Question
Buzza
Jo and Demi Straus established Buzza, a partnership, in 1999. Buzza manufactures women’s fashion accessories, such as handbags and scarves. Jo, a gifted designer, directs the design team. Demi, a business graduate, organized the business by function. She manages most of those functions.
In 2012, they converted Buzza to a private limited company to help obtain finance for the business’s expansion. Jo and Demi retained 60 % ownership between them.
Because of the brand’s reputation, Buzza can recruit creative graduates from design universities. Graduates receive 12-month contracts, which are renewed only if Buzza accepts their designs. Buzza tells graduates that, generally, only half of all contracts are renewed. The average age in the design team is 26. Labour turnover in the design team is much higher than in similar exclusive brands.
Wealthy consumers interested in the latest fashions find Buzza a highly desirable and exclusive brand. Only approved retail outlets sell Buzza products. New collections are produced four times a year. At the end of each season, retailers return unsold products to Buzza. Last year, these unsold products were valued at $15 million. At present, Buzza sends returned products to an incinerator plant to be destroyed. A recent television documentary revealed that Buzza incinerates perfectly good products, which led to damaging social media comments.
In response to the negative publicity, Jo and Demi are considering two options:
Option 1: Sell surplus products at greatly reduced prices on its website.
Option 2: Break down returned products to recover raw materials for re-use in future products. This process of breaking down returned products will be time consuming and costly.
a.State three of Buzza’s main business functions.[2]
b.Explain one advantage and one disadvantage to Buzza of operating as a partnership.[4]
c.Explain one advantage and one disadvantage of the high labour turnover of designers at Buzza.[4]
d.Discuss the two options that Jo and Demi are considering.[10]
▶️Answer/Explanation
Ans:
PLEASE NOTE: This content is not included in the syllabus for 2024 exams onward. Related parts of this multi-part question may be used.
Possible answers include:
human resources
finance (and accounts)
marketing
operations
management
Candidates must use the traditional business functions, such as those noted above (or others which are traditionally listed in textbooks). Do not accept terms inspired by the stimulus itself (R & D, for example).
For [2], candidates must state 3 (or more) of the above.
For [1], candidates must state 2 of the above.
If a candidate states only one business function, award [0].
Advantages include:
Partners can each have different skills, which benefits the business. In this case, Jo is a gifted designer and therefore brought key sills to the design side of the business, whilst Demi is a business graduate and will know much more about how to run a business.
More capital is available for the business than when set up as a sole trader.
Disadvantages include:
There is a risk of disagreements amongst partners.
The amount of capital that can be raised is limited unless additional partners are taken on and in this case the partnership lacked the finance needed for expansion.
The liability of the partners for the debts of the business is unlimited.
Each partner is liable for actions by other partners.
Accept any other relevant advantage or disadvantage.
Mark as 2 + 2.
For [2], candidates must identify an advantage or a disadvantage, explain it, and apply it to the stimulus.
Advantages and disadvantages can apply to Buzza OR to the designers themselves.
Advantages include:
Buzza has a constant supply of new designers with fresh ideas, which is good for the business. The fact that the average age of the design team is 26 is evidence of the constant supply of new designers.
The “threat” of not having a contract renewed may act as a motivator for designers, a situation that benefits Buzza as they will have a very focused team of designers – only 50 % of designers on average gets contracts renewed so they know they are under pressure to perform.
Buzza does not have to deal with the problem of under-performing designers in the long-term as they can simply not renew designers’ 12-month contracts. This situation also allows Buzza to avoid the need for redundancy payments.
Disadvantages include:
Buzza will need to continually recruit new designers, which can be expensive and time consuming as 50 % of new recruits on average do not have their contracts renewed.
Labour turnover figures, with 50 % not having contracts renewed, may act to discourage some potential good designers from applying and Buzza may lose out on potentially gifted designers as other exclusive brands have a lower labour turnover figures and may attract applications from such graduates.
The high labour turnover figures may cause insecurity amongst the workforce and demotivate designers who feel under pressure particularly if after three seasons they have not had a design accepted.
Accept any other relevant advantage or disadvantage.
Mark as 2 + 2.
For [2], candidates must identify ad advantage or a disadvantage, explain it, and apply it to the stimulus.
d.Refer to Paper 2 markbands for 2016 forward, available under the “Your tests” tab > supplemental materials.
Option 1: Sell surplus products at greatly reduced prices via its website.
- This option has the advantage of increasing revenue as out of season stock is sold and at least raises some revenue, even though it will be far less than the original price charged.
- It also avoids the need to destroy stock in an incinerator and may improve the business’s image amongst consumers who dislike the idea of perfectly good products being burnt, which is a waste of resources and potentially damaging to the environment.
- However, Option 1 can seriously affect the brand’s image amongst wealthy consumers– Buzza a highly desirable and exclusive brand bought by wealthy consumers – who may take issue with their ‘status symbol’ fashion items being sold to less affluent consumers. Desertion of the brand by current customers to could seriously undermine the brand image and lead to lost sales at high prices charged in approved outlets.
- The approved retail outlets that sell Buzza products may also object as they may lose sales as some wealthy customers may delay purchasing until the products they want are sold at much lower prices on the Buzza website. These outlets may no longer wish to stock Buzza products, affecting Buzza sales, profits and reputation.
Option 2: Break down returned products to recover raw materials to re-use in future products. This process will be costly.
- This option avoids the need to burn products and therefore will impress those who see burning stock as a waste of resources and damaging to the environment and will therefore answer social media critics.
- This option is better for Buzza’s brand reputation amongst the wealthy consumers as they will not face the prospects of having their exclusive products also being worn by those on less in reputation as perfectly good products will not be broken up.
- However, this option is a costly method. Not all materials that are recovered may be suitable for use in new season products and so there may still be considerable waste.
No details are provided as to the actual costs of incineration or of breaking down products to re-use in future season products. Candidates in the 7+ mark range would be expected to refer to this and the need for more information before coming to a final decision.
Marks should be allocated according to the paper 2 markbands for May 2016 forward.