Model Answers Series 4 2009 (3025)

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LCCI International Qualifications

Certificate in Marketing Level 3

Page 1 of 24

Certificate in Marketing Level 3 Series 4 2009

How to use this booklet

Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements:

(1) Questions – reproduced from the printed examination paper (2) Model Answers – summary of the main points that the Chief Examiner expected to see in

the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable)

(3) Helpful Hints – where appropriate, additional guidance relating to individual questions or to examination technique

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.

© Education Development International plc 2009 All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher

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QUESTION 1 COMPULSORY A close friend has bought an existing restaurant business in your capital city. Although a fully qualified chef, your friend has little knowledge of marketing. Your friend has asked you for advice to promote the business. Using any five elements of the marketing mix, prepare a marketing plan for this restaurant for the next 2 years.

(i) Outline your proposed strategy for the next 2 years. (10 marks)

(ii) Give your tactics for carrying out these strategies. (10 marks)

Present your answers in bullet point format using the 5 x 2 ten cell matrix. Your tactics must be relevant to the strategies you propose.

(Total 20 marks)

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MODEL ANSWER TO QUESTION 1

Marketing Element

People

Process

Promotion

Price

Physical evidence

Strategy

to have the reputation for the best staff within 2 years

to ensure total customer satisfaction in all aspects of our service within 2 years

to ensure the fastest service operation possible by June 2011

to enable customer payments by whatever means the customer wishes to use by Dec 2011

to create 100% awareness of the restaurant within the local area by June 2011

to create a customer loyalty programme by Nov 2010

to use penetration pricing for the first 6 months and then move to competitive pricing

obtain a ROI of 20% by 2011

create the most relaxing environment for eating by Dec 2010

create a recognised corporate identity by Dec 2011

Tactics

to recruit the most qualified and experienced staff available during 2010

introduce vocational qualification training courses for all staff during 2010

introduce hand held psalm pads for instant ordering direct to the kitchen during 2010

arrange for credit/debit card facilities during 2010

periodic advertising in local media during 2010

introduce customer discount cards for regular customers during 2010

undercut local competitors by 10% on prices for first 6 months

introduce activity based costing to ensure all costs are known and reduced

introduce the appropriate seating, décor, lighting, carpeting and back ground music during 2010

introduce a standardised house colour scheme which will be reflected in décor, uniforms, all printed items and advertising

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QUESTION 2 (a) Sales promotion is one element of the marketing communications mix. Identify two others.

(2 marks) (b) Outline the six steps of the planning process for a typical sales promotion.

(12 marks)

(c) Give three advantages and three disadvantages of using a sales promotion for a product or service.

(6 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 2

(a) Two other elements of the marketing communications mix are:

Advertising: this is paid for (often known as above the line) media space/time, eg TV advert, advert in a magazine, bus shelter advert, etc.

Public Relations: this is a non paid for (often known as below the line) means of

communicating with a target market. PR involves the organisation trying to obtain free media space, for example by providing the press with stories of interest or providing media with samples of the organisation‟s products to use in photo shoots.

(b) The planning process for a typical sales promotion: Set objectives. Examples of sales promotion objectives would be to encourage purchase/trial,

increase revenue, attracting new customers/switching. Measurable objectives should be set in order that evaluation can be made at the end of the promotion.

Select an appropriate promotional tool. Examples of sales promotional tools would be to encourage purchase by offering discount, increase revenue by offering larger packs at discounts, attracting new customers/switching by providing free samples.

Develop the sales promotion programme. Organisations must consider various aspects of the

sales promotion, such as educating distribution channels, ensuring promotion does not damage brand image, whether to control the promotion, i.e. offer to everyone or a controlled group, duration period, budget to ensure the promotion generates more revenue and profit, timing, i.e. does not clash with competitor‟s promotion.

Pre-test the sales promotion – in a controlled target market or geographical area to measure success.

Implement – attention must be given to distribution channels to ensure staff are trained/aware of

promotion; point of sale material is in place, etc. Evaluation – research should be undertaken to ensure the objectives set in step one have been

reached, one of the advantages of sales promotion as a marketing communications tool is that it is often relatively easy to measure.

(c) Advantages of sales promotion: (from)

immediate increase in revenue motivates customers/sales people/distribution channels to take a desired action immediate increase in demand and therefore market share easy to evaluate/measure success encourages first time purchase or trial of product good for stock clearance.

