note: % not needed for full marks. 3(b) Refer to lines 57 to 58 and assume no other changes. Calculate the forecast percentage change in sales for 2025 if 1 average incomes increase by 1.5%. The market research has allowed HP to estimate the income elasticity of demand for organic pet food as +2. If average incomes go up by 1.5%, then demand will increase by 1.5 × 2 = 3% (1) Note: % not needed for full marks. 3(c) Evaluate whether the factory modernisation will be sufficient to improve efficiency. 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) Indicative content Responses may include: AO1 Knowledge and understanding • Efficiency: maximum output from available inputs. • Knowledge of automated production systems such as (CAM) use of computer software to control machine tools and equipment in manufacturing products. • Impacts of automated machinery: – less labour – increased maximum output – lower unit costs – more consistent standards of output. AO2 Application Limited application, applies knowledge to HP once. Developed application, + applies knowledge to HP twice. • Automation will lead to capital intensive manufacturing, a change from the current labour intensive batch production. • The high ($15m) initial cost will require finance. • There will be less need for production workers in the factory, the trade union representative is threatening to resist job losses. • The trend of rising demand suggests the need for greater capacity at the pet food factory. • Modernisation will increase the forecast capacity in 2024 to 18 million units. • The forecast for capacity utilisation in 2024 is high (89%). 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. • Automation can lead to precise manufacturing which will reduce quality problems and therefore making more efficient use of inputs. • Machinery can replace labour and therefore reduce the labour force whilst maintaining or increasing output. . Therefore, there is an increase in labour productivity. • Automated machinery can enable more flexible production which allows a quicker changeover from one product to another thus reducing downtime and increasing productivity. • The high forecast capacity utilisation in 2024 means there is little, if any spare capacity, so modernisation may enable an increase in output and sales and therefore an increase in market share. • Favourable current economic conditions mean the market for this luxury pet food product is growing, potential for higher sales and market share if capacity is available. • The change from batch production could result in lower levels of inventory and therefore increase efficiency. However: • Introducing the new machinery may be resisted by trade unions resulting in disruption to production causing a decrease production and efficiency. • Economic conditions may not continue to be favourable, which could lead to pet owners switching to lower priced products and sales not increasing so fast, this would lead to excess capacity in future. • The change to capital intensive will lead to job losses and redundancy payments increasing costs in the short term and possibly resulting in negative publicity impacting sales. 3(c) 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. • Factors that increasing efficiency might depend on: – How accurate might sales forecasts turn out to be? o If sales don’t increase then efficiency will decrease as there will be an increase in excess capacity. o Possible impact of external factors, such as changes in economic conditions. – Reliability of machinery. Hardware failure and breakdowns can be complex and time-consuming to fix. – Response of trade union to modernisation. – Need for employee training following modernisation. – Quality assurance is still needed. Errors in programs can produce faults that have to be identified and corrected. • Evaluation of alternative approaches to increasing efficiency/output, such as out sourcing. Accept all valid responses.

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4(a) Refer to Table 1.2. Calculate the gearing ratio for 2023. 4 Table 1.2 Financial data for HP, 2023 $ Revenue 95m Profit for the year 12m Non-current liabilities 100m Shareholders’ equity (issued shares + reserves) 110m Total dividend paid 7m Dividend per share 2.50 Share price 8.00 Responses may include: Answer given Notes Mark 47.62% OR 47.6% OR 48% Correct answer 4 % not required for full marks Gearing = 100m / 210m × 100 Correct method and values for NCL 3 & CE but no correct final answer Gearing = NCL / CE × 100 Correct equation AND correct 2 AND calculation of CE CE = $110m Gearing = NCL / CE × 100 Correct formula for gearing 1 OR OR CE = $210m Correct calculation of CE AND/OR AND/OR CE = Shareholders’ Equity + NCL Correct formula for CE No Creditable Content 0 4(b) Evaluate whether the financial data provided will enable HP to decide how to finance the factory modernisation. 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) Indicative content Responses may include: AO1 Knowledge and understanding Limited knowledge will be demonstrated through knowledge of financial data or knowledge of sources of finance. Developed knowledge + will be demonstrated through knowledge of financial data and knowledge of sources of finance. • Understanding of gearing ratio. • Understanding of new share issue as a source of finance. • Understanding of bank borrowing as a source of finance. • Meaning of dividend yield ratio. AO2 Application Limited application, applies knowledge to HP once. Developed application, + applies knowledge to HP twice. • Investment needed is $15m will increase forecast gearing from 47.62% to 51.11% which would be considered high. • NCL is $100m. • Current dividend yield is 31.25%, a good return for investors. • The dividend cover ratio is 1.71, HP well able to afford dividends. • Interest rates are likely to be increasing, this will mean bank borrowing is more expensive. • Profit for the year is $12m and dividend paid is $7m so retained profit is $5m. • Profit for the year margin is 12/95 × 100 = 12.63%. • The modernisation will lead to higher output of organic pet food in the future and higher sales revenue and profit. 