Define the term secondary market research.

Explain one advantage and one disadvantage for MM of using sales forecasting.

Explain one cost and one benefit for MM of setting up an e-commerce website.

Using the Boston Consulting Group (BCG) matrix, discuss the two new tactics André is considering to ensure MM’s future success. 

Secondary market research or desk research refers to the collection of second hand data by a business for decision-making that is derived from second hand sources /published sources by a third party. It has not been collected first hand by the business themselves.

Award [1] for a basic definition that conveys partial knowledge and understanding.

Award [2] for a full definition that conveys knowledge and understanding similar to the answer above. For [2] there should be some indication that the organisation is actually carries out a research/ action.

Some students are likely to define secondary sources while the definition is about research.

No examples are needed

No application is required.

One advantage of using sales forecasting is that it will allow a firm such as MM to look at future sales forecasts of its product portfolio and make changes where necessary. This will save the business considerable expense, stocking costs and influence future cash flow needs. Forecasting allows MM to plan ahead and can also impact on human resource planning and finance needs if cash flow forecasts indicate that there may be a shortage. There is evidence form the case study that MM’s product portfolio revenue streams are changing. MM is experiencing changing sales of all of its stock so is planning by using forecasts, André can avoid over stocking and tying up valuable capital in unsold DVDs or CDs for example or can transfer more resources towards the fast selling computer games. Decision making at MM may be more accurate. To be forewarned is to be forearmed.

Disadvantages for MM are linked to the inevitable fact that sales forecasts are merely that – future predictions are based on past data, which, given the existence of external factors some of which are mentioned in the stimulus and unexpected events, cannot be fully accurate. There is evidence from the stimulus that André expects sales to be variable (possible cyclical or seasonal variations) and even with all relevant future economic and social data at his disposal, forecasts can still be widely inaccurate. For example, vinyl record sales are expected to rise but what if another musical format is created within the next five years? André also has considerable experience in this industry and is aware that sales are changing rapidly. Sales forecasts may be out of date by the time the data has been collected if they are every month or quarter. Sales forecasts in this context may be of little value to MM in such a fast changing industry.

Mark as 2 + 2.

[2] cannot be awarded per advantage / disadvantage if the response lacks either explanation and/or application.

For example:

• For an identification or a description of an advantage / disadvantage with or without application [1].
• For explanation of an advantage / disadvantage with no application [1].
• For explanation of an advantage / disadvantage and application [2].
  

Candidates are expected to show some understanding of sales forecasting methods.

The benefits to MM from setting up an e-commerce website will be linked to increasing customer awareness and sales.

• CD and especially vinyl sales should increase, as the e-commerce site may allow for targeting more potential customers in different regions who are interested in vinyl records and possibly CD. There is a greater chance of success as relying on customers for such a retro segment to visit the physical store is rather limited.
• More detailed product descriptions, customer feedback/reviews will be possible. The e-commerce website will deepen customer relationships, especially if MM can run a social media campaign alongside building brand and customer loyalty to the site.
• The e-commerce platform will also allow MM to generate much needed advertising revenue through increased loyalty in the future.

The costs are linked to the inevitable restructuring of the business that e-commerce will demand and could be considered to be both short term and long term.

• The e-commerce site will need to be built, managed and monitored by a new staff member. This will drain MM’s cash reserves at a time when total revenue is falling.
• Existing staff will require training or newly employed staff hired such as technology experts to run and update the e-commerce facility and possibly create social media support. Costs are likely to rise in the short term and again, MM is facing fall in revenue and finance is limited.

If the e-commerce site is to be fully functional then new distribution channels around delivery of vinyl records and newly released CDs that are both growing in sales to the customer will need to be identified, researched and set up. This will also take time and André will have to find additional resources. The stimulus indicates that finance is limited.

An e-commerce website will add a new layer of complexity to MM’s operations and logistics and MM has not got the right experience therefore more finance will have to be raised for training, hiring people and so on.

