Business 9609/33 October/November 2024: question paper and mark scheme

Mark scheme

1 Analyse two threats to AFF from 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 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 threats. • If more than two threats are referred to, reward the best two. All annotation ( ) should be in the left margin. 1 AO1 Knowledge and understanding Definition of external influences (max K1) might include: • External influences are outside the control of the business and act as both a constraint and an enabler for FWB’s activities. • External influences may include economic, political, legal and social factors. Knowledge of threats from external influences might include (max K2): • Increased running costs due to inflation and wage increases • Demand changes due to demographic change, such as more demand from older consumers • Demand changes due to social factors such as changing consumer trends AO2 Application Limited application, applies knowledge to AFF once. Developed application, + applies knowledge to AFF twice. Max one for application for the first external influence/threat and max one for application for the second external influence/threat. • Inflation: Price rises will lead to increasing costs, such as power, gym equipment and possible pressure on wages of instructors and other employees • Higher legal minimum wage will affect lowest paid, for example gym and equipment cleaners • Gym membership and fitness classes are luxury goods • Ageing population may mean traditional fitness class target market decreasing • Key objective is increasing returns to shareholders (so profitability important) 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 OR offers a two-sided analysis • Increasing costs will lead to the need to increase membership and other prices, may lead to lower demand and decreases in total revenue dependent on PED • Consumers may find (real) incomes decreasing, will concentrate on buying essentials and cutting down consumption of luxuries such as gym memberships, leading to falling demand and decrease in total revenue and profit 1 • Fitness factories have high fixed costs, falling demand may lead to decreasing demand and falling profits very quickly • Ageing population may mean some changes to product, maybe more yoga or fitness classes targeted at older people, change to marketing mix may increase costs leading to lower profits especially in the short term Accept all valid responses.

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2 Analyse two benefits to AFF of recruiting a new CEO who has a high level of emotional intelligence. 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 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. 2 AO1 Knowledge and understanding Definition of emotional intelligence (max K1) might include: • Goleman’s four EI competencies, self-awareness, social awareness, self-management and social skills • EI – the ability to recognise and understand your own feelings and those of others • References to empathy with subordinates, and similar statements that clearly show understanding Knowledge of benefits of emotional intelligence might include (max K2): • Better relationships with subordinates • Better management of own feelings, leading to consistency of approach • Good understanding of the needs of customers AO2 Application Limited application, applies knowledge to AFF once. Developed application, + applies knowledge to AFF twice. Max one for application for the first external influence/threat and max one for application for the second external influence/threat. • Rosa and Rachel believe in supporting and training employees, so are likely to be empathetic to their needs • Training customers in fitness and yoga essentially requires an understanding of customer’s feelings and needs • Effective teamwork at each of the fitness factories will need different types of employees to understand each other, for instance the teams that set up equipment and the instructors • Help in solving quality problems at AFF 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 OR offers a two-sided analysis • If the new CEO is self-aware and self-motivated, they will understand their own feelings and have a consistent approach to leadership, which will motivate the teams in the fitness factories, leading to greater productivity • If the new CEO has good social awareness they will understand the needs of employees, perhaps for training and advancement and also customers, leading to more members of the fitness factories • Social skills are essential in the management of employees, for instance in terms of how changes may be communicated. Customers will also react more favourably leading to higher sales. 2 • All the EI competencies can be communicated and trained from the ‘top down’ from the new CEO, leading to a happier workforce and greater customer satisfaction , leading to better member retentions and higher revenue. • Possibly lower labour turnover, reducing recruitment and training costs. Accept all valid responses.

