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Price promotions:
• The supermarket offers a temporary reduction in the price of the cereal.
• The price discount will encourage existing consumers to buy more of the cereal and new customers
to purchase it, as it now appears more competitively priced. New customers may continue to
purchase the product in the long term even after the discount is removed.
• Existing consumers will bring forward their purchase of the product. After the discount, sales may
be lower as customers have stocked up on the product.
• A price discount will reduce the gross profit margin on each box of cereal sold.

Activity 20.4
1 To support the brand image. For Zao Makeup, the packaging must have a low environmental impact
so uses bamboo rather than plastic.
To protect the product. Consumers may use the product over an extended period and therefore it is
essential that the packaging prevents any deterioration in the contents.
2 Benefits:
• This is an example of the growing influence of corporate social responsibility. Increasingly,
consumers are concerned about the impact of products on the environment. Therefore, a business
can gain a competitive advantage by using recyclable packaging.
• This improves the marketing of the product to the consumer.
• Higher pricing may be possible.
Disadvantages:
• Recyclable packaging may be more expensive and therefore increases price to the customer.
• It may not be as effective at protecting the product. Plastics are particularly effective for storing
and protecting food products.
• Recyclable packaging is not necessarily more energy efficient and therefore can be more harmful to
the environment.
Evaluation could include: As with so many CSR-based decisions, the increase in costs may be largely
short term but the potential marketing and reputation benefits could be long term. Much will depend
on the cost of using recyclable materials and consumer expectations regarding the product.

Activity 20.5
1 Social media was able to reach a large potential audience, resulting in more than 166 million social
impressions. The campaign was relatively cheap as it only required selected music fans to be given
wi-fi-enabled cameras. It fits in well with Nikon’s target market, which is technologically aware.
2 Arguments for importance: this strategy matches the objective to make the Nikon brand appear more
accessible and not just associated with professionals. Supermarkets have a very high footfall. They
provide a convenient location for consumers to purchase.
Arguments against importance: it may appear to cheapen the brand image away from being a specialist
product. Supermarket employees are unlikely to be knowledgeable about the product, which is
important when choosing a camera.
Evaluation: it depends on the target market, price range and desired image.
3 Learners’ own answers.

Activity 20.6
1 Mix A: advertised on radio only. Radio may be poor at conveying the qualities of a sports car.
Mix B: sold only over the internet. Low-income families are less likely to have access to the internet or
credit cards.
Mix C: low price. This is a fashionable hairdressing salon in a wealthy part of the city and the rest of
the mix supports high prices.

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Mix D: product. A fast-food restaurant is less likely to support the other elements of the mix, such as a
skimming price strategy.
2 Mix A: an expensive sports car should be advertised in business magazines as these will be read by
individuals with higher incomes.
Mix B: a range of furniture for low-income families should be sold through discount furniture retailers.
These retailers will attract low-income families.
Mix C: a hairdressing salon using well-known stylists should charge high prices and offer no discounts,
to convey a message of exclusivity.
Mix D: a fine-dining restaurant serving locally produced seasonal food would be more likely to attract
the target market of business executives.

Activity 20.7
Learners’ own answers.

Exam-style questions
Short answer questions
1 Advertising is paid-for communication, with potential and existing customers, to inform and/or
persuade. Sales promotions are in-house incentives to generate increased sales, e.g. BOGOF.
2 Learners’ answers will vary, e.g. to promote a new offer on the existing product; to reinforce brand
image, which helps maintain customer loyalty; to persuade new customers to purchase.
3 Learners’ answers will vary, e.g. compare sales before and after the promotion, if there are no other major
changes, e.g. competitors increase promotion; survey customers to get feedback on the promotion.
4 Learners’ answers will vary, e.g. a poorly designed advert results in a negative impact on the brand
image; too-frequent advertising creates annoyance amongst customers.
5 Branding can increase the perceived value of a product in the minds of consumers. It can make it a
‘must have’ product. This helps to reduce the responsiveness of demand to higher prices as customers
are willing to pay more.
6 Learners’ answers will vary, e.g. using consumer awareness data to identify consumer recall and awareness
of promotions; using consumer panels to get qualitative feedback on the impact of promotions.
7 Learners’ answers will vary, e.g. personal selling uses a salesperson to sell to individual customers;
direct mail is sent by post to customers and potential customers.
8 Learners’ answers will vary, e.g. to regenerate interest in a product which has been on the market for a
long time; to persuade consumers towards alternative uses, e.g. eating breakfast cereal as a snack when
watching TV.
9 They are small and relatively inexpensive promotions in stores that often result in increased impulse
purchases, e.g. sweets.
10 Learners’ answers will vary, e.g. it attracts customer attention by its design and colour; it helps a
product stand out from competitors; it provides valuable information, e.g. ingredients of a food
product or allergy information.
11 Public relations in the form of deliberate use of free publicity provided by newspapers, TV and other
media communicates with the public and promotes a positive image.
12 Learners’ answers will vary, e.g. online advertising using pop-up banners or placing advertising on other
websites; email marketing to communicate with customers (e.g. notifications about new products).
13 Learners’ answers will vary, e.g. to break down bulk; allow smaller retailers to enjoy some economies
of scale.
14 Learners’ answers will vary, e.g. logistical difficulties regarding secure payment systems, cost and
administration of deliveries and returns of unwanted/faulty products; difficulty of getting noticed,
unlike with fashion in a physical market.