Disadvantages of sales promotion: (from) negative effect on brand image, for example discounting may damage perceived value of a

brand short term growth with revenues returning to normal at end of promotional period needs support from other elements of marketing mix to be successful, eg advertising competitors may respond quickly to counteract benefits of the promotion.

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QUESTION 3 Draw a separate distribution diagram for each of the following. Briefly explain the process of each channel. (a) A physiotherapist who deals with sports injuries.

(5 marks)

(b) A pineapple plantation that exports its entire production. (5 marks)

(c) A manufacturer of toothpaste.

(5 marks)

(d) A manufacturer of industrial tools. (5 marks)

(2 marks are awarded for the diagram and 3 marks for the explanation)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 3

(a) A physiotherapist who deals with sports injuries. A physiotherapist giving treatment for sport injuries is offering a personal service which requires direct (face to face) contact with the patient. This is the only possible channel of distribution.

(5 marks) (b) A pineapple plantation that exports its entire production. Two alternatives are illustrated, in both cases the use of agents is required, it is possible in the 21

st

century that one of the agents may be missing, either the import or export. I will also accept the removal of the wholesaler in the supply chain Plantation is responsible for growing and requires the services of an agent to move the goods onwards. Once in the country of destination they may be handled by another agent who may ship to a warehouse or direct to the retailers depot. The retailer will then sell on to the customer (c) A manufacturer of toothpaste. The conventional channel is manufacturer supplies in bulk to the wholesaler who breaks bulk. Retailers obtain stocks from the wholesaler and then sell on to the customer. However now a days many retailers are so large they also order in large bulk quantities to be delivered to their own depots which then transfer the stock to the retail outlets for sale. (d) A manufacturer of industrial tools. Any of the above are now acceptable. Diagram is self explanatory, mark in line with answer given.

Physiotherapist Patient

Plantation Export

agent

Import

agent Wholesaler

Retailer

Retailer

Customer

Manufacturer

Wholesaler Retailer

Retailer

Customer

Manufacturer Agent

Distributor

Customer

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QUESTION 4 (a) What is meant by “marketing orientation”?

(4 marks)

(b) What is the main difference between product and marketing orientations? (5 marks)

(c) How does marketing orientation differ from sales orientation?

(5 marks)

(d) Explain the three principles that sales orientated businesses should focus on and why? (6 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 4

(a) Marketing orientation refers to the way an organisation develops its strategy. Marketing is the management process for identifying, anticipating and satisfying customer needs profitably. Therefore an organisation that is marketing orientated will put the customer at the core of any decisions it makes. A marketing orientated organisation will use marketing research to try to understand the needs of its target market. Once these needs are understood the marketing mix (price, product, promotion, place) provides organisations with a tool kit to develop strategies to meet customer needs.

(b) A product orientated organisation focuses on the product it produces, with product decisions being

at the core of strategy development. Product orientation can be successful for completely new and innovative products. Product orientated organizations focus on manufacturing efficiencies to produce as high a profit margin as possible.

(c) A sales orientated organisation focuses on volume of sales. This is often a transition for a product

orientated organisation, where competitors have entered the market. The focus will be on achieving as high a volume of sales as possible using strategies like price and discounts, the focus is not always on building long term relationships with customers but is on achieving the highest sales volume.

(d) The three principles a sales orientated business should focus on are:

Demand/market size. Sales orientation relies on volume of sales and therefore it is important that the market size can provide the necessary volume of demand.

Sales force. A sales orientated organisation is often reliant on its sales force to generate

sales, the sales force will therefore need to be given incentives to generate as high volume of sales as possible this is often done by paying commission on sales. Where an organisation does not use a sales force, strategies, such as sales promotion, will be used to generate sales, eg discounts, buy one get one free deals, etc.

Customer relationships. A sales orientated business will wish to retain as many customers

as possible and therefore it will be important to develop a strong customer relationship to stop customers switching to competitors in the market, this is often done via the use of sales people or by promotional incentives, such as loyalty cards, etc.