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3(a) Refer to line 29. Calculate the forecast change in sales for pay as you go fitness classes if average incomes 2 decrease by 6%. Indicative content Responses may include: YED = % change in quantity demanded / % change in income OR 2.5 = % change in quantity demanded / –6 OR % change in Qd = –6 × 2.5 (1 mark) = -15% (2 marks) If incomes decrease by 6% then demand may decrease by 6 × 2.5 = 15% (2 marks) Answer of 15% without indicating it is a decrease (1 mark) 3(b) Refer to lines 24–28. Calculate the promotional elasticity of demand for annual membership of AFF. 2 Promotional elasticity of demand = % change in quantity demanded / % change in promotional spending OR Percentage change in promotional spending = 20% OR Pr ED = 15% / 20% (1 mark) = 0.75 (2 marks) 3(c) Evaluate which element of AFF’s coordinated marketing strategy is most important. 12 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level 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) AO1 Knowledge and understanding • Marketing strategy includes marketing objectives, budget, research and co-ordinated marketing mix. • CRM includes a focus on retaining existing customers as this is often easier and cheaper than continually attracting new ones • Market research as part of the marketing strategy, investigating changing needs and wants of customers AO2 Application Limited application, applies knowledge to AFF once. Developed application, + applies knowledge to AFF twice. Max one for application for the first external influence/threat and max one for application for the second external influence/threat • Each fitness factory has a group of full members who pay $2500 per year and whose participation in fitness sessions can easily be tracked and who can be easily contacted. • The ‘pay as you go’ customers can also be encouraged to set up accounts. • Additional information about customer requirements can be collected when they visit in person or book via the App. • The Pr Ed for annual membership customers is relatively inelastic as indicated by the response to higher promotional spending. • Marketing objective is to increase number of members of its fitness factories. • Changing customer needs, ageing population may need different fitness classes. 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 OR offers a two-sided analysis • Keeping existing loyal customers happy by meeting their needs will guarantee regular income from this group and once the yearly fee is paid, they are likely to stay with the business, making revenue more predictable and planning easier. • Price will have a significant impact on AFF’s ability to attract and retain members as it is a competitive market so if price is not competitive members will go elsewhere as substitutes are available and membership will decline . • The product including availability of different classes is important as this can attract members and non-members who follow the latest fitness class trends and if the product doesn’t meet changing customer expectations AFF will lose members . 3(c) • It may be possible to convert pay as you go customers to full membership, using effective personalised promotion, such as free sessions with personal trainers . • CRM will be important but wider market research will also enable AFF to spot trends in fitness and exercise classes , leading to ‘first mover advantage’ if they are proactive in new product development . • Although demand is promotion inelastic, promotion is important to raise awareness of AFF’s changing offer of fitness classes and therefore attract new customers . 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. • Overall supported judgement as to the most important element of the marketing strategy and the factors that will influence importance – The degree of competition in the market will impact the price elasticity of demand. – The extent to which the product can be differentiated from that of competition. – How quickly the market changes – Fitness is a very dynamic market, need to be quick to introduce new products to meet changing trends. – The cost of CRM v the cost of attracting new customers. – The significance of market research to understanding consumers and the market as a basis for determining the best marketing strategy. • Data on existing customers is important, but attracting new customers, such as those who have never thought of consuming this type of service is equally important. Accept all valid responses.

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4(a) Refer to Table 1.1. Calculate the change in the dividend yield between 2022 and 2023. 4 Dividend yield = dividend per share / market price per share × 100 (1 mark) 2022 = 3/40 × 100 = 7.5% (2 marks) Change = 5.7 – 7.5 (3 marks) = –1.8 percentage points (4 marks) Accept –1.8% OR The dividend yield has decreased by 1.8 / 7.5 × 100 = 24% (4 marks) 4(b) Evaluate whether shareholders should be satisfied with AFFs financial performance in 2023. 12 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level 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) Table 1.1 Financial data for AFF 2023 2022 Revenue ($m) 27 25 Operating profit ($m) 1.4 1.5 Non-current liabilities ($m) 20 20 Shareholders’ equity ($m) 72 70 Total dividend paid ($m) 0.4 0.5 Dividend per share ($) 2 3 Share price (at year end) ($) 35 40 Dividend yield (5) 5.7 AO1 Knowledge and understanding • Shareholder – a person who has bought shares and owns part of AFF, whose objective is to receive a good return on their investment in the short and long term. • Dividend – a shareholder’s part of the profit of AFF. • Dividend yield – dividend per share as a % of current market price of share • Financial performance ratios, such as profit margin • Other shareholder ratios 4(b) AO2 Application Limited application, applies knowledge to AFF once. Developed application, + applies knowledge to AFF twice. Max one for application for the first external influence/threat and max one for application for the second external influence/threat • Reference to answer to (a) fall in dividend yield of 1.8% as well as fall in share price of $5 • Increase in revenue $2m but decrease in profit $0.1m • Gearing steady around 22% (21.7% in 2023) • Profit margin has decreased from 6% to 5.2% • External environment and its impact on financial performance: – Increase in inflation – Increase in minimum wage – Ageing population AO2 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 OR offers a two-sided analysis • Sales are increasing which may suggest future growth , and this could result in higher profits and dividends thus pleasing shareholders • Shareholders may have expected a decrease in profits due to inflation in the economy increasing AFF’s costs so may be satisfied with current levels of profitability • Gearing is low and steady at 22%, there is potential for the company to borrow in order to grow , so this may be encouraging in the longer term and shareholders may be prepared to wait for higher returns . • The falling share price and dividend yield may be a reason for shareholders to look unfavourably on this investment and sell their shares 4(b) 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. • Attitude of shareholders will depend on whether they are investing for short or long term • Impact of share price fall may depend on how much shareholders paid at the start • Financial performance judgement needs more evidence, such as more previous years and also comparison with similar businesses • Will financial objectives change with new CEO? • What other objectives may be important to shareholders that could make them less sensitive to small changes in financial performance? • Overall supported judgement Accept all valid responses.

