Question 35

Landers Paints Ltd have for many years produced paints and varnishes specifically for industrial use. These products have been sold both directly to the customer and through builders’ merchants. Larger firms tend to buy directly from Landers, whereas smaller customers, such as builders and decorators, use the latter.

The products are sold in large quantities in basic packaging at low prices. This enables Landers to keep costs to a minimum and prices at a competitive level. The most popular products are basic items, for instance, white and magnolia emulsion paint.

However, the recent increase in the popularity of DIY has resulted in a small fall in sales at Landers. Keen to reverse this decrease, the Managing Director, John Smith, is considering whether to launch a range of paints for home decorating. At a recent board meeting, he put forward this proposal.

‘I think that Landers should launch a range of paints and varnishes for the domestic market. Given our expertise and production facilities, the new products will hardly disrupt things around here and should lead to a significant increase in sales.’

The Marketing Manager, Shirley Thomas, reacted with caution.

‘I’m not so sure because there are substantial differences between marketing products made for industrial markets and those for consumer markets. I think it may be a lot harder than you think.’

‘Obviously, there are differences’, replied John, ‘but I really don’t think that some new packaging and a bit of advertising is enough of a reason to miss out on such a good opportunity.’

Questions

1. Explain why the recent increase in popularity of DIY has caused sales at Landers Paints Ltd to decrease. (4 marks)

2 a) Identify the key differences between an industrial market and a consumer market. (3 marks)

b) Analyse the difficulties that may be experienced by Landers Paints Ltd if they move into the consumer market. (8 marks)

3. Landers Paints Ltd decide to launch a range of products for the consumer market. Recommend a marketing mix for the new products. (10 marks)

Question 34

Supreme Kitchens Ltd has been making quality wooden kitchen products for over thirty years. The company was formed in 1968, the founder making some money from a hobby after retiring from the Police force. Over the years, the firm has grown and now employs eighteen staff, including a sales and marketing co-ordinator, a bookkeeper and sixteen crafts people.

The firm specialises in the manufacture of high quality, traditional pieces of furniture for use in kitchens, with the goods being sold through small retail outlets. The crafts people are responsible for designing, carving and making up each piece of furniture by themselves. Although this is time-consuming, the Managing Director, Alan Supreme, believes that this ensures that the final products are not mass-produced and as such, gives them a unique selling point.

However, James Mellencamp, the sales and marketing co-ordinator, feels that this approach is failing to take account of the changing tastes in furniture and is resulting in falling sales. He firmly believes that the majority of consumers no longer want to buy traditional pieces of furniture and favour the flat pack items sold by outlets like IKEA and MFI.

These differing viewpoints have been causing a number of arguments at Supreme Kitchens Ltd. Alan and James are both adamant that their opinion is correct, with neither of them prepared to compromise.

Questions

1. a) State what is meant by the term ‘unique selling point’. (2 marks)

b) Alan believes that the products made by Supreme Kitchens Ltd have a unique selling

proposition. Explain why this is the case. (4 marks)

2. a) Identify the advantages and disadvantages to Supreme Kitchens Ltd of selling products solely through small retail outlets. (5 marks)

b) The firm is considering whether to set up a mail order service. Analyse the possible

consequences of this for Supreme Kitchens Ltd. (6 marks)

3. Discuss whether you think James is right to recommend that Supreme Kitchens Ltd manufacture flat pack furniture. (8 marks)

Question 33

The Product Life Cycle is a very important tool for businesses to use. It must however be used in addition to other tools to study the market.

PLP has just introduced a new product onto the market. They are going to supply personalised fileofaxes to businesses for their customers. They see this as their way forward and have studied their competitors finding that no other competitors in the line of manufacturing and supply of promotional goods to companies are distributing this kind of merchandise. This could be the product that they need to gain market share.

PLP have decided to keep some of their old range as there are still customers who are remaining loyal to them. The management team have also decided that it may be dangerous for them to put all of their eggs in one basket.

The company also realises that it needs to fund the new product with existing sales even if they are in the decline stage, as there are still sales from loyal customers.

Questions

1. Assume that PLP Ltd has a certain amount of success with its new product (the personalised fileofaxes) and has successfully passed through the development stage

of the product life cycle. Discuss the implications that may develop for the company in the

next stages of introduction and growth. (14 marks)

2. From the information given in the case study it is obvious that many of the products on offer at the moment within the portfolio of PLP Ltd are in the decline stage. Explain how

this may have happened and what decisions should be taken at this stage, also detailing

why the company would be in a better position in the maturity stage to fund new product development. (18 marks)

Question 32

Phoenix Natural Gas has come under fire for increasing its prices for the second time in four months.

The company said its tariff will rise by 17% and blamed the soaring price of wholesale gas for the increase.

It comes on top of a 30% rise announced in September, prompting a call for the gas regulator, Ofreg, to take action.