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QUESTION 5 Write a report to your Managing Director:

(i) briefly explaining what a marketing audit is (3 marks)

(ii) identifying and briefly explaining any five of the 7 stages of a marketing audit. (15 marks) (Candidates are awarded 2 marks for the correct report format and layout) (2 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 5 To: Managing Director From: A. Candidate Date: 3

rd November 2009

Subject: A marketing Audit 1.0 Definition of a Marketing Audit

1.1 A comprehensive, systematic, independent and periodic examination of an organisations marketing environment, objectives, strategies and activities

1.2 Conducted with a view to determining problem areas and opportunities 1.3 Recommending a plan of action to improve the company‟s marketing performance”

2.0 Stages of a Marketing Audit

2.1 The Macro and Micro environment: a detailed STEEPLE analysis of the external forces a detailed SWOT analysis of the organisation

2.2 The Task environment:

2.2 examination of the market its current size its growth potential profit levels being obtained identifying the major segments

2.2.2 customers what are their current needs and buying methods how do they make their buying decisions how do they position the organisation and its products against competitors

2.2.3 competitors who are the major competitors how do they compete, price, promotions, innovations what are their strategies, tactics, strengths , weaknesses, size, market shares

2.2.4 distributors and dealers what are the main trade channels is this method growing or shrinking how efficient are the channel members

2.2.5 suppliers availability of key resources how secure is this supply can any future trends be identified

2.2.6 agencies availability for warehousing and distribution effectiveness of agencies currently used

2.2.7 publics have the publics who offer opportunities or those that may pose problems for the

organisation been identified what is the organisation doing to deal with or exploit these

3. The Strategy environment:

3.1 the mission statement: is it clearly stated and relevant 3.2 objectives and goals: appropriate for the organisations resources and capabilities. Clearly

defined and fully understood to guide planning and allow measurement. 3.3 Strategy: is it appropriate, is the right marketing mix being employed, the correct segments

identified, measured and targeted. 3.4 Sufficient resources being allocated to mix to be effective.

4. The Marketing department

4.1 the structure levels of authority defined how are activities planned, by products, brands, regions, segments

4.2 efficiency communications and relations between organisational departments areas of training, motivation, supervision identified

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MODEL ANSWER TO QUESTION 5 CONTINUED 5.0 Marketing systems:

5.1 marketing information system: is there one how accurate is it how timely is the information who uses it and how is the information used.

5.2 planning system: who is involved how does it operate

5.3 control system: does it provide accurate measurement and results allow for continuous monitoring

5.4 new product development: how does it gather and screen new ideas does it follow the recognised development methods

6 Productivity:

6.1 how is it analysed: by product, ranges, regions, segments or channels

6.2 cost effectiveness: are marketing activities costed correctly

7. Marketing Mix:

7.1 product: product line objectives does range need to be expanded or contracted are objectives in respect of market share and sales being attained positioning of products brands and brand strengths

7.2 price what are the pricing objectives how is pricing set, by cost, demand, by competitors

7.3 place: what channels are used how effective are they is there sufficient market coverage are their changes happening in the channels

7.4 promotion what are the advertising objectives, are they being reached correct choice of agencies and media are budgets adequate to achieve objectives is Public Relations being used effectively sufficient use of database, direct and on-line marketing sales force objectives clearly defined sales force size and organisation adequate for objectives

7.5 people correct type of staff employed knowledgeable, customer orientated and well trained

7.6 process designed to provide the best service adequate resource provided clearly understood and easy to operate systems

7.8 physical evidence do the buildings, offices, retail outlets have the right ambience and atmosphere do staff have uniforms, badges, qualifications is full use of the corporate identity being fully exploited.

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QUESTION 6 Write a report to your Financial Director explaining:

(i) the principles of market „skimming‟ and market „penetration‟ pricing strategies. (6 marks)

(ii) the commercial and market circumstances under which each of these pricing strategies is most likely to be used. (12 marks)

(Candidates are awarded 2 marks for the correct report format and layout) (2 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 6 To; Financial Director From: A. Candidate Date: 3

rd November 2009

Subject: Market penetration and skimming pricing 1. Price skimming

1.1 There are two general marketing pricing strategies to which reference is frequently made These two strategies represent two extremes. These strategies are market penetration and market skimming.

1.2 It is at the start of a product‟s life cycle that such pricing decisions should be taken, for that decision will help determine the volume of sales for that product over its life.

1.3 Often, for new products marketing management will try to recoup their investment costs as quickly as possible by „creaming‟ or „skimming‟ the best prices they can get from those customers who are willing to pay a premium price to possess the new product.

1.4 The firm then lowers the price to penetrate the mass of the market. 2. Market penetration

2.1 This relies on economies of large-scale production 2.2 This allows the product to be introduced to the market at a price low enough to attract a

large number of buyers as quickly as possible. 2.3 This will tend to constrain possible competitors by creating a low price as a barrier to

market entry. 2.4 If product design and manufacture are costly to set up and operate and are also

conducted on a large scale, then this too will deter competitors. 2.5 The aim is to attain a high or even total, initial market share and keep this share high

during the later stages of the product‟s life cycle.