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15 Brand image could be improved by the business taking socially responsible decisions such as using
recyclable packaging for cosmetics or a car manufacturer making only electric vehicles. Many
consumers will have a higher rated opinion of the brand.
16 Learners’ answers will vary, e.g. place – virtual market with downloads; price – priced per track
to download.
17 Learners’ answers will vary:
Physical market, e.g. retailer (bike shop). Advantages to business: personal touch; able to persuade
customer; sell additional items. Advantages to customer: customer service; advice; can physically see,
touch and try bikes.
Virtual market, direct from the manufacturer. Advantages to business: lower overhead costs; reaches a
potentially larger target market. Advantages to customer: fewer intermediary mark-ups; might be able
to mix and match or tailor-make more easily; convenient: constantly available; delivery available.
18 It might use point-of-sale displays in retail stores to ensure that shoes are seen by customers.
19 Digital distribution is distribution to consumers by a digital means, e.g. streaming and downloading of
content. Physical distribution moves the physical product to the consumer directly or through channel
intermediaries such as retailers.
20 Learners’ answers will vary, e.g. the cost is lower so the business can save money on promotion; it may
be more suitable due to the target market for the product, e.g. younger consumers.

Essay questions
1 a
Advertising is above-the-line promotion and makes use of media to communicate the promotional
message. The media used for advertising include television, cinema and newspapers.
Advertising can be categorised as being either informative or persuasive:
• Persuasive advertising tries to create a distinct image for the product and contains little or no
information about the physical aspects of the product.
• Informative advertising provides information about the product. Adverts for computers often
focus on technical details such as memory size and processor speed.
Direct promotion is a form of below-the-line promotion so does not use a paid-for medium.
Methods include direct mail, telemarketing and personal selling. Personal selling is often used for
industrial products so is a key feature of business marketing.
b There are a number of techniques that can be used to determine whether promotion campaigns
have been successful including:
• Analysing sales before, during and after the campaign. However, an increase in sales does
not mean that the campaign has been successful. There are many other influences on demand
including the marketing decisions of competitors.
• Market research. Firms can use consumer panels to monitor the views of a small group of
consumers over time. This will enable changes in consumer opinion to be identified.
• Response rates to advertisements:
• Money-off coupons in magazines and newspapers can be tracked to identify the take-up
on a particular offer. This provides a direct measurement of the impact of the promotion.
However, it doesn’t identify whether those consumers using the voucher would have
purchased the product anyway.
• Websites can record the number of ‘hits’ received (i.e. how often an advert has been
viewed). However, just because an advert has been viewed, does not mean that it will lead
to a purchase.
• Consumer awareness data. This is published by market research agencies based on consumer
recall tests of advertisements. This gives good feedback on whether the advert has been seen
and remembered.

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Evaluation: despite these techniques, it remains difficult to quantify the success of promotion due to the
large number of external factors including changes in the economic environment; changes in consumer
tastes; promotional activity of competitors; changes to the price and product of competitors.
The success of promotion cannot always be judged on the basis of short-term sales; promotion
may have much longer-term benefits for the business.
2 a Learners’ answers will vary but should include two of: e-commerce is increasingly popular,
especially with younger target markets, e.g. the success of ASOS or a similar online retailer; it
reaches a wider audience, e.g. opportunity for worldwide sales; customers can shop at any time,
which increases convenience, plus they can use stores for click and collect or returns.
b Arguments for: it creates brand awareness and brand image, which is important when spending
on expensive goods such as a car. Image is important when choosing a car because it gives an
indication of personality and lifestyle.
Arguments against: the product is important as the consumer will want specific features and
functions as well as assurance about quality and safety. Price is important as it is a highly
competitive market with many makes and models of car to choose from.
Evaluation: it depends on the main influences on customer behaviour, e.g. whether they are more
price- or image-sensitive.
3 a Learners’ answers will vary but should include examples and analysis relating to two of the
following points. Packaging supports promotion of a product by:
• providing information on the product to consumers
• reinforcing the branding through the design and colour of the packaging
• attracting the attention of consumers through use of colour and materials
• protecting the product from damage
• helping to give the product a USP
• enhancing the environmental credentials by using recyclable packaging.
b Learners’ own answers but must be clearly based on a business (or industry) and should include
both the benefits and limitations of digital marketing. Both promotion and place should be
considered in the evaluation.

