Lines Of Analysis

Question 1

Primary research benefit

Answer 1

-involves collecting new data

-which is specific to business and up to date

-e.g. questionnaires and focus groups

-allows business to effectively identify customer wants and needs

-create a product which meets needs effectively

-build customer loyalty

-able to increase price without a significant fall in demand

-increase in revenue

-increase in gp and op

-more retained profit to reinvest

Question 2

Primary research drawback

Answer 2

-can be expensive
-may need to hire specialist researchers
-e.g. questionnaires and focus groups using a large sample size
-in order to find out customer wants and needs
-leads to increased cash outflows on wages
-lower net cash flow
-reduced cash reserves
-may be unable to pay day-to-day bills
-forced to sell non-current assets in order to cover payments
-business unable to operate

Question 3

Secondary research benefit

Answer 3

-data has already been collected and exists
-therefore does not require specialist researchers
-e.g. no need for focus groups
-this significantly reduces cash outflows
-improving net cash flow
-leading to increased current assets
-ability to pay debt and avoid failure

Question 4

Secondary research drawback

Answer 4

-research was completed for another reason so may not be time or business relevant
-therefore may make invalid suggestions on how the business can improve
-leading to an inappropriate product portfolio
-lower sales and revenue
-risking an operating loss
-forcing the business to use cash reserves to pay expenses
-less attractive to banks or investors as it suggests business may struggle to pay bills
-struggle to raise capital for future expansion

Question 5

Quantitative data benefit

Answer 5

-data collected in statistical form
-using closed questions
-these can be completed independently
-and easily analysed
-therefore specialist researchers are unlikely to be needed
-reducing costs of wages
-cash can instead be invested into using a larger sample size
-leading to more reliable data conducted
-more likely to produce a product which meets customer needs
-increased revenue
-increased gross and operating profit

Question 6

Quantitative data drawback

Answer 6

-data is presented in statistical form
-resulting in limited depth
-respondents can explain why they made certain choices
-making it difficult to develop new ideas
-limiting innovation
-less likely to develop unique and competitive products

Question 7

Qualitative data benefit

Answer 7

-it invites the participant to give a more detailed response
-this can lead to a deeper understanding of customer needs and wants
-resulting in business being able to produce a product that more effectively meets their needs
-increasing customer loyalty
-able to increase prices without a significant fall in demand
-increased revenue
-increased gp and op
-more retained profit to reinvest

Question 8

Qualitative data drawback

Answer 8

-Gathering a large volume of detailed responses will require a significant number of researchers
-this will significantly increase fixed costs
-may mean a lower volume of data is collected as a business may not have the cash to pay for the researchers
-resulting in unreliable results as less people are asked
-resulting in the wrong product being produced or wrong price being charged

Question 9

Product orientation benefit

Answer 9

-product orientation focuses on developing the product
-lots of investment into R&D of the function of the product
-improved innovation by having unique features
-differentiate from competitors
-customers willing to pay higher prices
-increased prices without a significant fall in demand
-increased revenue
-higher pross profit and operating profit margins
-increased retained profits to invest further into R&D to continue innovating

Question 10

Product orientation drawback

Answer 10

-can be expensive
-lots of investment needed into R&D in order to innovate
-increased fixed costs
-e.g. paying high wages of scientists/engineers
-leads to lower operating profit margins
-reducing retained profit
less capital to re-invest into further R&D
-may be unable to effectively differentiate
-lower sales in the long term

Question 11

Market orientation benefit

Answer 11

-involves focusing on customer wants and needs
-allow businesses to create products based on customer trends
-and use market research to quantify demand
-allowing them to produce products which are likely to have high sales volume
-increasing sales revenue
-increasing gp and op
-increasing retained profit and able to reinvest into further market research

