Ansoff Matrix [105 marks]

Coca-Cola India
The American company Coca-Cola is investing financially and strategically in
India. Thirteen
Indian businesses have received contracts to prepare and package Coca-Cola
drinks across India.
Over 7000 distributors and 2.2 million retailers, supermarkets and restaurants are
selling
Coca-Cola drinks. For Coca-Cola, success in India is an important part of the
business’s strategy,
as India has a population of over 1 billion people. A question faced by Coca-Cola is
whether it
should use market development or market penetration strategies.
Coca-Cola India has a wide product portfolio including Coca-Cola and other brands
such as
Limca and Sprite. Coca-Cola India directly employs over 25 000 people and has
created indirect
employment for more than 150 000 people through its vast logistics, supply and
distribution.
Coca-Cola India has recently piloted an online store for the growing e-commerce
market through
the website Coke2Home.com. The online store will provide consumers with an
alternative channel
to buy Coca-Cola drinks. Consumers can also learn about the full range of Coca-
Cola’s drinks on
the website and sign up to receive special promotions via email or mobile phone
message.
Although the online store is working very well in some cities, there are still some
difficulties:
Because delivery costs are high, Coke2Home.com accepts only large orders
such as for parties and celebrations.
Many Coca-Cola retailers and supermarkets fear that Coke2Home.com will
create a new form of competition.
[Source: adapted from http://www.coca-colaindia.com/
and S Sharma, (31 May 2013), Mumbai Times Business, Times of India]

1a. Define the term product portfolio. [2 marks]

 Markscheme
Product portfolio refers to the variety or range of products/services or the
particular mix of products/services offered by a business. Businesses usually
have a variety of products in order to spread risks or attract more target
markets.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition that conveys partial knowledge and
understanding.
Award [2] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.
For only a relevant: example or application to the stimulus award [1].

1b. Draw and label all elements of the Ansoff matrix. [2 marks]

Markscheme
The Ansoff matrix is a tool used to identify possible growth strategies,
according to the product (is it existing or new?) and the market (is it existing
or new?). It is represented as follows:

Award [1] if the candidate produces something indicating some idea of what
the Ansoff matrix is but with one or more error. Award a maximum of [2] for a
correctly drawn and labelled Ansoff matrix.
1c. Explain one advantage and one disadvantage for Coca-Cola in India of [4 marks]
using the Ansoff matrix as a decision-making tool.

Markscheme
Advantages of using the Ansoff matrix include:
provides an analytical framework for making strategic marketing decisions
highlights the various degrees of risk associated with strategic direction of
marketing
once a quadrant of the matrix is identified, it points to marketing tactics
that can be used.
Disadvantages of using the Ansoff matrix include:
like all analytical tools, it is only a tool and may be misused
it tends to simplify a complex problem, sometimes too much
it cannot predict actual events and, thus, can be misleading.
Accept any other relevant advantage/disadvantage with an explanation.
N.B. something conceptually equivalent to the own figure rule (OFR) has to be
used here if the candidate gets part (b)(i) wrong by drawing the wrong
decision-making tool but then, in part (b)(ii) accurately or partially explains an
advantage or disadvantage of the tool the candidate has used.
Mark as 2+2.
Award [1] for identification of an advantage/disadvantage and an additional
[1] for its explanation. If no reference is made to Coca-Cola in India, award a
maximum of [2].

1d. With reference to Coca-Cola, analyse the role played by multinational [5 marks]
companies in the global business environment.
 Markscheme
The role of multinational companies (MNCs) in the global business
environment
is mainly seen in terms of economic activity. They contribute to economic
development as they invest in countries around the world (eg when Coca Cola
entered India, it brought capital (a factor of production) into the Indian
economy). Through outsourcing, they create employment (eg Apple’s
outsourcing to China brings employment to millions in China). However the
role of MNCs is also criticized as they contribute to the standardization of
products (eg Johnson & Johnson sells the same soaps and baby shampoo all
around the world) and are sometimes accused of unethical practices (eg
“sweatshops” factories in Vietnam manufacturing goods for companies such
as Nike ).
Accept any relevant analysis.
If the response is generic, award a maximum of [3].
Marks should be allocated according to the paper 2 SL markbands for 2015
exams.

