Define the term target market.

Explain two roles of A4A’s mission statement.

Explain one advantage and one disadvantage for A4A of using a predatory pricing strategy.

Using the Ansoff matrix, evaluate the two possible growth strategies for A4A.

A target market is defined as a group of consumers with similar needs and wants/characteristics (demographic) that a business decides to focus on in terms of its operations and/or marketing. A4A’s target market for its adventure parks has been families.

Candidates are not expected to word their definition exactly as above.

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

Award [2] for a full, clear definition that conveys knowledge and understanding similar to the answer above.

Award [0] if the candidate writes “target market is when an organization targets a particular part of a market”. Or a similar answer where the candidate repeats the question using the same terminology in the answer.

Do not credit an example.

A mission statement is a way of communicating to its stakeholders the current purpose of a business, what the organisation is for. It is clear from the mission statement that A4A exists to provide great adventures for teenagers and adults which are safe and affordable.

It can be used to guide current objectives. For A4A, the mission is to provide fun, safe and affordable adventures hence predatory pricing is being used.

A mission statement can provide a sense of purpose and direction and act as a motivational force for employees. It is stated that many of the managers are long serving ones who have been at A4A with Tama since its creation. Moreover, employees’ motivation is important for any provision of any service especially when teenagers are the recipient of the service.

The mission statement could also act as an incentive to encourage ethical external sources of finance by investors who are motivated by A4A’s objective (or mission) to provide adventures for all. A4A may be able to raise finance for the implementation of its chosen option particularly option 2 which has a capital spending requirement.

Accept any other relevant explanation.

Mark as a 2+2.

Award [1] for each role identified and an additional [1] for development with application to A4A. Award a maximum of [2] per role.

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

For example:
For an identification or a description of a role with or without application [1].
For explanation of role with no application [1].
For explanation of a role and application [2].

Predatory pricing (also undercutting. Some textbooks may refer to destroyer pricing which is illegal and anticompetitive) is a pricing method where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors.

Predatory pricing has the advantage for A4A as a competitive tool given that its target market is teenagers and adults who we assume would be price sensitive given that there are other competing forms of adventure activity entertainment. Therefore A4A is trying to get rid of the competitors by using this pricing strategy.

“Affordable” pricing is enshrined in its current mission statement and predatory pricing thus also deemed to be appropriate and ethical. A reference to competitors should be accepted as application as there is not much more info in the case about the competitors.

However for disadvantages:

• A4A has already started to experience a fall in profit. Predatory pricing can only be used in a short term especially now given the fall in revenue and profit A4A might start to experience a loss. Therefore this pricing strategy does not fit the changes in the external environment as stated in the stimulus that caused a fall in
  profit.
• Predatory pricing has been considered in some countries as illegal or anti-competitive (but there is no evidence from the stimulus that this has occurred for A4A).
• There could be “quality concerns” by some stakeholders that much lower than competitor prices may imply a poor quality service and safety concerns. This could be significant given that in the stimulus a new service aimed at special needs children and adults is to be introduced.
• If costs rise, then A4A could lose its competitive advantage if it is forced to change its pricing method to be more market based.
• The stimulus suggests that profits and revenues are falling. Predatory pricing limits the possibility of reducing prices further to fuel sales growth.

Accept any other relevant explanation.

Mark as a 2+2.

Award [1] for an appropriate advantage/disadvantage identified and an additional [1] for development of the explanation illustrating the appropriateness of predatory pricing with respect to A4A. Award a maximum of [2].

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

For example:
For an identification/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].

The two possible growth strategies are linked to two cells of the Ansoff matrix.

Catering for children and adults with disabilities and access requirements could be considered as market development as there is a new market to be catered for with an existing product (A4A’s current facilities).

The corporate team building market, which would require A4A creating a new product to cater for a new target market could be referred to as diversification.

The Ansoff matrix would highlight that the latter diversification option would be the riskiest given the lack of familiarity and experience in servicing the corporate senior leadership team market.

The first growth strategy is likely to be cheaper and quicker for A4A to organize. It is assumed that no modification will be required as opposed to the diversification strategy. There will possibly be additional health and safety concerns given that the market development strategy is focusing on children and adults with disabilities and
access requirements. A4A might have to adapt the facilities after all hence more costs than currently are expected. Moreover, additional training costs will be necessary but one may judge this extra cost as short term only and relatively minor. This option is classified as a medium-risk strategy on the Ansoff matrix, as A4A is not familiar with the market only but very familiar and experienced with the product. This risk can be reduced by training and accumulated experience hence this argument can be judged as of lower significance.

The mission of A4A need not be damaged and might even be improved. A4A will be able to dispose of its predatory pricing strategy, which is risky as there will be none or fewer competitors. One may argue that A4A cannot continue with its predatory pricing for long due to losses if sold below production costs or due to government
intervention. Still, a different higher pricing strategy might deter the clients.

However, staff training across all four centres will be an important consideration in both options but especially in this market development given that safety is part of A4A’s mission. Tama will need to ensure that he has clear guidelines in place to run this service for children and adults with disabilities and access requirements. As said above, this is likely to increase costs.

Profit growth may be small and there are issues of sustainability for the whole of A4A’s workforce if this market development strategy is not successful as highlighted by two of the senior managers.

The second growth strategy, diversification, is riskier, as A4A will not be familiar with the product/service and the market. The expected profitability of the second option will protect all 342 jobs across the 4 centres and therefore assumes greater significance than the market development option. Set up costs are likely to be higher given that A4A is moving into a higher valued/priced niche market, but higher prices and thus revenues should compensate. The new pricing method is likely to be more sustainable in the long run than predatory pricing that might end soon when A4A starts to make a loss or is sued by competitors/attracts government intervention. This new pricing method may confuse some potential customers given A4A’s mission and knowledge of A4A’s predatory pricing strategy. Still, organisations that pay for corporate team building activities are unlikely to expect predatory prices. Hence, this argument can be judged as rather insignificant.

The significant costs of building the centre should also not be overlooked. This can put enormous financial strain on A4A especially in the short term. However, given the pricing strategy above and the new positioning, A4A can become profitable in the medium to longer term.

The second option, diversification, also damages A4A’s mission statement, as some senior managers think so. Resentment is already growing and Tama can ill afford conflict at a difficult financial time especially as long serving managers with experience are the ones who seem to be the most concerned. Tama’s loyalty to his senior staff will be tested and he may have to make some managerial changes if this resentment grows and if the diversification option is selected.

It is expected that candidates provide a conclusion and a final judgment that is substantiated. For example: on balance, the second growth strategy is recommended despite the higher level of risk.

Accept any other relevant evaluation.

For the top markband, candidates must apply the Ansoff matrix correctly to their
discussion.

Do not penalize if the matrix is not drawn provided it is well explained/ used.

If the Ansoff strategic options are not used or not used correctly but the response
covers some relevant and balanced arguments for each option award up to [4] even
if evaluation is evident.

Marks should be allocated according to the paper 2 markbands for May 2016 forward.

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].

If a candidate evaluates / addresses only one growth strategy, award a maximum of [5].

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.