Question
JP
JP produces electric guitars. It is a cooperative owned by a committed workforce who share in the management and success (or failure) of the company and its profits. Workers enjoy having control over the workplace and are productive. However, JP’s continued success is threatened by insufficient finance, which prevents them from spending more on traditional promotional methods.
JP’s guitars are expensive relative to the competition but are known for their quality. Its customers are very brand loyal. The use of social media marketing by many famous musicians influences JP’s brand loyalty and awareness. Unfortunately for JP, one especially famous musician using a JP guitar on social media recently received negative publicity about his private life.
JP follows strict quality procedures that include quality circles. JP’s management believe that teams of workers employed on the production line know the production process best and are in the best position to make any necessary improvements. Staff turnover at JP is very low.
XYZ, a large company known for its kitchen appliances, is considering moving into the musical instrument market as part of a growth strategy – they want the high gross profit margins on guitars (compared to the low profit margins on kitchen appliances). XYZ wants to take over JP. XYZ has a strong balance sheet and large cash reserves and is an expert at marketing.
The cooperative has refused to consider the takeover bid from XYZ. The cooperative has argued that the culture of XYZ is too different to JP’s. XYZ’s management are viewed as too controlling. However, increased price competition has led to falling sales, forcing JP to make redundancies. Some cooperative members argue that unless JP accepts XYZ’s bid, additional jobs will be lost.
a.Define the term cooperative.[2]
b.Explain one positive and one negative impact of social media marketing on JP’s promotional strategy.[4]
c.Explain two benefits to JP of using quality circles.[4]
d.Discuss whether JP should accept XYZ’s takeover bid.[10]
▶️Answer/Explanation
Ans:
a.A cooperative is a type of ‘for profit social organization’ that is established owned and managed collectively by members, each of whom has a financial interest in the business and a say in how the business is run.
A cooperative operated by its members for their mutual benefit and can be organized by producers, consumers or employees
Award [1] for a partial answer showing some partial knowledge of cooperatives such as that it is an organization which is owned and run by all its members.
Award [2] if there is a further understanding that cooperatives exist for profit but with some social objectives that benefit its members.
Candidates do not have to identify the different types for full marks
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition that conveys knowledge and understanding similar to the answer above.
b.
One positive impact of social media (Facebook, Instagram) marketing on JP’s promotional strategy is cost effectiveness, the use of various types of social media is cheap and often free. This can positively impact on JP’s finance given the financial difficulties outlined in the stimulus.
A second impact could be to strengthen the brand loyalty of the business, given that social media marketing is being used by famous musicians with a lot of followers which would be important given that JP’s guitars are more expensive than those of the competition.
One negative impact is that celebrities endorsing JP’s guitars can be unpredictable and beyond JP’s control. Any poor behaviour or negative publicity can damage JP’s branding in the eyes of potential customers. Increased competition has meant that JP will need to ensure that its social media marketing presents the right image for the business. A negative impact on branding can lead to a fall in demand and further financial difficulties.
Although cost effective, the use of social media marketing may make it difficult for JP to accurately measure the impact of its promotional strategy. Given that JP only uses social media it is very important for management to assess its effectiveness. Also, if social media marketing is not carried out professionally, it could contribute to a negative image such as a lack of response to customer complaints being viewed publicly.
Accept any other relevant positive impact / negative impact.
The impact has to be applicable to social media marketing not any type of promotion.
Mark as 2 + 2.
For an identification or a description of one benefit / cost with or without application [1]:
For explanation of one benefit / cost with no application [1].
For explanation of one benefit / cost and application [2].
Application must refer to the impact of social media marketing on JP’s promotional strategy.
c.
Candidates can refer to marketing, operation or Human Resource Management issues.
It is expected that the candidates demonstrate explicit understanding of the term/ practice of using quality circles.
