Describe one feature of a mission statement.

Explain two advantages of BM’s unique selling point/proposition (USP).

Explain one advantage and one disadvantage for BM of using a cost-plus (mark-up) pricing strategy.

Discuss whether BM should diversify into specialist cat food or introduce a new distribution channel for dog food.

Features include:

• It provides a sense of direction to the entire organization in terms of what to accomplish or pursue and which markets the organization will serve and how.
• It reflects the corporate philosophy, identity, character, and image of the organization which can be used to communicate with external stakeholders such as customers, pressure group etc.
• It could act as a motivator for employees by providing them with goals and a feeling of belonging to the organization.
• It defines the overall aims and objectives of an organization.

Accept any other relevant feature.

N.B. No application required. Do not credit examples.

Award [1] for a basic description of one feature that conveys partial knowledge and understanding.

Award [2] for a full description of one feature that conveys knowledge and understanding similar to the answer above.

A unique selling point/proposition (USP) is a feature that differentiates a product or an organization from its rival products and competitors. BM’s USP is based on the production of specialist food for unhealthy dogs.

Advantages include:

• BM sells a differentiated product; BM could benefit from more sales opportunities compared to other dog food brands that only sell generic food for dogs.
• BM could benefit from dominating a niche market.
• BM could use their USP for promotion. For example, BM already promote the brand through veterinarians that recommend BM food for their patients.
• BM can benefit from improved brand image and brand loyalty as they reach the market segment of unhealthy dogs that needs exactly what BM offers.
• BM may benefit from being able to charge higher prices for its product.

Accept any other relevant advantage.

Mark as [2] + [2].

Award [1] for each correct advantage identified or described and [1] for a relevant explanation with application to BM. Award up to a maximum of [2].

[2] cannot be awarded per advantage if the response lacks either explanation and/or application. For example: For an identification or description of an advantage with or without application, award [1]. For explanation of an advantage with no application, award [1].

For explanation of an advantage and application, award [2].

A cost-plus pricing is a strategy by which the selling price is calculated by adding a profit margin to the full cost of product.

Advantages to BM include:

• This strategy is especially helpful for BM as they do not have direct competitors in the market, and they can charge the mark-up to costs that they want.
• It is an easy pricing strategy for BM to apply, as they do not have to consider, customers preferences or do further market research.
• It’s a valid pricing strategy for BM, as pet owners would be prepared to pay a high price for such specialist pet food.
• It can cover the full cost of production. Given that raw material costs are rising, BM can ensure a profit is made and all costs are covered when a product is sold.

Disadvantages to BM include:

• BM’s costs of raw materials are increasing, a cost-plus pricing strategy could lead to a very high price that BM customers may not be willing to pay
• A cost-plus pricing strategy could be highly inefficient for BM, as it gives very little incentive to reduce costs.
• BM sales are stagnant which means that, probably due to the uncompetitive market, BM is not paying sufficient attention to customer needs.

Accept any other relevant advantage / disadvantage.

Mark as [2] + [2].

Award [1] for each correct advantage / disadvantage identified and [1] for a relevant explanation with application to BM. Award up to 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 or description of an advantage disadvantage / with or without application, award [1]. For explanation of an advantage /disadvantage with no application, award [1]. For explanation of an advantage / disadvantage and application, award [2].

Refer to Paper 2 markbands for 2016 forward, available under the "Your tests" tab > supplemental materials.

If BM diversifies into specialist food for cats, it will open up to a larger and growing new market. The demand for cats is increasing, BM could also take advantage of its brand image as customers already know BM’s high quality. BM’s excellent brand image is an asset that can be capitalized in the development of new specialist food for cats. Vets who already recommend BM’s dog food would presumably recommend BM’s specialist cat food.

In addition, BM has experience in developing new products. Even if the costs of building its own research facilities are high, BM could get the necessary finance by becoming a private limited company.

However, introducing a new product into an existing market (Product Development) is a risky move. However, BM has the know-how of producing and selling specialist dog food. If BM becomes a private limited company to get the necessary finance, ownership will be diluted. Dr. Jones and Dr. Morris could lose some control of their business as decisions will have to be shared. BM’s current focus on quality could be compromised if the new partners prioritize profit maximization. What is more, the finance raised through the private limited company may not be enough to fund BM’s research facilities and the warehouse that will need refurbishing to stock more products.

N.B. With reference to Ansoff, cat owners might be considered a different market to dog owners hence Market Development.