Ofreg said it was not surprised by the rise but the General Consumer Council said it was "appalling" and a "severe blow" to customers.

The price rise will come into affect on 23 January and apply to more than 90,000 Phoenix Natural Gas customers in Northern Ireland.

Peter Dixon, Chief Executive of Phoenix Natural Gas, said the company was experiencing record high wholesale gas costs.

But he said the company realised it would be unwelcome news for customers.

"Since our last tariff review in October, gas costs have continued to rise significantly. For example, wholesale gas costs in December were more than double those of twelve months earlier," he said.

The second rise means an average annual bill will soar by 52%, or £200, in four months.

Source: BBC News 19^th January 2006 (adapted)

Questions Is demand for Phoenix Gas likely to be inelastic? If prices have risen by 17% and demand is inelastic, what is likely to happen to consumption? How much was the average annual bill last year and now, this year?

Question 31

Comparison website uSwitch.com is considering selling itself privately or floating its shares on the stock exchange as part of a strategic review.

The company is being advised by corporate finance company LongAcre Partners, which steered Friends Reunited towards its £120m sale to ITV.

Privately-owned uSwitch.com is believed to be worth just over £100m.

The website enables consumers to compare the price of energy charges and phone prices with other suppliers.

uSwitch also helps users switch suppliers if they find a better deal. However, none of the companies it represents have a stake in the enterprise.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What are the advantages of ‘floating’ rather than ‘selling privately’? If uSwitch.com is worth £100m and there are 200m shares issued, what is the likely asking price per share? Why do people buy shares?

Question 30

Steadying energy prices helped to improve consumer sentiment in the US during January, according to the University of Michigan's index.

It rose for the third month in a row to 93.4 from December's final reading of 91.5, ahead of analysts' predictions.

Better job conditions and an optimistic outlook for US stocks during 2006 also helped push the index higher.

Consumer spending makes up two-thirds of US economic activity and is a key indicator of the health of the economy.

The dollar rose against the yen and firmed against the euro shortly after the report was issued on Friday.

Retail heating oil prices fell to a five-week low at $2.43 a gallon, down 1.7 cents from a week ago but up 46 cents from a year ago, EIA said.

On Thursday, the number of new jobless workers fell to 271,000 last week, its lowest level since April 2000, the Labor Department said.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What was the percentage increase in the index? as the dollar rose against the yen this would make exports…(cheaper/more expensive) imports from Japan would now be…(cheaper/more expensive) If demand for imports is elastic, will the dollar’s rise be of great help/little help to Japanese exporters? How much was retail heating oil a year ago? How much was retail heating oil a week ago? If demand for retail heating oil has not changed since a week ago, why would the price have fallen? If a year ago demand for oil was 500,000 units and it is now 600,000 does this mean that the relationship between price and demand is direct, not inverse?

Question 29

Bates makes wage demand warning

Leeds chairman Ken Bates believes that players leaving the Premiership need to be realistic in their wage demands.

Fulham captain Lee Clark, 32, had been in line for a move to Elland Road but failed to agree personal terms.

"I know of three players who have been asking for £12,000 a week. The average Championship wage this season is going to be around £3,000 to £4,000."

Leeds encountered major financial problems after their relegation from the top flight and Bates is keen to avoid any such worries in the future.

"We have also had one player, who will not even be fit for the start of the season, asking for £12,000 a week for a two-year deal and his agent wanted another £75,000," he added.

Source: BBC News 14^th June 2005 (adapted)

Questions What is the percentage difference between the £12,000 a week asked for and the average Championship wage? Calculate the difference between the average Championship wage and that of a Head teacher. What is the annual salary of someone on £12,000 a week? Calculate the tax payable on a salary of £12,000 a week. Calculate the hourly wage of someone on £3000 a week assuming a 24-hour day. Research the amount of hours a day a footballer actually ‘works’ and then re-calculate the hourly wage. Compare that to the ‘going rate’ to see privately a Consultant Surgeon at a local hospital.

Question 28

From the moment Southampton's relegation from the Premiership was confirmed at the end of last season, one fixture above all others has been on the lips of Saints fans.

It was a fixture whispered in almost embarrassed hushed tones, as though to speak its name aloud would summon up an evil poltergeist.

The fixture was the visit of Crewe Alexandra, and since that fateful day last May, Saints fans and people at the club have used the very name "Crewe" as the yardstick of how Southampton's fortunes have folded.

Without being unkind to Dario Gradi's team, not even the most ardent Crewe fan would not argue that the Railwaymen have the pulling power of Ivor the Engine, or a Hornby Double-O gauge.

For that reason, Southampton's first League game against Crewe sent a tremor of fear and cold reality that penetrated the heart of a club that has mixed it with the elite for 27 years.