The benefits to JP of using quality circles revolve around the motivational/productivity/teamwork/cooperation/possible empowerment benefits gained from participation. The fact that JP is a cooperative also implies that quality circles will align with the culture of the organization (supportive, common goals).
Meeting together to find better methods of production/ practices creates high quality products/ guitars. JP established a Unique Selling Point based on quality which creates brand loyalty.
Empowered staff are more motivated and therefore staff turnover is also very low which reduces recruitment costs and training as well as increased efficiency when the higher levels of needs/ the motivators of employees are met. There is evidence in the case study that JP workers are productive and take pride in their work.
Accept any other relevant benefit.
Mark as 2 + 2.
For an identification or a description of one benefit with or without application [1].
For explanation of one benefit with no application [1].
For explanation of one benefit and application [2].
Application must refer to the benefits to JP of using quality circles.
d.
Refer to Paper 2 markbands for 2016 forward, available under the “Your tests” tab > supplemental materials.
There are a number of compelling reasons as to why JP should accept the takeover bid.
Financially, one may argue that JP needs the financial strengths of XYZ. JP’s financial future will be guaranteed. Price competition is eroding sales, indicating that financial sustainability is in doubt.
The number of redundancies will probably be reduced and jobs will be saved. The cooperative may be kept intact. However, if the takeover does go ahead then a number of roles may be lost due to duplication.
The stimulus indicates that XYZ has a strong balance sheet, large cash reserves and are also experts at marketing. JP is likely to benefit from XYZ’s expertise in the latter area given that its brand loyalty and awareness are dependent on social media marketing, which can be difficult to control and measure, as the stimulus indicates.This marketing expertise and finance will allow JP to promote its products through more traditional methods by enhancing/growing brand awareness and loyalty further. One may judge this argument as a significant one given the current problems that JP is facing.
However, the motives for the takeover are narrow. They seem to be driven by financial considerations only. The takeover could change the culture at JP and the cooperative has already refused to consider the bid. Staff turnover is very low and the fear is that the takeover may force some staff to consider their position at JP. Staff turnover may rise, increasing recruitment and training costs, as it is assumed that quality circles would be kept. Expertise could be lost.
As a large company, the combination of XYZ’s financial power and JP’s determination to remain as they are will cause conflict. XYZ is likely to be a profit maximizing organization with few social objectives. JP’s culture will have to change. JP will not remain as a for profit social enterprise.
XYZ has experience in kitchen appliances rather than producing musical instruments. Given the competition, XYZ might not be successful unless it finds ways of reducing costs as marketing might not be effective. Still, one may argue that marketing and financial expertise are transferable.
XYZ’s management tendency for strict control is highly likely to result in abandoning the practice of quality circles that requires empowerment and trust. The interest and motivation of JP’s employees is likely to be diminished considerably with further implications for quality and branding.
Perhaps JP should reject the offer and find some sources of finance to take the cooperative through this difficult time as it is likely that remaining as a cooperative is very important for the members while XYZ has just financial objectives – as stated in the stimulus.
The members of the cooperative will have to prioritize their objectives – being a social enterprise with some mutual benefits of changing into a for profit corporation.
Ultimately, JP may have to revisit its financial forecasts and as a cooperative may have to take a more pragmatic view. If the warnings of additional jobs being lost come to fruition, the cooperative will have to accept the offer. The opportunities for growth in their market are considerable and may allow the business to regain market share. As the cooperative enjoys the successes of the business, the decision to accept the bid is warranted, although some concerns over culture loss and empowerment of the workforce must be taken into account if the transition is to be a smooth one.
A conclusion with judgment is expected.
Accept any substantiated judgment.
A balanced response is one that covers at least two arguments for and at least two arguments against.
It is expected that a substantiated judgment is provided
Candidates cannot reach the top two mark bands if the issue of being a cooperative- for profit social enterprise is not covered.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
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].
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.
Candidates cannot reach the top marks if there is no relevant reference/application to the stimulus.