1e. Discuss the costs and benefits to Coca-Cola India of e-commerce. [7 marks]
Markscheme
Some of the benefits that e-commerce may bring to Coca-Cola India include
the following:
A reach to a wider customer base, making more sales possible (eg party
orders) since an online order is taken and home delivery made.
Comfort and convenience building brand loyalty, exploring the benefits of
shopping through mobile and internet networks is widely growing across the
globe.
If e-commerce is to be added to an already functioning organization of such
a high scale, the cost of buying the technology is usually not very high.
Transaction costs are relatively low.
There is no issue with customers being put off by the intangibility of buying
this product over the net, since this merchandise does not require sensory
perceptions or experience during the purchase process, and customers
already know what to expect.
Accept any other relevant benefit.
However, some of the costs to Coca-Cola India include:
Security issues – consumers have many concerns over privacy and security
when dealing with online businesses, credit/debit card numbers may be
stolen; personal information may be hacked.
Costs of setting up the technology and systems.
Coca-Cola India will have to set up distribution channels assuring deliveries
at all hours, often there may be lean periods where orders are less
compared to weekends and festive periods.
Some hostility may develop among Coca-Cola India and retailers and
supermarkets as they may fear losing larger orders to the online store run
by Coca-Cola India.
Accept any other relevant cost.
Accept any relevant discussion.
To achieve the top markband, both the costs and benefits need to be
discussed.
If the response is one-sided, award a maximum of [4].
Marks should be allocated according to the paper 2 SL markbands for 2015
exams.
 Adventures for All (A4A)
Tama Toki founded Adventures for All (A4A), which owns four adventure parks
employing 342 people. The parks offer adventure activities such as high wire and
mountain biking. A4A’s target market is teenagers and adults. A4A’s mission
statement is “safety and affordability at A4A are the most important reasons for a
great time for all”.

A4A uses predatory pricing. Its competitors are theme parks and adventure
centres. However, social trends are
changing. Many teenagers prefer social networking rather than adventure
activities. A4A’s sales revenue and profits are falling.
Tama discussed with senior managers two possible growth strategies:
Option 1. Through extensive promotion, attract children and adults with
disabilities and access requirements to the parks. This approach would require
specialized training for existing staff. No modifications to the parks would be
required.
Option 2. Offer corporate team-building activities. A4A would develop specially
designed programmes for senior leadership teams to spend three days in newly
built conference centres located at the parks. Corporate teams would engage in
adventure activities together and then discuss strategic options for their
organizations.
Option 2 could be highly profitable. A4A could charge high prices for these
programmes. However, some of Tama’s senior managers argued that A4A should
continue to provide “adventures for all” and not just to a group of highly paid
senior leadership teams.
The two options created major disagreements. Two senior managers, working with
Tama since the creation of A4A, threatened to resign if Option 2 was
implemented. Two other senior managers argued that without Option 2 many jobs
at A4A were under threat.

2a. Define the term target market. [2 marks]

 Markscheme
A target market is defined as a group of consumers with similar needs and
wants/characteristics (demographic) that a business decides to focus on in
terms of its operations and/or marketing. A4A’s target market for its adventure
parks has been families.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition that conveys partial knowledge and
understanding.
Award [2] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.
Award [0] if the candidate writes “target market is when an organization
targets a particular part of a market”. Or a similar answer where the candidate
repeats the question using the same terminology in the answer.
Do not credit an example.

2b. Explain two roles of A4A’s mission statement. [4 marks]

 Markscheme
A mission statement is a way of communicating to its stakeholders the current
purpose of a business, what the organisation is for. It is clear from the mission
statement that A4A exists to provide great adventures for teenagers and
adults which are safe and affordable.
It can be used to guide current objectives. For A4A, the mission is to provide
fun, safe and affordable adventures hence predatory pricing is being used.
A mission statement can provide a sense of purpose and direction and act as a
motivational force for employees. It is stated that many of the managers are
long serving ones who have been at A4A with Tama since its creation.
Moreover, employees’ motivation is important for any provision of any service
especially when teenagers are the recipient of the service.
The mission statement could also act as an incentive to encourage ethical
external sources of finance by investors who are motivated by A4A’s objective
(or mission) to provide adventures for all. A4A may be able to raise finance for
the implementation of its chosen option particularly option 2 which has a
capital spending requirement.
Accept any other relevant explanation.
Mark as a 2+2.
Award [1] for each role identified and an additional [1] for development with
application to A4A. Award a maximum of [2] per role.
[2] cannot be awarded per role if the response lacks either explanation and /
or application.
For example:
For an identification or a description of a role with or without application [1].
For explanation of role with no application [1].
For explanation of a role and application [2].