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5 Evaluate whether total quality management (TQM) is the best way to solve the problem of AFF’s customer 12 complaints. AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level 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 Note: This is not about the benefits to AFF of reducing quality problems. It is about whether TQM achieves this outcome effectively and in a better way than other approaches such as paying employees more or using permanent contracts or using hard HRM. AO1 Knowledge and understanding • TQM – an approach to quality that involves all members of the organisation taking responsibility for the quality in their part of the production process • The concept of the next person in the production process being treated as an ‘internal customer’, whose needs must be satisfied • TQM needs culture change in organisations in order to be successful. • Alternatives to TQM: – Changing contracts. – Incentives for improved services. – Disciplinary action for employees not meeting expectations. AO2 Application Limited application, applies knowledge to AFF once. Developed application, + applies knowledge to AFF twice. Max one for application for the first external influence/threat and max one for application for the second external influence/threat • Quality problems include unclean facilities, classes starting late and broken equipment, causing customer dissatisfaction. • Currently quality checking is on an informal basis, due to the nature of the different classes and activities. • Employees such as fitness instructors are employed on short-term contracts so probably only arrive for their classes. 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 OR offers a two-sided analysis Advantages of TQM: • Through Kaizen groups employees will be empowered to suggest changes to improve service and quality, therefore employees may be more motivated resulting in lower labour turnover and therefore improving relationships with customers leading to a reduction in customer complaints . 5 • Employees will receive further training when TQM is introduced and therefore they will be better able to complete work to the required standard which will reduce the number of complaints . • Giving greater responsibility to instructors and cleaners will improve motivation and this result in working to a higher standard thus solving problems around cleanliness and classes starting on time . Disadvantages of TQM • TQM requires employee training and therefore there will be an increase in training costs to TC and the increased cash outflows may result in liquidity issues (acid test ratio already low). • Culture change will incur costs and employees may leave increasing recruitment costs . 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 as to whether TQM is the best way to solve customer complaint problems. • TQM may work if all types of employees, from cleaners to fitness instructors to managers take responsibility for the quality of their work, which will lead to fewer customer complaints. • TQM may work if all employees are trained in the concepts and treat other employees at the next stage of the operations process as internal customers who they need to satisfy by meeting quality standards • If TQM is successfully introduced, this should lead to less customer complaints and bad reviews • TQM may be difficult to introduce due to the employees on short-term contracts having less commitment to AFF, they could be the ‘weak link’, leading to less impact on complaints. • Some problems may have other causes, such as classes starting late may be due to transport problems out of the control of AFF. • Is AFF ready for the culture change that will be required for successful introduction of TQM? • Is there the budget and the interest in training and involving all employees in this way? • The new CEO will need the ability to manage the necessary changes and sell these to employees. • Supported judgement as to whether TQM is most suitable approach. Accept all valid responses.