Around 420 Crewe fans rattled around like a pebble in an oil drum in a section normally reserved for 4,000.

Under the circumstances, a crowd of 20,792 was perhaps not as bad as feared.

It was the third-highest of the day in the Championship and bigger than two Premiership gates, but it was the lowest-ever crowd for a league game at St Mary's beating the record set at the previous home Championship match against Norwich.

Saints reckon their income will drop by at least £25m this year, and they have budgeted for that by off-loading some of the top players, and slashing the wages of those left behind by a half. Even chairman Rupert Lowe is not exempt.

Source: BBC News 28^th August 2005 (adapted)

Task Find out the average gate for Southampton’s home games last season and, using the information above, calculate the average seat price. Is it likely that seat prices will have changed? (Explain your answer, using the concept of elasticity)

Question 27

Mahendra is the credit manager in a Romith Ltd, a large company. His monthly report to the general management is divided into three sections

· debtor level

· cash

· overdues.

Question

1. What does each section mean and what information will Mahendra include in each section of his report? How will knowledge of these sections help the firm’s cash management? (30 marks)

Question 26

Given below is the cash forecast for June to August 2000 of Highflyer Ltd, a company which manufactures parachutes.

	June	July	August
	£000	£000	£000
Income
Cash Sales	2,500	3,000	3,300
Sales on credit	10,400	10,000	12,000
	12,900	13,000	15,300
Expenditure
Purchases	6,560	6,300	7,570
Rent	6,000
Expenses	1,800	1,800	1,800
Van		7,700
Drawings	1,200	1,200	1,200
	15,560	17,000	10,570
Bank Balance
Opening balance	700	(1,960)	(5,960)
Add income	12,900	13,000	15,300
Less expenses	(15,560)	(17,000)	(10,570)
Closing balance	(1,960)	(5,960)	(1,230)

Questions

1. Why is efficient management of working capital important to a firm? (6 marks)

2. Explain two ways in which the preparation of a cash budget may be useful to Highflyer Ltd.

(6 marks)

3. What conclusions can you draw from the above cash forecast? (8 marks)

4. What steps can a firm take to solve a cash problem? (10 marks)

Efficiency (Economics)

How many pairs of shoes do you own?

How do you decide which shoes to buy?

Is there any need for more than ten pairs of shoes?

Check out this article in the Daily The Telegraph

a) List the various types of efficiency
b) Allocative efficiency means resources....................Complete the sentence
c) How does what is happening in the shoe market illustrate this concept?

Efficiency (Economics)

Revise your notes on efficiency.

Have a look at these two articles - is competition leading to greater efficiency?

Two articles from the BBC seem to indicate that competition in the insurance industry is causing firms to seek greater economic efficiency


a) What are the various types of efficiency? (Dynamic, static etc)
b) What type of efficiency will these job losses lead to?
c) Why are the 2 firms following this course of action?

Market failure (Economics)

This will help you revise.

It explains HOW government intervene when markets fail and some points to consider when evaluating the success of such policies

Market Failure (Economics)

Transfats - what do you know about them?

They kill you!

From the BBC we learn that transfats are being banned in California

Check back over your diagrams and then...

a) Using a diagram, explain what sort of market failure trans fats represent
b) Why has California taken this action?
c) To what extent do you think the action will reduce the market failure?

Market Failure (Economics)

The BBC reports most women are unaware of the increased risk of breast cancer which follows excessive drinking

Revise your notes on market failure and then consider the following:

a) Why is this an example of information failure?
b) How does the market fail?
c) What actions could the government take to reduce the market failure?
d) How successful do you think such measures would be?

(Remember to read the Purpose of this Blog section...)

Question 25

‘We need more focus, more direction’ stressed Maria Donatelli, the Marketing Manager of LA Games. ‘Yes, but which direction?’ snapped her husband Ben. ‘Its all very well going on about direction and focus but, surely, we need to decide where we want to go.’

It was a familiar discussion at LA Games, a medium sized family firm that had produced board games and puzzles for the last twenty-five years. For most of this time, the firm had been highly successful, making a range of products that sold well in the UK and in Europe.

However, the last few years had been difficult. The huge growth in the electronic games console market had resulted in falling sales, with some product ranges affected more than others. Details of current product ranges are given below:

Family Favourites: This range of products, including chess, drafts and snakes & ladders, has maintained its popularity. It still has a large market share and faces little competition in this static market.

Magnetic Games: Once a popular item, the magnetic games range has had falling sales for many years. This market has been affected very badly by the growth of hand held electronic games.

Electronic Games: Initially, LA Games refused to introduce a range of electronic games. However, the huge growth in this market has resulted in the development of a small number of products, which have recently been launched.

Adult Games: In the mid 1980s, LA Games launched their range of board games specifically targeted at adults. The games were a huge success and sales are still high. The market for adult games is continuing to grow but LA Games is facing strong competition from rival firms.

