| Date | November 2020 | Marks available | 10 | Reference code | 20N.2.SL.TZ0.3 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Discuss | Question number | 3 | Adapted from | N/A |
Question
The Burnt Tomato (BTO)
In 2003, Ben opened a street-food stall selling vegan food. The food stall was successful. Ben spent little on marketing, mainly advertising on the food stall itself and relocating it to places or events where many consumers would pass by.
In 2008, Ben used the profits from the food stall to open a restaurant, The Burnt Tomato (BTO), which initially employed 16 people. In the following years, labour turnover was low. Employees received an annual bonus, which increased with each year of employment.
In 2015, Ben created a website and began to use social-media marketing. Customers were encouraged to rate their BTO experience online. Their reviews consistently rated BTO’s experienced staff highly and showed that they thought the food was exceptional value. Ben replied to all reviews. Many BTO customers also joined a BTO social media group and communicated with each other and BTO regularly. For many customers, the total BTO experience of vegan food and social networking was like being in a club.
Unfortunately, high labour costs, reasonable profits and the use of high-quality ingredients meant that BTO’s gross and net profit margins were below industry averages.
Aware of the growing demand for vegan food, Ben borrowed money from a family member in 2018 and opened two more BTOs in different cities, hiring 32 new employees. However, in January 2019, a long-time customer of the original BTO ate at one of the new restaurants and wrote a negative review. The review went viral and sales at all three BTOs declined.
State two appropriate sources of finance Ben may have used when he first opened his vegan food stall.
Explain one positive impact and one negative impact on BTO as a result of having low labour turnover.
Explain one advantage and one disadvantage for BTO as a result of its use of social media.
Discuss Ben’s decision to enlarge the scale of BTO from one restaurant to three restaurants.
Markscheme
Appropriate sources of finance include:
- Personal savings
- Loan from family or friends
- Small business grant
- Loan from a bank secured by some personal asset of value
- Crowd sourcing.
Accept any other appropriate sources of finance.
N.B. A bank loan without any other qualifying information is not appropriate, as few banks would make such a loan.
Award [1] for each appropriate source of finance stated up to [2].
Positive impacts of low labour turnover include:
- Lower recruitment, induction, and training costs.
- Better customer service (as employees are experienced and know the culture of the organization).
- Improve the motivation of the work force.
Negative impacts of low labour turnover:
- Lack of new ideas.
- Higher labour costs (because of the bonus scheme).
Accept any other relevant positive negative impact.
Mark as [2 + 2].
Award [1] for identification of a positive impact and an additional [1] for explanation and application to the stimulus.
Award [1] for identification of a negative impact and an additional [1] for explanation and application to the stimulus.
Maximum award: [4].
Advantages of using social media include:
- It is relatively low cost (compared to many other forms of promotion).
- Through social media, BTO was able to build a community, which reinforced customer loyalty.
Disadvantages of using social media include:
- As a platform, social media forums are relatively closed and do not reach out to people other than existing customers of BTO.
- Negative information about BTO has an immediate widespread diffusion among BTO’s previously loyal customer base.
- Competitors can post false information.
Award [1] for identification of an advantage and an additional [1] for explanation and application to the stimulus.
Award [1] for identification of a disadvantage and an additional [1] for explanation and application to the stimulus.
Mark as [2 + 2].
Refer to Paper 2 markbands for 2016 forward, available under the "Your tests" tab > supplemental materials.
Advantages of expansion include:
- Leveraging its brand and USP to reach a larger market.
- Potential economies of scale.
- Potentially increased revenue and profits.
Accept any other relevant advantage.
Disadvantages of expansion include:
- Loss of control, especially with respect to quality.
- Potential diseconomies of scale.
- BT loses its “small community feel.”
- Increased costs for recruitment, induction, and training.
- New employees may not have the same attention to quality as long-time employees.
Accept any other relevant disadvantage.
It is expected that candidates provide a conclusion with a substantiated judgment.
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 addresses only advantages of expansion, award a maximum of [4].
If a candidate addresses either two advantages of expansion and only one disadvantage, or only one advantage of expansion and two disadvantages, award a maximum of [5].
A balanced response is one that provides at least two advantages of expansion and two disadvantages of expansion. However, if the candidate does not provide substantiated judgments, maximum award of [6].
Examiners report
Many candidates could identify two appropriate sources of finance.
Many candidates knew what low labour turnover meant but a large number failed to apply that knowledge to the stimulus.
Most candidates earned at least partial marks on this question. One issue was failure to apply to the stimulus. Another issue was that candidates argued that one advantage of social media is that positive reviews spread easily and one disadvantage was that negative reviews spread quickly.
Often when candidates are asked a scale question, they struggled to apply their response to the stimulus. This lack of application was not a problem this session. Candidates rather effectively answered the question in the context of the stimulus.
