CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Activity 16.4
1 Company A: 2 days per worker or 0.95%; Company B: 3.1 days per worker or 1.5%; Company C: 1.5
days per worker or 0.7%.
2 Assuming that workers have the same rate of pay per day then, as labour productivity increases, the
labour cost per unit will decrease.
3 Learners’ answers might include:
• Quantity of capital equipment per worker that is available. If workers at Company C have more
machinery to help manufacture, investment in capital will raise labour productivity. Machinery at
companies A and B may be less reliable, causing disruption to production.
• Quality of capital equipment. Company C may have more up-to-date technology for workers to use.
• Motivation of workers. Working conditions may be better at Company C, which will aid productivity.
• Style of management. Company C may use a more democratic approach to managing workers. This
could enhance productivity. Other HRM issues could be influential, such as the use of quality circles.
• Production at Company A may have been disrupted by industrial unrest or other factors such as
unreliable suppliers.
4 A higher rate of absenteeism makes scheduling the production of tablet computers more difficult
and will result in production hold-ups if critical workers are absent. This could cause disruption to
customer orders and a loss of sales. It increases workload and stress on other workers, which could
lead to higher labour turnover and therefore an increase in recruitment costs.
Activity 16.5
1 2 years ago: 5 ÷ 200 × 100 = 2.5%; 1 year ago: 7 ÷ 230 × 100 = 3%; this year: 15 ÷ 275 × 100 = 5.5%
2 There is an upward trend in absenteeism rates.
• The increasing number of employees may lead to increased labour dissatisfaction, as employees feel
less important within the business. Employees may feel more alienated in the larger organisation.
• Recruitment may be ineffective, resulting in unsuitable workers being employed.
3 Learners’ answers might include:
• Increased levels of absenteeism will undermine quality and lead to a decrease in customer
service. This may link to the increasing proportion of customer complaints. As it is a competitive
industry, OA may lose customers and revenue could decrease. This could lead to a long-term fall in
passenger numbers and a loss of market share to competitors.
• Falling productivity this year. This means that cabin crew are selling fewer meals and gifts on each
flight. Therefore, OA’s revenue will fall and profits decline.
4 Profit sharing. This provides a reward for success and acts as an incentive to team effort. This may have
a long-term benefit to OA and be of particular use in giving employees a greater stake in the success of
the business. As such, it would help reduce labour turnover and give an incentive to improve productivity.
However, individual employees may not contribute effectively to the team, as all workers receive a share
of the profit. Shareholders may not be happy about profit sharing as it could reduce dividends.
Full-time permanent contracts. Fulfilling the security needs of cabin crew could increase motivation.
Cabin crew would feel more valued and a part of the organisation, leading to less absenteeism and
lower labour turnover. This could positively impact customer service and increase sales of meals and
gifts. However, OA would be less flexible and have higher fixed costs. As customers are sensitive to
small differences in airfares, any increase in prices would cause a more than proportionate decrease in
tickets sold and therefore reduce revenue.
Evaluation might comment on:
• The cost of the option to the business and impact on other stakeholders such as shareholders. As a
low-cost airline, it is essential to control costs. Failure to do so will result in higher prices being charged.
• HRM may need to consider the underlying nature of the problem, e.g. whether work is boring or
wages are too low (i.e. an absence of hygiene factors).
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Activity 16.6
Learners’ own answers.
Exam-style questions
Decision-making questions
1 Change of HRM strategy
1 Management by objectives (MBO) is a feature of job enrichment, involving employees in setting
objectives. This removes the previous problem of FV failing to communicate targets. MBO
empowers workers. Individual targets are agreed, giving employees ownership of the targets, which
are therefore more likely to be achieved. MBO enables employees to see the importance of what
they do in the organisation. Individual objectives can be linked back to corporate aims and show
how the individual has a role in achieving organisational goals. Targets can be monitored and used
as a measure of success or failure.
2 Benefits of IT:
• It reduces costs as there is no need for supervisors and time-consuming interviews are replaced.
• It enables customer service employees to access information through the chatbot, which could
improve customer service.
• AI can be effective at evaluating job applicants and removes human bias.
Disadvantages of IT:
• Impersonal method used to conduct appraisals and monitor performance. This might alienate
employees and reduce their commitment to the organisation.
• Employees may be suspicious of the technology and see it as just being a means to monitor
their work more carefully. This will demotivate workers, reducing the quality of customer
service.
• The initial cost of implementing the program might be high due to the cost of the software.
Evaluation might focus on the financial cost of introducing the system versus the long-term
cost savings. As the technology is evolving, it might be better to wait until it is more established
and reliable.