Children’s Games: Although LA Games built their reputation on their wide range of games for children, sales have fallen steadily now for a number of years. Due to advancing technology, this market is slowly falling in size.

Question 5 continued

Questions

1. a) Define the term ‘product portfolio’. (2 marks)

b) Draw a diagram of the Boston Matrix. (3 marks)

c) Explain how the Boston Matrix is used to analyse a firm’s product portfolio. (5 marks)

LA Games wish to use the Boston Matrix to examine their product portfolio to help develop a

strategy to increase future profits.

2. a) Classify each product range using the matrix, giving reasons for your decisions. (5 marks)

b) Recommend a future strategy for LA Games. (10 marks)

Question 24

Cressida Grainger started her entrepreneurial career at the age of 22, running a small antiques business. Whilst on a visit to Glasgow market, she discovered lava lamps and bought some to sell on her Camden market stall. The 1960s lamps, which mix oil and water to create psychedelic patterns, were an instant success so she tracked down the inventor, Edward Craven, and eventually bought the then loss-making business from him.

In 1989, Mathmos was born. The firm started to market the lamps to a new set of fashion conscious consumers eager to buy ‘retro chic’ products. The marketing paid off and since then, Mathmos has enjoyed spectacular success, achieving £18 million of sales in 1999.

However, the business has recently run into some difficulties. Following the success of the lava lamps, competitors from the Far East have realised the potential of the products and the market is now being flooded with imitation lamps that are sold at prices that Mathmos would struggle to make the item for. This problem is increased by retailers who stock the cheaper, imported goods alongside the Mathmos originals. In effect, the Mathmos name is advertising other companies’ products.

Grainger is determined to fight back, though. With the name Mathmos linked to high quality products and first-rate after sales service, she believes that her business can be expanded in order to win back market share. Two strategies are being considered.

Option One: Diversification into other product areas, such as gifts and fashion accessories.

Option Two: Extend Mathmos’ unique position as leaders in innovative domestic lighting through the development of new lighting products.

Ultimately, Grainger knows that Mathmos must maintain its innovative edge in order to remain successful in the market place.

(Adapted from Sarah Gracie, The Sunday Times, April 9 2000)

Questions

1. Explain why Mathmos lava lamps were initially so successful. (4 marks)

2. Recently, Mathmos has begun to experience some difficulties. Analyse the key causes of these problems. (8 marks)

3. Explain how the use of market segmentation could help Mathmos to market its products

effectively. (5 marks)

4. Evaluate the advantages and disadvantages of the possible options for development. (8 marks)

Question 23

Richard Branson’s Virgin Group is expanding once again. Following on from his success in markets such as airlines, cosmetics, financial products and music, to name only a few, he has recently launched a mobile phone company, Virgin Mobile.

Branson believes that consumers have lost out through the existing mobile phone market because of high costs and overly complicated tariff systems. His new venture, set up in conjunction with One2One, sets out to change that. In contrast to many packages, Virgin Mobile has no monthly line-rental fee and call charging is straightforward (see Appendix). In terms of cost, the average phone user’s bill should fall by a third.

In addition to these benefits, Virgin Mobile is offering customers a number of other services. Going by the name Virgin Xtra, phone users will be able to book holidays, flights and train tickets, receive warnings about traffic jams, listen to and order music and get details about entertainment listings. They will also be able to use e-mail.

New customers can buy Virgin phones in Megastores, Our Price, over the Internet and by phone. Some may even be able to change over their existing phone for a cost of £12.50, which includes £10 worth of calls.

(Adapted from Ben Hammersley, The Times Interface, November 15 1999)

Appendix

Example Phone Tariffs for Virgin Mobile and BT Cellnet. (From Dixons Communication Buyer June 2000)

	Virgin Mobile	BT Cellnet 30	BT Cellnet 120	BT Cellnet 250
Subscription per month	Free	£17.50	£25.00	£40.00
Free calls per month	-	30	120	250
Call charges	1st 10 minutes 15p per minute 2nd 10 minutes 10p per minute After that 5p per minute	Daytime 30p per minute Evening 5p per minute Weekend 2p per minute	Daytime 25p per minute Evening 5p per minute Weekend 2p per minute	Daytime 18p per minute Evening 5p per minute Weekend 2p per minute

Question 3 continued

Questions

1. a) Explain what you understand by the term ‘market segmentation’. (2 marks)

b) Outline how BT Cellnet has segmented the mobile phone market. (4 marks)

c) Suggest reasons why BT Cellnet has chosen to segment the market. (6 marks)

2. a) Describe the differences between the services offered by Virgin Mobile and BT Cellnet.

(3 marks)

b) Evaluate the advantages and disadvantages of the approach taken by Virgin Mobile.

(10 marks)