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.