3. Pricing in detail: The figure below explains this idea, and it can be seen that the product is introduced at an

attractively low „penetration‟ price at the beginning of its life cycle. As a result, demand for the product is high in the early stages, whereas the product life cycle concept suggests a slowly rising trend at the beginning which only begins to rise substantially during the growth phase. This policy is suitable for products that have high demand elasticity and where reductions in unit costs can be attained through large-scale operations. Here, a large volume of sales is essential from the outset to keep production levels high, as high production is a function of the manufacturing process.

Penetration Pricing

Sales

Low initial

Price Time

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MODEL ANSWER TO QUESTION 6 CONTINUED

To be able to reach a wider group of customers once innovators and early adopters have purchased, the company reduces its prices progressively, thus skimming the most advantageous prices from each successive adopter group. Price reductions are successively brought in as sales slow at each phase, until the product has reached all of the target market. The figure shown below illustrates market skimming and here it can be seen that individual „skims‟ have been taken at certain times.

In the figure above the new product is introduced at time T1 at a high initial price P1. The product is meant to appeal to the AB social grades at this stage. They make their first purchases and the market then begins to tail off, so prices are reduced to P2 which brings in C1 social classes at time T2. The same thing happens again at time T3 when C2 social classes are brought in by bringing down the price to P3. The final skim is price P4 at time T4 which brings in the DE social grades and this is when the product has left growth and reached its maturity phase. 4. Summary

4.1 Market penetration is invariably used for the launch of FMCG products it may also be used in technology markets which are well established with many

competitors already present.

4.2 Market skimming is frequently used in markets that are driven by continuous innovation where by manufacturers try to recoup development costs as quickly as possible skimming pricing is also a feature of luxury markets where it is intended to maintain

a premium pricing policy

Market Skimming

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QUESTION 7 (a) Draw a correctly labelled diagram to show the BCG (Boston Consulting Group) Matrix.

(6 marks)

(b) Draw a correctly labelled diagram to show the PLC (Product Life Cycle). (6 marks)

(c) Explain how the two diagrams are related in respect of the information they provide.

(8 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 7

(a) The BCG (Boston Consulting Group) Matrix. (b) The PLC (Product Life Cycle)

Market

Growth

high

low

Market Share

high low

Time

Sales Or

Revenue

1 2 3 4

1. Launch 2. Growth 3. Maturity 4. Decline

Stars Question Marks/

Problem Child

Dogs Cash Cows

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MODEL ANSWER TO QUESTION 7 CONTINUED (c) The Launch stage = the problem child. A product in its early days that has little growth (sales)

and minimal market share. This product has an uncertain future at the moment – it may be successful or fail.

The Growth stage = the star. A product that has emerged from the launch stage and is now

showing increased sales and is gaining market share. Still has an uncertain future but is likely to become an established product.

Maturity = cash cow. This is a product that has become established in the market place and

enjoys a relatively high market share with steady sales over time. Market growth is now low but sales are consistently high.

Decline = Dogs. These are products that are reaching the end of their effective life. Market

share is now low and sales are falling. Market growth is nil.

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QUESTION 8 Briefly explain the following terms that are used in marketing: (a) a la carte agency (2 marks) (b) MOST (2 marks) (c) psychological pricing (2 marks) (d) press release (2 marks) (e) geo-demographics (2 marks) (f) USP (2 marks) (g) positioning (2 marks) (h) fixed costs (2 marks) (i) consumer panel (2 marks) (j) above-the-line (2 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 8 (a) a la carte agency This is an agency that will provide a full range of services for advertising and promotions. The

client can choose to take all of their services or be selective and choose various elements of the services that are offered.

(b) MOST This is the acronym that stands for the 4 key elements of a business‟s operation. M = mission statement, O = objectives, S = strategy, and T = tactics. (c) Psychological pricing This is a pricing strategy that attempts to make a price look actually cheaper than it is. For

example £9.99 looks and sounds cheaper than £10. (d) Press release This is information of news worthy value that is issued by an organisation to the media in the hope

that it will be published. (e) Geo-demographic This is a method that can be used to segment markets and uses a combination of demographics

such as income, occupation, education, etc, combined with where a person lives. The most popular method used is ACORN.