Data response questions

1 Penang Golf Kit (PGK)
a i It informs customers.
ii The name given to a product or range of products by a business.
b i ($5/$45m) × 100 = 11.1%
ii It may not be very well targeted at golf players even if undertaken during sports events, so it
may be less effective than, for example, direct marketing to members of golf clubs.
c Learners’ answers will vary, e.g. it is a low-cost method of targeting the market with relatively low
fixed costs; PGK wishes to target young golf players and they are more likely to use e-commerce
than PGK’s traditional customers; e-commerce is an effective way of reaching a worldwide
audience, allowing PGK to increase global sales; PGK can easily measure effectiveness as the
number of clicks or visitors can be recorded for different web-based promotions; e-commerce is
convenient for consumers to use, so should increase sales.
d National golfing magazine:
• The 12 adverts would cost $496 000, including the preparation of the advert.
• This would reach 250 000 readers so the cost is about $2 per reader.
• This option has the advantage of being more specifically targeted at golfers. Readers are likely
to be interested in the adverts for equipment and clothing, and less likely to ignore the advert.
• However, as the age profile of the readership is not known, this might not be effective at
reaching the target market.

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TV advertising:
• This would use up virtually the whole budget as 20 adverts cost $0.5m and the production
costs are $0.4m. However, once produced the advert could be re-used at a later date.
• Coverage during the Saturday football match of the under-21 age group is 1.25m and for the
Friday evening slot it is 1.5m.
• Viewers are likely to be sports fans but football may appeal to a slightly different demographic
than golf.
• TV offers the benefit of moving images and sound. This can make the message more effective,
particularly as it is sports-related.
• Channel-hopping reduces the impact of TV adverts as viewers switch channels.
Sponsorship:
• Tim Lui is popular with young golfers so this could be effective at attracting the target
audience to purchase equipment and clothing.
• It would use 30% of the budget so leaves money for other forms of promotion.
Digital promotion:
• Minimum cost is $250 000 plus the average $7 pay-per-click fee. It would be easy to measure
effectiveness and use of Twitter and Facebook could target younger golfers effectively.
Evaluation will need to balance the cost, coverage of the target audience and likely impact of each
form of advertising. The budget is limited and for coverage of the target market it would appear
that a combination of digital promotion, sponsorship and some magazine advertising might be
possible. This uses more than one form of promotion and could therefore be more effective.
2 Apple
a i Potential consumers will be aware of the product’s image.
ii Range of selling and marketing activities that use the internet.
b Customers can see product demonstrated. The retailer will offer after-sales service to consumers.
c Learners’ answers will vary, e.g. e-commerce has global reach and low fixed costs, so offers greater
cost-effective coverage of the global market. It may be more effective for reaching the new target
market.
Selling through retailers enables customers to see and touch the products. Some customers may be
unwilling to purchase without having the product demonstrated.
d Advantages of Apple owning its own retail stores:
• Retail outlets can focus on Apple products alone.
• Apple has more control over the way its products are sold, e.g. positioning of in-store displays
and the design and layout of the retail stores. This provides a good brand-building platform
for Apple.
• Apple is able to ensure that staff are trained to demonstrate products and give consumer
advice. The ‘Apple Retail Store Experience’ gives consumers the chance to try out all products.
Apple is able to offer highly trained staff to deal with technical questions. This enhances
customer service and offers significant added value to the business.
• Apple can absorb the profit margin that would normally go to the retailer.
• Retailing its own products can be used as leverage in negotiations with other retail partners as
Apple is less dependent on them.
• Apple gains access to consumer data.

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Disadvantages of Apple owning its own stores:

• The company has limited direct retail experience. Apple will have to recruit and train staff for
the retail outlets. Apple’s expertise is in innovating products and manufacture, not retail.
• Companies selling Apple products will face direct competition from Apple stores. The article
refers to the danger of Apple coming into conflict with retail partners such as CompUSA.
• The cost of acquiring suitable retail outlets and refurbishing them to Apple’s design standards.
The store will have to look innovative to match the image of the business.
• High fixed costs of running the stores.
An overall conclusion/judgement is needed as evaluation, based on learners’ balancing of the
arguments given. For example, is it more important to offer technical experts giving pre- and after-
sales service face-to-face or is it better to sell Apple products at lower prices?