2 Human resources crisis in the Theatre Lighting (TL) factory
1 a Last year = 1 400 ÷ 250 = 5.6; this year = 1 100 ÷ 220 = 5
b Profit sharing. This provides a reward for success and acts as an incentive to team effort. It
gives employees a greater stake in the success of the business. It could give an incentive to
improve productivity. However, individual employees may not contribute effectively to the
team as all workers receive a share of the profit.
Increase worker participation. This would make use of worker expertise and empower workers.
However, democratic leadership could result in more discussion and increase time taken, and
Bernardo is opposed to this approach.
2 a Last year = 50 ÷ 250 × 100 = 20%; this year = 76 ÷ 220 = 35%
b More permanent employment contracts. There is evidence that absenteeism is a problem with
part-time workers. Permanent contracts could make it easier to attract skilled employees.
However, this would reduce flexibility and increase costs.
Increase pay and fringe benefits. Although wages are competitive, they may be insufficient to
ensure employee loyalty. An increase in pay would increase costs, but this should be balanced
against the benefits of improved customer service.
3 A softer HRM strategy might focus less on reducing costs and more on retaining workers and
motivating them. This could include greater use of full-time rather than part-time contracts,
increasing pay and fringe benefits for workers, and increasing worker participation.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Arguments for:
• Better retention of workers would reduce labour turnover and decrease recruitment and
training costs.
• Worker participation in decisions could lead to improvements in productivity and therefore
decrease costs and improve the quality of work. Therefore, there would be a reduction in
customer complaints.
• More satisfied customers would increase customer loyalty and enable higher prices to be
charged. Therefore, profit margins might increase.
Arguments against:
• Cost of setting up and employing HR staff.
• Increased cost of higher pay and fringe benefits. Therefore, TL would have to increase prices
or accept a lower profit margin.
• More full-time contracts will increase fixed costs and reduce TL’s flexibility.
Evaluation: this should involve weighing up costs versus benefits. For example, the increased costs
of the suggested strategy may be outweighed by the benefits to TL of more satisfied customers. If
customers are dissatisfied, TL will eventually lose its customers and therefore its profit. Overall,
the HRM strategy depends on whether Bernardo is willing to allow workers to have some say in
decision-making.
5 Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
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.
Unit 2
End-of-unit questions
Soda Cool
Decision-making questions
1 Workforce planning identifies the skills and numbers of employees required to meet the objectives of
the business.
As Soda Cool (SC) has not operated in Country X previously, a workforce plan is necessary to ensure
that it recruits the right number of employees with the right skills. SC needs to recruit employees with the
computing skills to manage the computer programs that operate the automated machinery. A sales team
is needed with the language skills to market the product in Country X. Workforce planning will enable
SC to recruit the right employees. Therefore, operations and marketing are more likely to be effective.
Secondly, by using workforce planning, SC can ensure that it has the right number of employees to
meet objectives. This will help control costs by not over-recruiting and therefore make SC more price
competitive in the market.
2 A flatter organisational structure will facilitate Leo’s objectives of more localised decision-making,
delegation, increased teamwork and fewer levels of hierarchy.
Benefits:
• Delegation gives greater responsibility to employees and can improve motivation, leading to an
increase in productivity. This could reduce the labour turnover and absenteeism problems faced
by SC.
• Fewer levels of hierarchy reduces costs as middle managers are removed. Fixed costs will be lower.
It can also improve vertical communication as there are fewer levels for messages to pass through.
• Localised decision-making can result in more effective decision-making as the decision-makers are
closer to the market. This can make SC more responsive to market changes. This is important because
Country X is a new market for operations and head office may not be aware of national differences.
• Central control over expansion strategies ensures that the strategic direction of the business remains
under the control of Leo and other directors. They may be best placed to make decisions about the
strategic growth of the whole business. Central control of finances keeps a check on costs.
Disadvantages:
• There is a risk that localised decision-making and delegation will result in inconsistency in the
brand image of SC. This could damage sales.
• Training costs may be incurred to ensure that lower levels of management have the necessary skills
for their increased responsibilities.
• There is a risk of resistance from managers over the loss of jobs.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Evaluation: as SC is expanding operations to Country X, it is beneficial to encourage localised
decision-making as market conditions in Country X are likely to be different. SC will be more
responsive to changing local conditions and therefore more effective in meeting consumer demands.
Business strategy question
1 Competitiveness depends on a number of factors, including relative costs of production and the
quality of output. This is a competitive market so it was essential for SC to reduce its average cost of
production to improve competitiveness.