(f) USP This refers to Unique Selling Point (or Proposition) and it is some element or part of a product

service offering that tries to differentiate it to that of the other competitors in the market. USP might be price, size, durability, ease of use, etc.

(g) Positioning Positioning is the place a product or service occupies within the customer‟s or consumer‟s mind

compared to similar products or services offered by competitors. (h) Fixed costs These are the costs incurred by an organisation that do not change in proportion to the level of

production or activity. Examples are rent, rates, insurance, etc. (i) Consumer panel A consumer panel is a collection of targeted publics who are assembled for the purposes of testing

a product or service that an organisation might be developing, modifying or launching into the market. They may even assess the effectiveness of an advert.

(j) Above–the–line This refers to any communications with a target audience that is paid for by direct fees charged to

the client (advertising is the perfect example).

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QUESTION 9 Write a report to your Marketing Director explaining 9 different ways in which the organisation‟s website can be advertised to attract the maximum number of visitors. (18 marks)

(Candidates are awarded 2 marks for the correct report format and layout) (2 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 9 To: Marketing Director From: A. Candidate Date: 3

rd November 2009

Subject: Advertising a website

1. Conventional media advertising 1.1 promoting the website using the national media of TV and press

2. Additional advertising

2.1 website promoted using billboards 2.2 inclusion of the website address in all written communications from the organisation 2.3 inclusion of the website address in any corporate publications

3 Registration with all major search engines

3.2 liberal use of keywords to assist search by customers 3.3 possible purchase of premium “keywords” 3.4 use of metatags ( statements written in HTML language that describe a websites contents.

Such statements allow search engines to identify sites relevant to the enquiries made)

4 Banner advertising 4.2 placing of banner adverts in related and complementary sites

5 Use of hyperlinks 5.2 insertion of hyperlinks on related or complementary pages or websites

6 Use of infomediaries and meta-mediaries 6.2 registering with the relevant Internet “information” channels for the organisation‟s products

7 Direct marketing 7.2 use of personalised e-mail to target relevant segments (from own or bought in database)

8 Public Relations events 8.2 ensuring the web site address is featured in press releases 8.3 promotion of the web site address at shows and exhibitions 8.4 web site address featured during any sponsorship activity.

9 Use of TV information channels 9.3 Web site address featured in the likes of “Oracle” or “Teletext (or the international

equivalents obviously)

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QUESTION 10 (a) Briefly explain, using bullet point answers, 6 reasons why an organisation might consider entering

international markets. (12 marks)

(b) Describe 4 different ways a service organisation might enter into international markets.

(8 marks)

(Total 20 marks)

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MODEL ANSWER TO QUESTION 10 (a)

changes in the home or international economic environment opportunities to create demand abroad for products and/or services strategically planned organisational growth to exploit the life of the PLC intense competition in the home market surplus capacity available within the organisation retaliation to a foreign competitor who is a threat in the domestic market potential purchasing power of a foreign market geographic diversification

(b) The question clearly states it is a service organisation so the only realistic answers can be: Franchising:

introduction of an established and proven business concept to small independents gives the right to use the company name and all that is identifiable with the parent company may also include a management agreement during the early stages purchase fee to set up and then ongoing royalties and/or commission

Management Contracts:

the transfer of company specific knowledge and experience usually for a fixed period predominantly in the service industries

Strategic Alliance:

when two or more companies agree to co-operate together each company retains its own identity and trading operations is usually for a specific project or period of time. each member of the alliance will contribute some specific resources or expertise

Joint venture:

two or more companies come together to form another independent company the parent companies will retain their own identities and trading operations the joint venture (third) company will be operated by both companies as detailed in a

contractual agreement there is no fixed time period or specific project involved as the joint venture company is set

up as a long term trading venture. Wholly Owned Subsidiary:

when a company seeks to establish a full trading operation in an international market. will be responsible for all its own distribution, marketing, personnel and finances. production may be supplied form the home country but is more likely to take place in the

international market. However if the service is in anyway related to information about people, investment, insurance or financial, or the provision of digital products such as music, films or photographs then it would be possible to do so by: On-line eCommerce marketing

company offers global access via an established website has full facilities for eCommerce transactions

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© Education Development International Plc 2009. All rights reserved. This publication in its entirety is the copyright of Education Development International Plc. Reproduction either in whole or in part is forbidden without the written permission from Education Development International Plc.