Question 12

Market orientation drawback

Answer 12

-market research is needed to find out customer wants and needs
-high amount of investment into market research needed
-e.g. questionnaires and focus groups using a large sample size
-in order to find out customer wants and needs
-leads to increased cash outflows on wages for specialist researchers
-lower net cash flow
-reduced cash reserves
-may be unable to pay day-to-day bills
-forced to sell non-current assets in order to cover payments
-business unable to operate

Question 13

Benefit of using a market map

Answer 13

-help identify gaps in the market
-once identified businesses conduct R&D
-And design a product that matches the characteristics of
-product is likely to be unique
-lack of direct competition
-businesses can increase selling prices and not experience significant fall in demand
-increased sales revenue and gp

Question 14

Drawback of using a market map

Answer 14

Market maps are based on consumer opinions.

To ensure decisions based on consumer opinions are valid

businesse needs to collect data from a large sample.

This may require a large number of researchers.

To collect and analyse data and display it in a market map

If businesses recruit researchers, it will significantly increase cash outflows.

If cash outflows are greater than cash inflows, it may lead to a negative net cash flow.

Question 15

Benefit of segmentation

Answer 15

Through segmentation, a business can target market research at a specific group.

Rather than trying to create a product for all customers

This can help a business understand their customer needs more effectively.

Meaning they can adapt their design mix to better meet their needs.

Ensuring the business product is more differentiated.

So they can increase their prices without a significant decrease in demand.

Increasing their sales revenue.

Question 16

Drawback of segmentation

Answer 16

Need to create multiple products

To meet the needs of different segments

For example (name a segmentation and link to case study)

This can be very expensive

Increases cash outflows

May lead to a negative net cash flow

Reducing cash reserves

May need to sell non current assets

Business can’t function as well

Question 17

Importance of aesthetic/function

Answer 17

If a business improves aesthetics/function of products design mix

Through R&D into improved functionality or market research to identify consumer trends

Product is likely to become differentiated compared to rivals

Gain a competitive advantage

Can increase selling price without significant fall in demand

Increase sales revenue and gross profit margin

Question 18

Drawback of prioritising aesthetic/function

Answer 18

To improve aesthetics or function it will require significant investment into R&D or market research

Increasing cash outflows

If cash outflows exceed cash inflows

Result in a negative net cash flow

Placing a strain on a businesses cash reserves

Business has difficulty making payments to suppliers

May have to sell non-current asset

Disruption in business operations

Question 19

Importance of economic manufacture

Answer 19

If a business designs a product with economic manufacture as priority

E.g. - Through using less robust raw materials – adapt this to business in extract

Reduce their cost of sales

Can pursue cost leadership according to Porter

Gain competitive advantage

Can reduce selling price

Increase in demand

Increasing sales

Question 20

Drawback of prioritising economic manufacture

Answer 20

If a business designs a product with economic manufacture as priority

E.g. - Through using less robust raw materials – adapt this to business in extract

It may mean that the product they design becomes less robust

Damage the businesses reputation (now associated with being less robust)

Consumers may switch to alternatives

Decrease demand

Decrease in sales and gross profit

Less profit to retain and reinvest

Question 21

Benefit of changing design mix to reflect social trends

Answer 21

Changing design mix to reflect social trends (choose social trend and element of design mix relevant to business in question)

Product now aligned with social trends

Better meets customer needs

Consumers more loyal to business

Can increase selling price without significant fall in demand

Increase sales revenue and gross profit margin

Question 22

Drawback of changing design mix to reflect social trends

Answer 22

To identify relevant social trends

Requires significant investment into market research

To ensure data is valid, must be collected from a large sample

Business needs to recruit specialist research to collect and analyse data

Increasing cash outflows

Placing strain on cash reserves

Less cash to pay for day-to-day operations

Question 23

Benefit of adapting design mix over concern of resource depletion

Answer 23

Business may (adapt to business in extract) e.g. - stop using rare wood when making product