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Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 21
Business in context
Learners’ discussion might include:
Why is it important for businesses to develop new products?
• To gain a competitive edge to be able to compete with competitors.
• To replace products nearing the end of their life cycle.
• To increase sales and meet customer needs.
• To enter new markets.
The importance of protecting a new development with a patent:
• R&D is expensive, so a patent gives protection from other firms copying the idea. If copied, the
business loses its competitive advantage.
• It enables the business to recoup the cost of investment. Demand will be more price inelastic if a
product has a USP.

Activities
Activity 21.1
1 Percentage change in quantity = (200 − 300) ÷ 300 × 100 = −33.3%
Percentage change in price = (5 − 4) ÷ 4 × 100 = 25%
PED = percentage change in quantity ÷ percentage change in price = −33.3 ÷ 25 = −1.33
2 Product B is price elastic in demand for the price change of $4 to $5. Demand is responsive to a change
in price. The change in price leads to a more than proportionate reduction in demand. Revenue will fall
as a consequence of the price change. Revenue falls from $1 200 to $1 000 per week.

Activity 21.2
1 Learners’ answers might include:
• Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
PED = percentage change in quantity ÷ percentage change in price.
• The demand for Product A is price elastic. Demand is sensitive to a change in price.
• The demand for Product B is price inelastic. Demand is not sensitive to a change in price.
• The demand for Product C has unit price elasticity. A change in price causes a proportionate
change in quantity demanded.

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2 Demand for Product A will fall by 30%. Sales revenue will fall.
Demand for Product B will fall by 5%. Sales revenue will increase.
Demand for Product C will fall by 10%. Sales revenue will not change.

Activity 21.3
1 Percentage change in quantity = 0.15m ÷ 1.5m × 100 = 10%
Percentage change in price = (1.20 − 1.50) ÷ 1.50 × 100 = −20%
PED = percentage change in quantity ÷ percentage change in price = 10 ÷ −20 = −0.5
Demand is price inelastic and is not responsive to a change in price. The price decrease leads to a less
than proportionate change in demand.
2 Revenue = price × quantity
Revenue before the price decrease = 1.5m × 1.50 = $2.25m
Revenue after the price decrease = 1.65m × 1.2 = $1.98m
Revenue fell by $270 000 as a result of the price decrease. This is because demand is price inelastic and
the price decrease led to a less than proportionate increase in demand.
3 Learners’ answers might include:
• Competitor newspapers may have reduced their prices in response to the price cut at the Daily Times.
• The price cut may have attracted new readers to try the Daily Times but these customers may have
found that the paper did not meet their requirements. After a few weeks, the new customers would
start to purchase their original daily newspaper once again.
4 Learners’ answers might include:
• As demand appears to be price inelastic, it would be unwise to cut price further. A further price
cut would lead to a further reduction in revenue.
• It could start a price war with competitors. This would be damaging to the revenue of the Daily
Times. The financial strength of the Daily Times in relation to competitors will determine whether
or not it can destroy competitor titles through aggressive pricing policies.
• The Daily Times should conduct market research to identify customer needs. The content of
the newspaper may need to change to reflect the needs of readers. This response will be more
time-consuming to implement.
• The Daily Times may be in the decline phase of its product life cycle. There may be a need for
suitable extension strategies, e.g. a redesign of the newspaper to revitalise its image. This may be
expensive and any redesign should be supported by appropriate market research.
• Promotional activity could be used to boost sales, e.g. competitions may be run. These may have a
beneficial short-term impact but are they likely to stop the long-term decline in sales?
Evaluation might consider the cost of different strategies and the immediacy of their impact on sales.

Activity 21.4
1 Promotional spending elasticity of demand = percentage change in quantity ÷ percentage change
in price
Technical toys = 12 ÷ 10 = 1.2
Games and puzzles = 6 ÷ 10 = 0.6
2 Forecast economic growth of 6% could result in an increase in household income. If incomes rise,
that should benefit sales of technical toys more than games and puzzles, as demand for technical toys
is more income elastic. A 6% increase in income would increase sales of technical toys by 7.2%, other
things being equal.