Please note:
Whatever relevant costs that a candidate explains or describe needs to be applied specifically to MM’s lack of finance / lack of experience.

Mark as 2 + 2.

Award [1] for identifying or describing the cost / benefit for MM of setting up e-commerce and a further [1] for a development with respect to MM. Award a maximum of [2].

[2] cannot be awarded per cost / benefit if the response lacks either explanation and/or application.

For example:

• For an identification or a description of a cost / benefit with or without application [1].
• For explanation of a cost / benefit with no application [1].
• For explanation of a cost / benefit and application [2].

Revenue is falling, computer games sales are rising and now André is considering the possibility of setting up an e-commerce business website. Although MM and André have been in the business for 25 years, external factors are changing the nature of his business model. The two tactics are to stop selling DVDs and start increasing below-the-line promotional spending on vinyl records.

By applying the BCG matrix, we could argue that:

• DVDs are a dog (low market share and growth)
• vinyl records are a problem child or question mark (low market share but potential growth).

Removing or divesting the dog will free up shelf space in the retail store. DVD sales could be transferred and sold via the e-commerce site so that MM is able to make some form of contribution. More space for games is now possible. However, removing a product line from the portfolio is a risk, as some of MM’s loyal customers will be unhappy.

Keeping DVDs – although a dog – may block potential new retail rivals if it creates MM’s USP. It is also indicated in the stimulus that computer games are not MM’s core business.

So perhaps it is worth keeping the core product for a little longer until MM is clear whether the new product is doing well. If e-commerce is to be used, MM can potentially use a market development strategy and find some segment in less technologically advanced economies that are still interested in DVDs.

Increasing spending on below-the-line promotion seems like an appropriate tactic. Although MM has not got sufficient internal sources of finance, the product is in a question mark position with a potential to grow and be profitable. Profit that MM needs. One, therefore, may judge this tactic as highly appropriate especially as below-the-line promotional tactics are cheaper than above-the-line promotional tactics. Moreover, external sources of finance can be used. André needs to use below-the-line promotion methods to move the vinyl records to a star and hopefully a cash cow position so in the medium term, he will be able to milk the potential cow. Short term spending versus medium to long term benefits/ profit seems like a good tactic.

It is expected that the candidates show a clear understanding/application of below the line methods rather than just promotion generally.

Moreover, below-the-line methods can be considerably cheaper than above the line methods of promotion which are currently very appropriate to MM. MM can use short-term sales promotion to encourage buying the product. Below-the-line promotion can complement the decision to use e-commerce. MM can generate viral marketing and or/ use social media for promotion.

Candidates should be credited for classification of the vinyl as a dog given the low growth of the market share and for suggesting to use below-the-line promotion to extend the life cycle or not to spend money on above-the-line promotion.

Judgment

The BCG provides some clues as to what André should consider but there are some difficult choices to be made. Removing DVDs will allow for a greater stock of vinyl but removing a product line and replacing it with a problem child is risky. It may be sensible in the short term to keep the DVDs, as they will still contribute to growth. Spending more on below-the-line promotion seems more sensible given his loyal customer base and the future potential. If André can’t keep both options and has to choose one tactic, perhaps the second tactic is more viable as there is more longer term potential as the market is growing and MM will more responsive to changes in the external environment.

Accept any other relevant issue.

Accept any other relevant discussion.

A conclusion with judgment is expected.

Accept any substantiated judgment.

A balanced response is one that covers at least two arguments for and at least two arguments against.
As there are two tactics to discuss, a balance response is one that covers one argument for and one argument against each option.

Marks should be allocated according to the HL Paper 2 markbands on page 3 with further guidance below.

For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

For a lack of balance for both option award up to a maximum of [4]

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.

Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.

If the candidate only considers one tactic then award [5] if the answer is balanced with a judgment.

If the candidate does not use the BCG matrix then award a maximum of [4] even if the response is fully balanced.