4(b) 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. • The current dividend yield is relatively high which would support decision to issue shares as it would encourage investors to buy shares thus raising the finance and making the share issue a success. • Dividend cover ratio indicates that HP can afford current level of dividends and suggest good dividends in future, may encourage investors. • Bank borrowing will mean paying interest, so cost is potentially greater than a share issue but gearing is below 50% so banks may be willing to lend to HP not seen as high risk. • Analysis of factors influencing decision other than financial data. • A new share issue will take more time to arrange than bank borrowing, potentially delaying the modernisation project. 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. Supported judgement as to whether the financial data will/will not enable decision to be made about source of finance: • Retained profit appears insufficient as profit for the year is $12m and dividends paid is $7m so $5m of retained profit might be available but this could have been used already. Seems highly unlikely that there is insufficient retained profit for the investment. • Gearing is only just below 50% suggesting a degree of risk in further borrowing of $15m. This may favour a new share issue to keep gearing below 50%. • Attitude of directors to risk will be significant. • Whether to issue new shares may depend on whether this might make HP a takeover possibility. • Likely increase in interest rates important as it will increase cost of borrowing making a bank loan less attractive. However, HP may be able to negotiate a loan before this change in monetary policy. • Evana’s influence as CEO. Accept all valid responses.

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5 Evaluate the importance to the future success of HP of its HRM strategy. 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 HRM strategy or knowledge of impact of HRM strategy. Developed knowledge + will be demonstrated through knowledge of HRM strategy and knowledge of impact of HRM strategy. • Meaning of HRM strategy – approaches to the management of employees of a business. • Knowledge of the difference between soft and hard HRM. • Knowledge of other relevant HRM strategies such as management by objectives (MBO). • Knowledge of decentralised structure and implications for HRM. • Knowledge of impacts including: – motivation of employees – labour turnover – productivity – decision making – customer satisfaction – sales. AO2 Application Limited application, applies knowledge to HP once. Developed application, + applies knowledge to HP twice. • HP seems to have more of a soft HRM approach, including delegation to store managers, employee training and involvement of employees in decision making. • HP welcomes ‘intrepreneurship’ new ideas from employees, such as the coffee corner. • Training is important as employees need to be knowledgeable about pet care. • There are opportunities for promotion, such as to HP store supervisors or managers for those trainees who are ambitious. • Stores have performance targets, which may also suggest an MBO approach. 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. • Soft HRM approaches, such as training, delegation and accepting employee ideas, are likely to lead to greater employee loyalty resulting in lower labour turnover which will reduce costs of recruitment and training leading to higher profit. • Well trained employees will be a USP for the business resulting in higher levels of customer satisfaction which may increase long term sales through repeat purchase. • Target setting for each store linked with an MBO approach will make it easier to identify stores and individuals who are under and over performing, so that rewards can be given or changes made. • Delegation of decision making to store managers will make HP more responsive to changing local needs thus increasing customer satisfaction and sales. • Empowering employees will encourage innovation such as the coffee corner which increases revenue . • Delegation of decisions to store managers could result in poor decision making if managers lack experience leading to a less consistent corporate/brand image in the stores. • Employee training programmes may be expensive, especially off-the-job training reducing profit and there is a risk that employees could be poached by competitors, especially in view of new multi-nationals entering the market. This would lead to a waste of the money spent on training. 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. • Supported judgement as to whether HP’s HRM strategy(s) is likely to lead to future success. • Success of any strategy will depend on the extent to which HP employees meet the needs of customers. • Success of any strategy will depend on effective leadership from Evana. As HP diversifies and grows, will this become more challenging? • What might success mean in this context? Is it more than profit? Reference to ‘one stop shop for pet products' mission. Accept all valid responses.