2c. Explain one advantage and one disadvantage for A4A of using a [4 marks]
predatory pricing strategy.
Markscheme
Predatory pricing (also undercutting. Some textbooks may refer to destroyer
pricing which is illegal and anticompetitive) is a pricing method where a
product or service is set at a very low price, intending to drive competitors out
of the market, or create barriers to entry for potential new competitors.
Predatory pricing has the advantage for A4A as a competitive tool given that
its target market is teenagers and adults who we assume would be price
sensitive given that there are other competing forms of adventure activity
entertainment. Therefore A4A is trying to get rid of the competitors by using
this pricing strategy.
“Affordable” pricing is enshrined in its current mission statement and
predatory pricing thus also deemed to be appropriate and ethical. A reference
to competitors should be accepted as application as there is not much more
info in the case about the competitors.
However for disadvantages:
A4A has already started to experience a fall in profit. Predatory pricing can
only be used in a short term especially now given the fall in revenue and
profit A4A might start to experience a loss. Therefore this pricing strategy
does not fit the changes in the external environment as stated in the
stimulus that caused a fall in
profit.
Predatory pricing has been considered in some countries as illegal or anti-
competitive (but there is no evidence from the stimulus that this has
occurred for A4A).
There could be “quality concerns” by some stakeholders that much lower
than competitor prices may imply a poor quality service and safety
concerns. This could be significant given that in the stimulus a new service
aimed at special needs children and adults is to be introduced.
If costs rise, then A4A could lose its competitive advantage if it is forced to
change its pricing method to be more market based.
The stimulus suggests that profits and revenues are falling. Predatory
pricing limits the possibility of reducing prices further to fuel sales growth.
Accept any other relevant explanation.
Mark as a 2+2.
Award [1] for an appropriate advantage/disadvantage identified and an
additional [1] for development of the explanation illustrating the
appropriateness of predatory pricing with respect to A4A. Award 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/description of an advantage/ disadvantage with or without
application [1].
For explanation of an advantage/ disadvantage with no application [1].
For explanation of an advantage/ disadvantage and application [2].
2d. Using the Ansoff matrix, evaluate the two possible growth strategies [10 marks]
for A4A.

Markscheme
The two possible growth strategies are linked to two cells of the Ansoff matrix.
Catering for children and adults with disabilities and access requirements
could be considered as market development as there is a new market to be
catered for with an existing product (A4A’s current facilities).
The corporate team building market, which would require A4A creating a new
product to cater for a new target market could be referred to as
diversification.
The Ansoff matrix would highlight that the latter diversification option would
be the riskiest given the lack of familiarity and experience in servicing the
corporate senior leadership team market.
The first growth strategy is likely to be cheaper and quicker for A4A to
organize. It is assumed that no modification will be required as opposed to the
diversification strategy. There will possibly be additional health and safety
concerns given that the market development strategy is focusing on children
and adults with disabilities and
access requirements. A4A might have to adapt the facilities after all hence
more costs than currently are expected. Moreover, additional training costs
will be necessary but one may judge this extra cost as short term only and
relatively minor. This option is classified as a medium-risk strategy on the
Ansoff matrix, as A4A is not familiar with the market only but very familiar and
experienced with the product. This risk can be reduced by training and
accumulated experience hence this argument can be judged as of lower
significance.
The mission of A4A need not be damaged and might even be improved. A4A
will be able to dispose of its predatory pricing strategy, which is risky as there
will be none or fewer competitors. One may argue that A4A cannot continue
with its predatory pricing for long due to losses if sold below production costs
or due to government
intervention. Still, a different higher pricing strategy might deter the clients.
However, staff training across all four centres will be an important
consideration in both options but especially in this market development
given that safety is part of A4A’s mission. Tama will need to ensure that he
has clear guidelines in place to run this service for children and adults with
disabilities and access requirements. As said above, this is likely to increase
costs.
Profit growth may be small and there are issues of sustainability for the whole
of A4A’s workforce if this market development strategy is not successful as
highlighted by two of the senior managers.
The second growth strategy, diversification, is riskier, as A4A will not be
familiar with the product/service and the market. The expected profitability of
the second option will protect all 342 jobs across the 4 centres and therefore
assumes greater significance than the market development option. Set up
costs are likely to be higher given that A4A is moving into a higher
valued/priced niche market, but higher prices and thus revenues should
compensate. The new pricing method is likely to be more sustainable in the
long run than predatory pricing that might end soon when A4A starts to make
a loss or is sued by competitors/attracts government intervention. This new
pricing method may confuse some potential customers given A4A’s mission
and knowledge of A4A’s predatory pricing strategy. Still, organisations that
pay for corporate team building activities are unlikely to expect predatory
prices. Hence, this argument can be judged as rather insignificant.

