| Date | May 2022 | Marks available | 4 | Reference code | 22M.2.SL.TZ0.4 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 4 | Adapted from | N/A |
Question
Red Squirrel Apple Juice (RS)
Red Squirrel Apple Juice (RS) is a cooperative of apple farmers. RS was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels’ habitats. RS’s founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, RS aimed to appeal to environmentally aware and health-conscious consumers.
Originally, RS only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. RS requires these companies to place RS’s logo of a red squirrel on their labels. Although RS only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.
Awareness of the RS brand grew. The cooperative’s managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative’s processing plant. RS charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. RS experienced increased labour and promotion costs, which some farmers complained about.
In recent decades, RS’s home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use RS’s logo on their labels.
Some of RS’s stakeholders are concerned.
State two features of a cooperative.
With reference to RS, explain the importance of branding.
With reference to RS, explain the difference between capital expenditure and revenue expenditure.
Markscheme
The main features of a cooperative include:
- An aim is to serve the members of the cooperative/members with a common interest.
- A cooperative is a type of corporation.
- A cooperative has a board of directors or trustees.
- Members of the cooperative have limited liability.
- Cooperatives have democratic or democratically spirited management.
- Legal existence is separate from the members themselves.
- Membership is usually open.
- Surpluses/profit are distributed except when needed for finance.
- The organization will not end if a member dies or withdraws.
- All owners have equal voting rights.
Accept any other relevant feature.
Award [1] for each relevant feature identified up to [2].
Branding is a way for a company to distinguish itself from other organizations. Ideally, it succinctly delivers a message about your product, as RS hoped with the symbol of the red squirrel would symbolize environmental friendliness by reminding consumers of the dangers of invasive species and would symbolize health consciousness, as RS was promoting traditional juice, which has less sugar (and preservatives) than American-style beverages. In this way, RS hoped to build credibility with consumers – any beverage with the RS symbol would be healthy and would remind consumers of the environment. With these features, RS hoped to build goodwill.
Brands, and their symbols, run the risk of taking on a life of their own. Sometimes a famous brand, like McDonald’s, enjoys decades of positive psychological associations but then, as culture and consumer trends change, the brand starts to generate negative associations. Such was partially the case with RS. Originally, the image of the red squirrel was at worst innocuous and at best heart-warming. As anti-immigrant groups co-opted the red squirrel for its own purposes, however, the cooperative faced risks of being associated with anti-immigrant sentiment. Some consumers may now be turned off by the brand as to them a red squirrel may symbolize a political position that they disagree with.
Award [1] if the candidate demonstrates some understanding of branding. Award up to [2] if the candidate demonstrates a clear understanding of the importance of branding but makes no meaningful reference to the stimulus.
Award up to [3] if the candidate demonstrates a clear understanding of the importance of branding and makes meaningful reference to the stimulus, but the explanation is one-sided. Award up to [4] if the candidate demonstrates a clear understanding of the importance of branding, makes meaningful reference to the stimulus, and points out both a benefit of branding and some risks inherent with it.
Maximum award: [4]
N.B. For application, just mentioning red squirrel is not enough. Candidates must link the response to the stimulus (for example, "appeal to environmentally aware and health-conscious consumers").
Capital expenditure is the purchase of assets whose life exceeds one year. Revenue expenditure is made up of expenses related to the trading cycle: purchasing raw material, processing, inventory, making payroll, etc. With respect to RS, capital expenditure refers to the bottling equipment needed to produce bottled apple juice to sell directly to consumers. RS experienced an increase in revenue expenditures when it started selling bottled apple juice, as it had increased labour costs (presumably to operate the bottling equipment) and increased costs for promotion.
Award [1] for a theoretical understanding of capital expenditure and an additional [1] for reference to the bottling equipment.
Award [1] for a theoretical understanding of revenue expenditure and an additional [1] for reference to increases in labour expenses or increased costs in promotion.
Mark as [2] + [2]. Maximum award: [4].
Examiners report
Most candidates earned at least 1 mark but far fewer earned 2 marks.
Many candidates earned 2 or 3 marks on this question.
If candidates knew the difference between capital and revenue expenditure, they usually got 3 or 4 marks (often they struggled with application of revenue expenditure to the stimulus). Many candidates, however, did not know the difference.