Swap to more sustainable wood

Changing aesthetic of product due to concern over resource depletion

Aligning with consumers values

Better meeting consumer needs

Product becomes more differentiated

Can increase selling price without significant fall in demand

Increase revenue

Question 24

Drawback of adapting design mix over resource depletion concerns

Answer 24

Adapting design due to concern over resource depletion (be specific to business in question)

Meaning the business needs to find alternative supplier for raw materials

Charge higher price for new material

Increasing cost of sales

Reducing gross profit margin

Reducing operating profit margin

Less profit to retain

Less profit to reinvest (be specific to business in extract)

Question 25

Benefit of business plan

Answer 25

Business plan involves carrying out market research

Such as a questionnaire

Which, if based on a large sample size

improves the validity of the results

Develop reliable sales predictions

Create a cash flow forecast

Convince the bank that they can make loan repayments

Question 26

Drawback of business plan

Answer 26

A Business plan can quickly become out of date

For example, there may be an unexpected change in social trends (relate to the case study)

Causing an unexpected change in demand of (relate to case study)

Making the market research in the plan invalid

Resulting in unreliable sales forecasts

Inaccurate cash flow forecasts

Therefore, any financial predictions will be unreliable making the loan, or investment, application unreliable

Question 27

Sales forecasting benefit

Answer 27

Accurate forecast will appropriately predict sales volume

This will ensure the business can order the correct amount of stock

This will reduce waste as the business will avoid over ordering

Reduced waste will decrease outflows

This will improve net cash flow

Ensuring the business can pay suppliers OR invest in research and development (choose the one that is most relevant for the business)

Explain the impact

Question 28

Sales forecasting drawback

Answer 28

Accurately compiling a sales forecast requires significant investment into market research

To accurately quantify demand for products

To ensure data is valid, it must be collected from a large sample

This may require recruiting specialist researchers to collect and analyse data

Their wages will increase the business’s cash outflows

Placing a strain on their cash reserves

Less cash available to pay current liabilities

May be pressured to sell non-current assets

Question 29

Cash flow forecast benefit

Answer 29

The business may experience fluctuations in sales (why – relate to the case)

This may mean that they experience a reduction in cash inflows at certain times (relate to the case study)

So if they can accurately forecast cash flow, the business may be able to plan accurately

Such as reducing their staff numbers if they forecast lower cash inflows during these periods (or pick an outflow significant to the business in the case)

Allowing them to reduce their wages and subsequent cash outflows

Improving net cash flow during off-peak seasons and ensuring they have sufficient levels of cash to keep up with essential payments such as wages.

Question 30

Cash flow forecast drawback

Answer 30

A cash flow forecast can quickly become out of date

For example, there may be an unexpected change in social trends (relate to the case study)

Causing an unexpected change in demand of (relate to case study)

Making the market research in the plan invalid

Resulting in unreliable sales forecasts

Inaccurate cash flow forecasts

This could result in the business being over or understaffed or over or under stocked. Choose one and explain the impact

Question 31

Break even benefit

Answer 31

By calculating their break-even point

A business can identify the number of units they need to sell in order to cover their costs.

They can compare this with sales forecasts

And identify whether they are likely to make a loss.

They can therefore take action to reduce their break-even point

Eg. Switching to a cheaper supplier or increasing the selling price

In order to increase their contribution per unit

And prevent losses from occurring.

Question 32

Break even drawback

Answer 32

Break-even assumes prices and costs remain constant.

For example, inflation may significantly increase prices of raw materials

Decreasing contribution per unit

Break-even ignores this so may become inaccurate

Inappropriate decisions

For example, prices too low causing the business to make a loss on each item sold

Operating loss

Question 33

Sole trader benefit

Answer 33

Sole traders are the only owners of a business.

Therefore, they can maintain full control over day-to-day running.

Maintain consistency throughout the business.

Build a strong brand image.

Differentiate from competitors.

Increase prices without a significant fall in demand.

Increase in revenue.

Increase in gross profit margin.