The significant costs of building the centre should also not be overlooked. This
can put enormous financial strain on A4A especially in the short term.
However, given the pricing strategy above and the new positioning, A4A can
become profitable in the medium to longer term.
The second option, diversification, also damages A4A’s mission statement,
as some senior managers think so. Resentment is already growing and Tama
can ill afford conflict at a difficult financial time especially as long serving
managers with experience are the ones who seem to be the most concerned.
Tama’s loyalty to his senior staff will be tested and he may have to make
some managerial changes if this resentment grows and if the diversification
option is selected.
It is expected that candidates provide a conclusion and a final judgment that
is substantiated. For example: on balance, the second growth strategy is
recommended despite the higher level of risk.
Accept any other relevant evaluation.
For the top markband, candidates must apply the Ansoff matrix correctly to
their
discussion.
Do not penalize if the matrix is not drawn provided it is well explained/ used.
If the Ansoff strategic options are not used or not used correctly but the
response
covers some relevant and balanced arguments for each option award up to
[4] even
if evaluation is evident.
Marks should be allocated according to the paper 2 markbands for May 2016
forward.
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].
If a candidate evaluates / addresses only one growth strategy, award a
maximum of [5].
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.
 Fujifilm
Throughout its history, Fujifilm has innovated. It invented many products such as
the first high-speed colour photographic film and the first disposable camera.
Fujifilm was one of the most trusted brand names in the photographic industry.
Fujifilm adapted to changes in the external environment. Digital photography and
smartphones were causing a significant reduction in sales of photographic film.
Researchers at Fujifilm discovered that patented chemicals used in Fujifilm’s
photographic film products are antioxidants* that could be used in cosmetic
products. In 2007, Fujifilm invented a skincare product line and branded it Astalift.
Fujifilm spent a large amount of money developing the new brand name and
building awareness and loyalty. Astalift quickly became one of the best-selling
brands in Japan’s
skincare product market.
In response to the success of Astalift, Fujifilm:
• acquired complementary pharmaceutical companies and built research and
development (R&D) facilities to develop additional cosmetic products under the
Astalift brand
• set up a new division that develops medical equipment based on photographic
film and imaging technologies (such as digital X-rays) marketed under the Fujifilm
brand name.
Fujifilm understood changes in societal norms, such as lifestyle and income of
women in many Asian and European countries. At present 20% of sales are
generated outside of Japan. In Europe, Fujifilm adapts its marketing mix for
consumer preferences in each country. Ultimately, Fujifilm wants to transform
Astalift into a global brand.
Today, only 1% of Fujifilm’s revenue comes from photographic film, while 99% of
revenue comes from the sales of cosmetics and medical equipment. Now, Fujifilm
has been so successful that other companies are trying to imitate its success on a
global scale. Japan’s beverage company Suntory has developed its own range of
natural skincare products to be marketed under its well-known brand name
Suntory .
[Source: adapted from: http://www.economist.com/
http://www.nippon.com/
http://www.brandchannel.com/]
* antioxidants: molecules that prevent the oxidation of other molecules, which can
maintain the health of cells; they are often used as preservatives in cosmetics