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Technical toys also have a higher promotional spending elasticity of demand; demand is more
responsive to a change in promotional spending for technical toys than for games and puzzles.
Therefore, if the marketing manager wants to increase revenue, it would be better to focus the
promotional budget on technical toys. However, the marketing manager should also consider the
relative size of each market. For example, if the sales of games and puzzles are much higher than
technical toys, a small percentage increase in sales of games may be much greater in dollar terms
than a larger percentage increase in sales of technical toys.
Evaluation could include a recognition that the objectives of the business will also be important in
determining the allocation of promotional spending. In addition, sales performance must be measured
regularly to recalculate elasticity results, which can change with changes in external factors.

Activity 21.5
Learners’ own answers.

Activity 21.6
1 Learners’ answers might include:
• Economic problems undermined demand within this segment of the drinks market. Consumers
will have traded down from the more expensive smoothies to regular juice drinks.
• It is a very competitive market with well-established brands such as Innocent. It was therefore
difficult for Nestlé’s new product to build sufficient sales.
• Nestlé is a large corporation and this might make its researchers more distant from the market.
Innocent is a much smaller organisation and therefore closer to its customers and consumers.
• Packaging was not appropriate. The lack of trial-sized bottles could have deterred consumers from
trying the drink.
2 Learners’ answers might include:
• New product development can give a competitive advantage. There are many examples of
successful and profitable developments, e.g. instant coffee.
• It may differentiate products from those of competitors and therefore gain greater control
over pricing.
• New ideas can add value.
• Food preferences change over time. Firms need to develop new products to satisfy consumer desire
for trying new foods.
• Existing products may be in the saturation phase of the product life cycle. Nestlé must maintain
a balanced product portfolio so that as old products enter decline there are new products in the
growth phase.
3 Learners’ answers might include:
• Market research to ensure that products being developed will meet customer expectations.
Products are more likely to succeed if they coincide with consumer trends, e.g. natural, healthy
products that consumers are demanding. Nestlé is aiming to improve its innovation by using small
innovation units that have greater independence from the central organisation. This gives the units
greater freedom over what they innovate.
• Test marketing to evaluate the product before a national launch. This gives an opportunity to
assess customer reaction to the product and make suitable changes.
• Appropriate marketing mix including price and promotion. New products may need support from
extensive promotion to raise customer awareness. A sufficient marketing budget will be needed.
• Evaluation could include a discussion of the nature of the market the business operates in. The
faster this market is changing and the more competitors there are, the more likely new products
will not succeed in meeting sales targets.

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Activity 21.7
1 Learners’ answers might include:
• The government has directly contributed $15m toward the $200m cost of the R&D. This is 7.5%
of the total cost. It is a subsidy and significantly reduces the cost of the research to Airbus.
• The government provides legal security to Airbus through the patent system. This will protect
Airbus’s investment as it will prevent other firms copying the design.
2 Learners’ answers might include:
• To protect engineering and scientific jobs in Wales (an area of relative deprivation in the UK).
Without the subsidy, Airbus may not undertake as much research.
• Protecting engineering and scientific jobs will ensure that the UK remains at the forefront of
technological change.
• To improve the competitiveness of Airbus in the airline market. The R&D will help win contracts
to supply aircraft to airlines around the world. This will generate export earnings for the UK and
help protect the jobs of production workers at Airbus factories in the UK.
• The development of new materials may benefit other industries. Although new materials will be
patented, other firms will be able to pay royalties to Airbus for their use.
• The aircraft industry may be viewed as a strategic industry within the UK and of national importance.
3 Successful R&D will create innovative products that give businesses a competitive edge. For example, the
lighter wings developed by Airbus will make aircraft more fuel efficient and therefore more attractive to
airlines. This will increase demand for Airbus aircraft. Increased sales should increase profit.
Innovation may also reduce the costs of manufacture. Therefore, prices can be reduced and more sales made.
Evaluation could include a discussion that, although research can produce innovative and profitable
new products, this is not guaranteed. Reasons why research might not result in the anticipated benefits:
• The improvements made to a product may not be sufficient to give it a decisive competitive edge.
• The cost of the development may be too large and therefore the product is not able to recoup the cost.
• R&D often takes years. In dynamic consumer markets, consumer tastes or the economic
environment may change, making the product redundant. By the time Airbus has developed the
new aircraft, there may be no market for it.
• There may be no market for the product developed. If there is poor market research before
undertaking research, the end product is less likely to succeed.
• There is no guarantee that R&D will even lead to the development of a working product.
• Other firms are undertaking R&D at the same time and may find solutions first.

Activity 21.8
1 Sales follow a quarterly pattern. Using moving totals made up of four and eight results enables a
centred quarterly moving average to be calculated.

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