Benefits of using HRM to achieve the goal:
• Hard HR strategy has enabled SC to reduce costs by 20%. This should mean that average costs are
closer to those of competitors.
• Employee productivity is now only 12% less, not 20% less, than the main competitor.
• Zero-hours contracts increase production flexibility and reduce the costs of production.
Therefore, SC should be more responsive to changing customer demands.
• Zero-hours contracts will reduce the fixed costs of SC.
Disadvantages of approach:
• Higher labour turnover increases costs and could cause disruption to operations due to employee
shortages. However, it is evident that the cost savings from new contracts outweigh the extra
recruitment costs.
• Strike action has increased. This could disrupt the ability to meet orders and lead to customer
dissatisfaction.
• Higher labour turnover could lead to reduction in quality as there are more inexperienced workers
on the production line. However, the impact depends on how skilled the work is.
• There could be negative publicity generated by strike activity and SC could be accused of limited
consideration of its social responsibilities.
Evaluation: using HRM has achieved the key objective of reducing average costs. Price may be very
important to consumers, so controlling costs is essential. There are other approaches that SC could
have used to achieve the same goals, such as increased automation.
2 Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
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 17
Business in context
Learners’ discussion might include:
• To focus the attention of managers and give targets to achieve, which can be used to motivate
employees. Sales objectives will determine the resources required, e.g. the finance department can
construct cash flow forecasts, human resources can develop a workforce plan and operations can plan
for production levels required. Objectives provide a means of measuring success.
• Localised menus meet different cultural expectations (e.g. halal and kosher); different tastes between
countries will affect sales.
• Globalised menus ensure consistency between restaurants; customers know what to expect in every
restaurant; the benefits of bulk buying may reduce unit costs.
Activities
Activity 17.1
1 If coffee crops fail then there will be a reduction in supply.
2 More consumers will be able to afford Rolls-Royce cars, causing an increase in demand.
3 This is an increase in costs for the shipbuilders, so fewer ships will be supplied at any given price
(i.e. a reduction in supply).
4 Games consoles will see an increase in demand because the price of games has fallen. These two goods
are often bought together as they are used together.
Activity 17.2
1 Supply factors:
• Weather: flooding in Bangladesh and Indonesia, cold weather in Vietnam.
• Town development.
• The price of alternative foods rising will cause producers to switch from rice production to
alternative foods.
Demand factors:
• Rise in consumer incomes.
• Increasing population is hinted at though not stated. As a necessity, the demand for rice will
increase as the population increases.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
2 The initial equilibrium price is P and the quantity is
Q. The reduction in supply is shown by a leftward S1
S
movement of the supply curve S. The increase in
demand is shown by a rightward movement of the P1
demand curve to D1. The new market equilibrium is
Price
P1, Q1.
P
Activity 17.3 D1
1 Being product-orientated means product development D
is focused on the strengths of the business rather than 0 Q Q1
responding to consumer needs. The belief is that high-
Quantity
quality, innovative products will attract customers.
However, product orientation may be the reason why sales have fallen for each of the last three years.
2 Benefits: there is a growing market of younger workers with higher incomes who are prepared to spend
more on fashionable goods. The Classic Ladies wristwatch has been virtually unchanged for 120 years
and does not appeal to this increasingly important market segment.
Disadvantages: greater customer orientation risks losing its established market, which provides a core
to sales revenue. That market has built up over time and fashion will change again.
Evaluation: benefits outweigh disadvantages, due to the growing target market. However, substantial
market share might be lost, therefore the business should focus on established and new markets.
Activity 17.4
1 Sales value is average price × quantity
Sales value 2020 = 54 000 × 3 = $162 000
Sales volume increased by 5% in 2021 = 54 000 × 1.05 = $56 700
Selling price has increased by 10% and is therefore 3 × 1.10 = $3.30
Therefore, the sales value is 56 700 × 3.3 = $187 110
The increase in sales value = 187 110 – 162 000 = 25 110
The percentage increase in sales value = 25 110 ÷ 162 000 × 100 = 15.5%
2 Sales volume = sales value ÷ price
Sales volume in market B in 2021 = 180 000 ÷ 12 = 15 000
The increase in the sales volume = 15 000 − 10 000 = 5 000
The percentage increase in the sales volume = 5 000 ÷ 10 000 × 100 = 50%
Activity 17.5
1 Tesco Lotus has a 10% share of total market sales of $55 billion. Therefore, its sales are:
0.10 × 55 billion = $5.5 billion.
2 Market share = sales ÷ total market sales × 100
Tesco Lotus sales would increase to $7.5 billion out of a total market of $65 billion. Therefore, its
market share would be: 7.5 ÷ 65 × 100 = 11.54%.
