Benno
Benno is a soft drinks manufacturer. Its mission statement is “to produce healthy drinks without damaging the environment”.
Competition in the healthy soft drinks market is fierce. Benno uses a competitive pricing strategy. However, sales of Benno’s drinks have fallen significantly over the last five years, particularly in the 12-18 age group. The business has no accumulated retained profits.
Benno is committed to innovation and corporate social responsibility (CSR). Its research and development division has recently invented a new biodegradable drink pack ring that starts to break down within two hours of contact with sea water. It dissolves fully in 48 hours. Currently, $98 \%$ of pack rings are made of plastic and when dumped in the sea are responsible for the death of many sea creatures.
A focus group of loyal customers used regularly by Benno’s marketing department is wholeheartedly in favour of the new drink rings. However, the marketing director has read recent studies that suggest:
- purchases of green products are not increasing, despite the positive attitude of many consumers towards sustainability and biodegradable products
- consumers continue to prioritize price when purchasing soft drinks.
To manufacture the new drink rings, machinery costing $\$ 5$ million would be needed. Drink ring production unit costs would rise from 10 cents to 15 cents and prices of a six-pack of Benno soft drinks would have to increase by $5 \%$. Benno’s net profit margin on a six-pack is $10 \%$.
Benno’s director of corporate social responsibility favours the change to the new drink rings but is opposed by both the finance director and marketing directors.
a. Define the term innovation.[2]
b. Explain two roles of Benno’s mission statement.[4]
c. Explain one advantage and one disadvantage for Benno of using a focus group of loyal customers.[4]
d. Recommend whether Benno should replace its plastic drink rings with the new biodegradable drink rings.[10]
▶️Answer/Explanation
Ans:
a. Innovation is about putting a new idea or approach into action. It can be described as the process of translating an idea/invention into a service/good that creates value. Innovation can be achieved by improving existing goods, processes or services
Candidates are not expected to word the definition exactly as above. Award [1] if the candidate recognizes that innovation is the creation or invention of something original. Award [2] marks if the candidate also recognizes that the new invention or process has value [2].
N.B.: no application required. Do not credit examples on their own.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition.
b.
The roles of a mission statement include:
communicating the purpose of the organization to stakeholders
informing decision making and strategy development
developing the measurable goals and objectives by which to gauge the success of the organization’s strategy.
For Benno, the mission statement has provided a way for the business to differentiate itself from its competitors, especially at a time when competition in the healthy soft drinks market is intense.
The mission statement is also a way to attract new investors who may have empathy with the direction of Benno. This is an important role given the need for Benno to be committed to innovation and CSR.
Award [1] for a basic answer that shows an understanding of a role of a mission statement.
Award [2] for an answer that shows an understanding of two roles of a mission statement.
Award [3] for an answer that shows a good understanding of two roles of a mission statement and one of these is suitably applied to Benno.
Award [4] for an answer that shows a good understanding of two roles of a mission statement and both of these is suitably applied to Benno.
Do not reward marks for describing/defining a mission statement.
c.
Advantages of a focus group of loyal customers:
Can obtain detailed information about your own customers about their feelings, perceptions and opinions.
Are cheaper than performing individual interviews.
Provide an opportunity to clarify any issues or problems.
Disadvantages of a focus group of loyal customers:
They can be hard to control and manage.
You are only getting the views of loyal customers – it tells you nothing about consumers who prefer rival brands and why they prefer them to your soft drink.
The results are difficult to analyse, especially if the focus group provides qualitative feedback.
Members may not reveal their own feelings but are swayed by the majority view.
May not be representative of the target market as a whole.
Possible application:
For Benno, an advantage of using a regular focus group is that they will be aware of the company’s products and mission. This will reduce the amount of statistical noise and save time in the discussions when looking at new product ideas, such the biodegradable rings.
However, having a regular group for Benno increases bias and reduces objectivity of the data researched. It might be a useful exercise for Benno to ask customers who are not overly familiar with their products to achieve a more balanced qualitative view.
Accept any other relevant advantage / disadvantage.
Accept any other relevant explanation.
Mark as 2 + 2.
Award [1] for a basic answer that shows an understanding of an advantage of using a focus group.
Award [2] for an answer that shows an understanding of an advantage and disadvantage of using a focus group.
Award [3] for an answer that shows an understanding of an advantage and disadvantage of using a focus group of loyal customers and one of these is suitable applied to Benno.
Award [4] for an answer that shows an understanding of an advantage and disadvantage of using a focus group of loyal customers and both of these is suitable applied to Benno.
Mark as 2 + 2.
d.
Refer to Paper 2 markbands for May 2016 forward, available under the “Your tests” tab > supplemental materials.
For:
It fits in well with its mission statement “to produce healthy drinks without damaging the environment” and this may be important in maintaining customer loyalty.
It fits into its belief in corporate social responsibility, as the current drink rings damage the environment and harm creatures in the seas, such fish.
Competition in this drinks market is very intense – this could act as a strengthening of its USP for Benno and retain loyal customers and attract customers from rivals. It will strengthen its image as a business that has “green” credentials.
Sales of Benno’s drinks have fallen significantly over the last five years– so it is important that Benno does something to stem this tide.
Accept any other reasoned arguments.
Against:
It will cost $5m to buy the machinery to produce the new rings and the business has no accumulated retained profits – therefore the funds will need to be raised, probably externally via a bank loan, which will lead to interest charges and an increase in operating costs. It may take time to find a suitable angel investor to help finance this project. Will the angel investor wish to exert some control over Benno’s operations?
The unit cost increase is 50 %, a rise from 10 cents to 15 cents per ring, and the business only has a net profit margin of 10 %. As the market is competitive and reports suggest that consumers are price sensitive, a price rise – passing on the cost of the new rings – is probably not going to be possible. The result is that Benno’s net profit margin will fall.
Sales are falling, particularly to the 12–18 age group – are they going to be energized into buying a product that is more environmentally friendly, particularly when reports suggest purchases of green products are not increasing?
In terms of a new way forward for Benno, the introduction of the new rings has a great deal of merit. There are a large number of marketing opportunities available in a competitive market and this idea will strengthen Benno’s brand. However, the forecasted financial implications of this idea are not ideal and if sales volumes do not increase significantly then Benno may find itself financially worse off if profits do not increase. One solution may be to wait until some more objective market research via a new untested focus group have given their thoughts on the new ring.
Accept any other reasoned arguments.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
A balanced response is one that provides at least two arguments for and two arguments against the option.
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 judgement/conclusion.
Candidates cannot reach the [7–8] markband if they give judgement/conclusions that are not based on analysis/explanation already given in their answer.