As an alternative BM could introduce a new channel of distribution for the specialist dog food. A two intermediary distribution channel is one that includes a wholesaler that buys the goods from the producer and sells to the retailers.

So far, BM dog food was only distributed through veterinarians and large pet shops and BM food was not available for customers in certain areas. A two intermediary distribution channel that includes a larger supermarket chain, a wholesaler and many small pet shops, will enable BM to reach a larger customer base. Now, potential customers in different areas will be able to buy BM. BM will still pay for transport costs to the delivery to veterinarians and large pet shops, but they will not have to add transport costs to distribute to other small retailers around the country as the wholesaler will pay for transport costs.

In addition, the wholesaler and the supermarket chain could store the food and help BM to reduce stocks. This could be very convenient for BM as it would not need to refurbish the warehouse.

However, a major disadvantage is that BM‘s selling price will be more expensive to final customers as a wholesaler is introduced. BM’s price is probably already high and a higher markup could lead to a very high price to final customers. Alternatively, BM could accept reduced profit margins and keep the price stable.

Another disadvantage is that in supermarkets and small pet shops, BM food will probably be sold without sales advice and recommendation from veterinarians and large pet shops owners. BM food will be sold among cheaper brands of lower quality, without specialist features. Competition could be strong as customers may not be well informed. BM could lose potential sales.

BM could lose control over the marketing mix. In addition, the supermarket chain could use promotions or change other elements of the marketing mix that BM would not be able to control.

Candidates could apply the Ansoff matrix model. For instance:

If BM diversifies into specialist cat food, it will be marketing a new product in a new market. This alternative entails several risks as BM will be moving into a market in which it has no experience at all. Diversifying into specialist cat food can also be seen as an expensive option as new food will have to be researched and developed. New premises will also be needed. However, if BM is successful, it will be growing in sales and spreading its product portfolio. Synergies and common know-how could help to reduce costs to produce a successful new product for cats.

N.B. Reward candidates that understand the distinction between related and unrelated diversification, with the former representing considerably less risk.

If BM chooses to open a new distribution channel for the food for dogs, it will be adopting a market development strategy and will be selling into unreached areas. New customers will be able to access BM’s food and sales will probably increase. Costs and risks seem to be lower for this option, however, if BM increases its price due to more intermediaries, sales could remain stagnant.

Even if diversifying appears to be risky and costly, BM should consider the right balance between risk and reward when choosing what to do. A new distribution channel could be safer in the short run; however, diversifying can be highly rewarding and strategically speaking a better option for BM’s future.

Accept product development strategy as it could also be seen as a new product (cat food) in the existing broader market of pet food.

Accept any other relevant and applicable argument for and against each option.

To sum up: candidates can provide a judgment, a conclusion or recommend any option provided it is well substantiated.

Marks should be allocated according to the Paper 2 markbands for 2016 forward with further guidance below.

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

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

A balanced response is one that provides one argument for and one against for each option.

Candidates may contrast one option with another for a balance, as long as at least two arguments are given for each option.

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.

There was a lot of variation in responses to this question with some candidates confusing mission with vision statement as well the "time" element. A mission statement is not a short-term objective but a goal that is being continuously achieved in the present. Nevertheless, a fair degree of leeway was given in marking as in the real-world mission statements vary considerably and with many companies having a combined version of both mission and vision.

The problem here was that many candidates were apt to mention lots of benefits for the dogs or consumers, but failed to be clear about the benefit to the company. Many also seemed to think that the dog food was some kind of medicinal product which was clearly not the case.

The responses to this question were quite disappointing and clearly indicated that many did not understand this pricing mechanism. Many confused it with premium pricing which led to a general misconception all round that it led to high pricing that many could not afford. Yes, it covers their costs, but even competitors have to cover costs — apart from maybe temporary promotions. Quite a few candidates stated that customers might be angry at the company for using this pricing method, but realistically few people have any idea of the pricing method used when buying a product except maybe psychological pricing. One fact largely ignored by most candidates was the lack of competition. In a competitive environment it is difficult to raise the price hence the profit margin will be reduced if costs of production rise. However, in a non-competitive market, prices can rise with costs and hence the profit margin is maintained.

Generally, this question was well answered as it had two defined options on which to comment. It was good to see that many candidates recognized and applied Ansoff Matrix correctly. However, few candidates recognized the distinction between related and unrelated diversification which have significantly different risk parameters. In addition, few candidates seemed to fully understand the role of a wholesaler and both the risks and costs that it assumes.