3 Learners’ answers might include:
• Brand recognition. Consumers will be more familiar with the Tesco Lotus brand and may
therefore be more likely to use the store. This may give Tesco Lotus more control over pricing
decisions. Customers will continue to shop at Tesco Lotus even if prices are not as low as other
supermarkets due to greater brand loyalty. As market leader, the brand is more likely to be trusted.
• Buying power. Tesco Lotus will be able to exert pressure over suppliers to reduce prices because of the
volume of their purchasing. Tesco Lotus will be able to push the price of supplies downward and can
therefore be more price competitive in the market or enjoy higher profit margins. This is demonstrated
in the case material as Tesco was able to sell school uniforms at some 20% lower than traditional shops.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
4 Learners’ own answers that might consider how different the market for food is in your country from
other countries that the learner might be aware of. Issues such as culture, ethnic diversity, average
income levels, regional difference could all have an impact on the need for a supermarket business to
revise its marketing mix.
Activity 17.6
1 Learners’ answers might include:
• Selling bicycles in the ultra-premium cycle segment will take the TI brand upmarket and have a
beneficial impact on the image of the company’s other products. Therefore, although it may be a
niche market with only a very limited sales potential, it will lead to an increase in sales of its
lower-priced bicycles.
• There is the prestige conferred on the TI brand of selling premium products.
• Product development for the premium market may, over time, lead to improvements in the
company’s lower-priced products as technological innovation is transferred.
• Niche markets may be highly profitable due to the high margins that can be achieved.
• There may be opportunities for gaining scale economies by targeting several market segments, as
there will be shared components between products.
2 Learners’ own answers that could consider issues such as the competitiveness of the bicycle market;
average incomes; the popularity of cycling amongst different income groups; the size and diversity of
the target population who are most likely to buy bicycles.
Activity 17.7
1 Without research, it would not be possible to accurately identify relevant ways of segmenting the
market. Having identified market segments, research is necessary to understand the needs of the
consumers that make up the segment. Research will identify exactly what is wanted from the product
and the promotional strategies that will appeal to the target segment. Therefore, firms can alter the
marketing focus according to the particular segment.
In the case study, market research has supported market segmentation by:
• Identifying six distinct groups of travellers to Hong Kong.
• Demonstrating how to encourage each market segment to make repeat visits to Hong Kong.
• Providing a focus for marketing activity, e.g. ‘bring a friend’ promotions for young, single
leisure travellers.
• Identifying the size of each segment, e.g. mature repeat travellers were just 4.5% of the total
sample. Tourist firms can thus identify which segments to focus on. In this case study, research can
help identify whether mature repeat travellers are a segment worth marketing to.
2 Learners’ answers might include:
• By income: business travellers with income above $50 000 or below $50 000 (i.e. different income
groups) will demand different types of holidays.
• By lifestyle: according to what benefit visitors seek from travelling to Hong Kong. This has enabled
researchers to identify, for example, that high-income business travellers will be more attracted by
promotion based on the range of leisure and shopping facilities available.
• Age: young (under 55) or older visitors to Hong Kong.
• Ethnicity: travellers visiting family in Hong Kong.
3 Benefits:
• The travel company can define its target market precisely.
• It can tailor the marketing mix to meet the needs of different segments. This means adapting
price, promotion, product and place for each segment. Increased sales will result from a mix that is
aimed at specific groups of consumers.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
• A more effective marketing mix can be employed to attract customers from the different segments.
Marketing expenditure will therefore be more cost-effective. In the case study, several examples can
be referred to:
• Promotion for high-income business travellers to focus on leisure and shopping facilities.
• Young single travellers might be attracted by ‘bring a friend’ promotions.
• A small travel company would be able to specialise in one or two market segments. Thus, a firm
may decide to focus on mature repeat travellers as this is a relatively small market and will thus be
of less interest to bigger travel companies.
• Price discrimination can be used to increase revenue and profits. For example, it may be possible to
charge a higher price to business travellers than to leisure travellers.
Limitations:
• There will be high promotional costs associated with trying to appeal to different segments as
there will be a need for differentiated advertising and promotions. This means the travel firm will
miss out on marketing economies of scale.
• If a travel firm focuses on a particular segment, such as business travel, there could be problems if
changes in the external environment cause people in that segment to change their spending patterns.
For example, a recession might lead to a significant decline in business travel to Hong Kong.
• The segments are quite broad, e.g. travellers under 55. The benefit of segmentation will depend
significantly on the extent to which members of a segment have similar consumption patterns
and behaviour.