3a. Describe one internal factor and one external factor possibly affecting [4 marks]
innovation at Fujifilm.
 Markscheme
Possible internal factors affecting innovation at Fujifilm:
Availability of finance needed to spend on the process of innovation, which
is the successful commercial use of an invention. It is said that a large
amount of money was spent on developing new product(s).
Technological know-how and clearly an innovative culture, which allowed
this to be applied to the creation of new products such as high-speed, colour
photographic film.
Fujifilm’s management might have been encouraged by past success.
Fujifilm pioneered many products.
Attitude to risk, clearly Fujifilm was historically a risk taker. A company that
spent money on inventions to bring these products to the market.
Possible external factors affecting innovation at Fujifilm:
The technological changes in the external environment have created new
competitive forces/pressures. Digital photography and smart phones were
causing a significant drop in sales of film, which was one of Fujifilm’s core
competencies. Fujifilm had to react and innovate.
Fujifilm understood changes in societal norms outside of its control like
lifestyle and change in income, which allowed it to create new
needs/products to meet changes in social trends.
Accept any other relevant issue.
Mark as 2+2.
Award [1] for each relevant and correct internal / external factor identified
and [1] for describing the factor in relation to Fujifilm, up to a maximum of
[2].
Do not credit candidates twice for describing either two possible internal or
two external factors affecting innovation at Fujifilm.

3b. Explain one benefit of a patent for Fujifilm. [2 marks]

 Markscheme
A patent is a legal right granted to an organization / a person to be the
exclusive user of an invention for a specified period of time. Fujifilm was
granted patents on the chemicals used in its traditional photographic film
products. These are antioxidants that were used in the creation of new
cosmetic/skincare products.
The possible benefits of patents for Fujifilm:
For the duration of the patent given, Fujifilm can create a USP / competitive
advantage that can also act as a barrier to entry for other competitors. In
this case the use of the patented antioxidants enables Fujifilm to develop
new, and be rewarded for, an innovative cosmetic/skincare product that
competitors legally cannot copy.
Given the high costs and the long duration of research and development
(R&D) when no income was generated for Fujifilm, a patent can encourage
Fujifilm to create future products.
The patent may allow Fujifilm to charge a premium price to recover the R&D
costs and to have funds available for further future research.
Accept any other relevant benefit for Fujifilm with an explanation.
N.B. a definition of patent is not required for full marks.
Award [1] for a relevant benefit, with an additional [1] for application to
Fujifilm.
Award a maximum of [2].

3c. Explain one benefit and one cost of research and development (R&D) [4 marks]
for Fujifilm.
 Markscheme
Given the changes in the external environment mentioned in the stimulus,
research and development (R&D) enabled Fujifilm to develop highly innovative
and differentiated products and to have a first mover advantage in many
segments and markets. There is evidence that Astalift, as an example became
one of the best selling brands in Japan.
R&D allowed Fujifilm to explore these options before bringing them to the
market place as new innovations. Hence the risk of failure was much reduced.
R&D would also be helpful with the appropriate decision on the marketing mix
of the new innovations.
Moreover, the process of granting a patent after R&D has been carried out
also involves costs for the organization. The granting of a patent can possibly
enable Fujifilm to charge a premium price that is likely to satisfy the
shareholders if they are concerned about increasing costs of R&D.
However, the process of R&D, as well as ensuring a patent for Fujifilm and
other pharmaceutical or high technology industries is particularly expensive
and time consuming. Without granting a patent, these costs may not be
recouped.
Apart from the direct costs of R&D we must also note the opportunity costs to
Fujifilm. Research in itself is no guarantee of commercial success. Would these
funds for R&D be better spent on supporting other products in the Fujifilm
portfolio? We must also note the time costs / delays involved in researching
and developing a new product and bringing this to market. Working capital
could be tied up in a product’s R&D idea, which might only remain an
invention and therefore not generate any future sales or profits.
Fujifilm’s success can be short lived as competitors can eventually imitate its
innovation.
Accept any other relevant issue.
Mark as 2+2.
Award [1] for a relevant and correct benefit / cost and [1] for an explanation
of this benefit / cost in relation to Fujifilm, up to a maximum of [2].
N.B. if the explanation is generic and not applied to Fujifilm award [1] per
benefit / cost, up to a maximum of [2]. Despite the fact that the examples of
costs are rather generic, some attempt at application must be evident.