Increase in retained profit to reinvest in…

Question 34

Sole trader drawback

Answer 34

Unlimited liability

Increased risk of investment

If business debt exceeds business assets

May need to sell personal possessions

This increased risk will make investment less attractive

Leading to reduced investment

Less capital

Reduced assets

Question 35

Partnership Benefit

Answer 35

Knowledge and experience from the partners

Look in case study and input knowledge and experience here

Improved innovation

Differentiation(specify how)

Increase price

Without a significant fall in demand

Increased gross profit

Increased operating profit

Question 36

Partnership Drawback

Answer 36

Unlimited liability

Increased risk of investment

If business debt exceeds business assets

May need to sell personal possessions

This increased risk will make investment less attractive

Leading to reduced investment

Less capital

Reduced assets

Question 37

Ltd benefit

Answer 37

Can choose their own shareholders

Choose people who match their objectives e.g. passion for innovation

Might mean less focus on short term results as they share goals on R&D and long term investment

Can reinvest more capital into R&D/growth rather than being pressured to pay dividends

Able to innovate and pursue objectives

Differentiate from competitors in the long-term

Question 38

Ltd drawback

Answer 38

Unable to sell shares on stock market

This can make it more difficult to raise large amounts of capital

So the business may find it difficult to build scale

Limits amount of R&D

Less innovation

Less differentiated products

Question 39

Plc benefit

Answer 39

Have gone through stock market flotation

therefore their shares are advertised to, and accessible to, the public

sue to this they can sell a large volume of shares leading to significant amount of capital being generated

increased cash available to invest in non current assets so the business can build scale

Question 40

Plc drawback

Answer 40

Shares are sold to the public

therefore, there is more pressure from shareholders for short term profits

so the business may neglect long term objectives for short term returns

to satisfy shareholders by using profit to pay regular dividends

neglecting investment into R&D to develop innovative products

product becomes less differentiated in the long term

Question 41

Limited liability benefit

Answer 41

means the owners are not responsible for any debt that cannot be paid by the business

this therefore attracts more investment as there is reduced risk of investment

leading to an increase in capital invested in the business

the business can build capacity(say how from case study)

improved accessibility(service) or output(factory)

increased opportunity to sell more goods

increased sales revenue

increased gross profit

increased operating profit

Question 42

limited liability drawback

Answer 42

The owners are not risking their personal possessions

so if the business is unable to pay(through sale of assets)

then the supplier or bank lose the amount owed

this increases the risk of lending cash to the business

or increases the risk of offering trade credit

making banks and suppliers less likely to lend

struggle to get trade credit or a loan

limited expansion

Question 43

Franchisor benefit

Answer 43

means allowing independent businesses to use your brand name

this means that the franchisee provides the capital to open new branches/stores

therefore reducing the capital required for expansion

leading to the franchisor being able to expand quicker

able to increase marketing budget and advertise more

able to build a stronger brand

Question 44

Franchisor drawback

Answer 44

risk damaging their reputation

as the franchisor is not responsible for the day to day running of the outlet

the franchise may fail to uphold high levels of customer service

due to lack of supervision from franchisor

poor customer service in one outlet could then affect the reputation of others

meaning customers switch to a rival business

reducing sales revenue

reducing gross profit

Question 45

Franchisee benefit

Answer 45

Means paying to use another businesses brand name

this means they already have access to a well-known brand

therefore there are already customers who have brand loyalty

the franchisee can charge higher prices than independent businesses, as customers will be willing to pay them

leading to increased revenue and profit margins

more retained profit to reinvest in opening further franchises

Question 46

Franchisee drawback

Answer 46

means paying to use another businesses brand name

this will lead to higher costs, as fees and royalties will be need to be paid

therefore leading to increased cash outflows

lower net cash flow

possibly reducing cash reserves

unable to pay day-to-day bills such as rent/suppliers

forced to sell non-current assets in order to pay bills

unable to operate