Evaluation will require comment on which are the most important benefits and whether the benefits
outweigh the limitations. In this case study, the size of the travel firm may be significant, e.g. a small
firm may particularly benefit from identifying niche segments from the research.
Activity 17.8
Learners’ own answers.
Exam-style questions
Short answer questions
1 Marketing is the management process responsible for identifying, anticipating and satisfying
consumers’ requirements profitably.
2 Customer orientation is based on market research, e.g. fashion tastes dictated by consumers. In
contrast, product orientation is based on the strengths of a firm’s own products, e.g. R&D leads to
quality designs.
3 Products are adapted to the needs of the consumers and this increases the chance that the products will
sell well and make a profit for the business, especially if they become market leaders.
4 Learners’ answers will vary, e.g. increased reputation as the largest firm in the market can be used in
promotion, e.g. as the nation’s favourite brand.
5 Learners’ answers might include one of: changes in taste; technological change which makes
completely new products available; decline in consumer incomes.
6 The product does not meet the needs of the market due to poor product development, especially if
competitors encourage consumers to substitute products that do suit their needs more appropriately.
7 It can target a larger market and so increase sales, which can result in scale economies, reducing costs
per unit as a larger marketing budget is spread over more consumers.
8 Segmentation requires identifying subgroups of a market in which consumers have similar
characteristics. Learners’ answers will vary, e.g. a market can be segmented by age, where different age
groups will have different patterns of consumption; or gender, as consumers will demand different
clothing styles or cosmetic products, for example.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
9 Selling to industrial markets is business to business (B2B) whereas selling to consumer markets is
business to consumer (B2C). Learners’ answers will vary and should consider one of:
• Technical knowledge of the buyer is likely to be higher in B2B.
• Impulse buying is more likely in consumer markets.
• Consumers either buy or don’t buy from listed prices. On the other hand, industrial products often
require a quotation with elaborate specifications to define the product.
10 The objective of customer relationship marketing (CRM) is to retain customers as it is relatively
expensive to attract new customers rather than retain existing ones. So using CRM initiatives such
as loyalty cards can lead to increased sales with lower costs than trying to attract new customers
with advertisements.
11 Learners’ answers will vary, e.g. increase sales by 5% in the Indian market within 12 months.
12 Learners’ answers will vary, e.g. use market research to establish consumer preferences; develop a
product or adapt an existing drink that meets these preferences; use an integrated marketing mix that
best fits the target Indian market segment.
13 Learners’ answers will vary, e.g. by age, targeting younger drivers who cannot afford larger cars.
14 It could target different market segments and therefore increase overall sales volume, leading to
increased revenue and higher profits.
15 Market share is a business’s sales divided by (/) total market sales, e.g. if business sales are 10 000
units, market size is 100 000 units, market share is 10%. Market size is the number of units sold in the
market as a whole, e.g. 100 000 by volume – or by sales revenue: 100 000 cars × average selling price of
$15 000 = $1 500 000 000.
16 Learners’ answers will vary but might consider one of the following: not linking with finance might
result in not having a large enough marketing budget; not linking with HRM might result in not
having the skills required for online activities; not linking with operations management might result in
not having the required technology to deliver online sales.
17 Increase effectiveness of advertising, promoting awareness, encouraging repeat sales and customer
loyalty, attracting new customers, focusing on promoting the benefits this brand offers over its
main competitors.
18 Learners’ answers will vary but might include one of the following: use a loyalty card so repeat
customers receive a reward for shopping, which means they are less likely to buy from competitors;
offer a guaranteed returns policy so that if customers are dissatisfied they can get their money back for
any purchase, which is particularly important with online purchases.
19 Learners’ answers will vary, e.g. the product might not be large enough or strong enough for
commercial uses and it may need to be adapted to be more robust and for preparing food in larger
quantities; advertising may focus on industry magazines and greater use might be made of personal
selling to reflect the differing needs of the business customer compared to the consumer.
Essay questions
1 a
Marketing objectives provide a focus for the business and are likely to be based on market research
that can be used to inform the marketing strategy, allowing the firm to develop a marketing plan.
The success or failure of a marketing strategy can be measured against the original objective, e.g.
did sales meet the objective to increase by 10% in two years?
b The answer must contrast the benefits of a production-orientated approach relative to a market-
orientated one.
Arguments against the statement might include:
• Marketing is usefully defined as the management process of identifying, anticipating and
meeting customer needs profitably. A product-orientated approach avoids this management
process as it does not place the consumer at the centre of business activity. The focus is the
product – marketing is used as a means of trying to sell the product that has been developed.
• Market research will reduce the risk of new products failing.
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