3d. Using the Ansoff matrix, examine Fujifilm’s decision to diversify. [6 marks]

Markscheme
One may argue that diversification, as one of the four strategic growth
options suggested by Ansoff is the most risky one. Fujifilm ventured into
unknown new markets – cosmetics and new targeted customers/segments,
which they had no experience of targeting before. Fujifilm had no security of
knowing the industry as well as knowing customers, hence a very risky
strategy, the most risky one among the four. Similarly, the diversification into
medical equipment can also be seen as diversification albeit perhaps a more
related one.
However, by pursuing unrelated diversification (or diversification) into the
cosmetic industry and the creation of the brand Astalift, one may argue that
Fujifilm actually reduces the risk of relying on their film / core product that
gradually became obsolete. The researchers at Fujifilm were competent
enough to see the possible synergy, the common “know how” and were able
to build on its existing knowledge in the film industry and transfer patents to a
new industry - the skincare industry. Hence the risk of using diversification as
a growth strategy has been much reduced. An appropriate strategy especially
in the short run until the patent expires.
Moreover, Fujifilm acquired pharmaceutical companies and developed R&D
facilities to support this high risk strategy with successful results.
Diversification can also be seen as the most expensive option as new markets
have to be researched, product to be created and marketed. Nevertheless, it
looks as if Astalift was successful as a diversification strategy.
Accept any other relevant examination.
It is not expected that the candidates covers all of the above issues
If the candidate merely states the Ansoff matrix with no application to Fujifilm
award a maximum of [1].
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].

For one relevant argument for and one relevant argument against award up to
[4].
For [5] it is expected that the analysis is relevant and detailed, but it may lack
some balance. For example, it includes only two detailed arguments for and
one detailed argument against.
For [6] candidates must give a balanced examination of two possible
 arguments for and two possible arguments against the decision to diversify.
The model is drawn accurately or the explanation of diversification in terms of
new product / new market is clear.
Marks should be allocated according to the paper 2 HL markbands for 2010-
2015 exams.

3e. Discuss the decision of Fujifilm to create the new brand, Astalift. [9 marks]

Markscheme
It is expected that candidates will discuss the decision of Fujifilm to create the
new brand as opposed to just discussing the creation of a new product.
Consumers view a brand as an important part of the product and branding can
add value to the product and can help with the positioning of the product.
The company brand name Fujifilm was not used for the cosmetic/skincare
product. One may argue that Fujifilm management took a chance, as the
Fujifilm brand has been very reputable, highly recognizable and successful.
Throughout its history, Fujifilm kept on enhancing the company brand.
We assume that the management at Fujifilm were aware of the possibility that
if Fujifilm operates under the same brand name and used a family branding
strategy for the new cosmetic/skincare products, current customers and the
targeted potential customers may be confused.
Despite creating a strong technical synergy between the new cosmetic line
and the current product – by using its patented antioxidants chemicals from
Fujifilm’s traditional film products – the management understood that the
targeted customers might be reluctant to buy a new cosmetic/skincare line
branded by the same name as other unrelated products. Hence a new brand
name and a new and separate identity was created.
Product / individual branding was used. Fujifilm’s management invested
heavily in creating the new, separated and distinctive brand name Astalift.
Clearly this choice is much more expensive for an organization rather than just
extending a successful brand name. Hence, it can be argued that Fujifilm took
unnecessary risk given the reputation of their brand. It definitely spent a
considerable amount of money on creating and developing the brand.
However, given the success of the new skincare/cosmetic product, this
argument cannot be judged as a significant one. The risk paid off. Astalift
became one of the bestselling in Japan’s skincare product market.
Figures suggest that the strategy of entering the Japanese market first to
establish brand awareness and test the new brand was a successful strategy.
The positioning, market share in Japan and the increase in revenue as stated
in the stimulus, provides the evidence.
The above are very significant arguments with strong evidence of a great
strategic response and success of creating a separate brand.
Moreover, brand erosion of Fujifilm might have occurred if the cosmetic /
skincare line was not successful and branded under Fujifilm. (The medical
equipment is traded under the original brand name).
However, the medical equipment created by Fujifilm was successful. Perhaps
there was no need to invest heavily on creating a new brand and identity and
save on marketing costs. However, these products were closer to Fujifilm’s
past core products.
Still Fujifilm evidently made a commercial success of the new product line
given their global ambition and the current market development strategy
used. Perhaps the challenge of using the Astalift brand name will be more of a
challenge in Europe.

One has to remember that while diversifying into the skincare/cosmetics

market, Fujifilm competes in Asia and in Europe with many well-established
companies. Perhaps in Europe a strong and well-established brand name of
Fujifilm and not Astalift might be more appropriate? Perhaps, regardless of the
chosen name, Fujifilm’s success is going to be reduced given the intensive
competition in the European markets.
Moreover, it looks like other companies such as Suntory are also diversifying
into cosmetic/skincare products. Hence the competitive advantage and the
USP created by Fujifilm may be short lived. Fujifilm has been very successful in
the short run but its long-term success might be less certain with the new
brand.
Possible judgment/substantiated conclusion:
As well as understanding the needs and aspiration of women, Fujifilm after
undisputed success in Japan, is well on its way to creating a global cosmetic
brand, that supports well the strategic option of diversification. 20% of its
sales come from abroad. However, some of the patents are likely to expire and
other companies can copy some of the ingredients and the technology used
when producing the cosmetic/skincare products. Perhaps it can be an
advantage if customers associate the product line with Fujifilm – sort of family
branding.
However, financially, the new brand was a commercial success and Fujifilm
has the infrastructure, the financial ability and the impetuous to continue to
develop innovative products.
Accept any other substantiated discussion and conclusions.
It is not expected that the candidates incorporate all of the above arguments.
A balanced analysis incorporates at least two arguments for and two
arguments against.
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].
If the candidate covers the issue of new product only rather than brand award
a maximum of [5].
Award a maximum of [5] 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 [5–7] markband if they give
judgment/conclusions that are not based on analysis/explanation already given
in their answer.
 Marks should be allocated according to the paper 2 HL markbands for 2010-
2015 exams

JustJet (JJ)
JustJet (JJ) is a leading European airline. It operates low-price flights across Europe
branded as JustJet. Currently it only offers an economy service and charges for on-
board meals and drinks. JustJet has strong brand awareness in Europe. The
business is very profi table. However, the economy “no frills” market has
saturated.
After reviewing the results of focus groups, the JJ board of directors proposed
launching a second service, called JustJetplus (JJplus). This service will offer first-
class-only flights to non-European destinations. Between 2006 and 2008 other
airlines offering a first-class-only service failed. JJ’s directors believe its brand
name and financial strength are strong enough to succeed.
JJ will purchase airplanes with first-class specifications only for the new JJplus
service. Passengers will have first-class seats that convert into beds, individual
tablet computers, high-quality food and free Wi-Fi. Although JJplus will charge
expensive first-class fares for all seats, its prices will nevertheless be lower than
the first-class tickets offered by their competitors. Flights will be daily to non-
European destinations, such as New York and Brazil, Russia, India and China
(BRIC).
The target market consists of two market segments:
vacationers seeking luxury travel at a lower price than the first-class tickets
offered by competitors
business fl yers, such as entrepreneurs from BRIC countries.
To break even, JJplus must sell 90 % of the seats on each flight.

4a. Define the term market segment. [2 marks]

Markscheme
A market segment is a group of people who share one or more identifiable
characteristics or needs.
Candidates are not expected to word their definition exactly as above.
N.B. no application required. Do not credit examples.
Award [1] for a basic definition that conveys partial knowledge and
understanding.
Award [2] for a full, clear definition that conveys knowledge and
understanding similar to the answer above. For [2] candidates will need to
refer to “groups” of people that “share” similar traits or characteristics.
4b. Explain one advantage and one disadvantage for JJ of using focus [4 marks]
groups as a method of market research.

Markscheme
Focus groups usually refer to a group of ten or fewer individuals. The group
usually consists of volunteers gathered to discuss a particular product or idea.
They are asked a series of questions or are given statements to which they
freely share their opinions, ideas and reactions. They may also be asked to try
out the new JJplus layout in the airplane cabins – they are unlikely to be
offered flights. All their responses are viewed and studied to measure the
reaction of the larger market population.
Advantages could include:
Focus groups usually provide immediate ideas for the improvement of
particular products or concepts. Feedback is quick. In this case they will be
able to give their views on the facilities provided in the first-class cabins of
the aircraft. They may also help identify needs not addressed by JJ.
Focus groups allow for in-depth questions to be asked, replies considered.
The researcher/moderator can then pose follow-up questions or ask
questions that probe more deeply. The interaction with potential customers
may be important for an airline that clearly operates in the service sector
and provides an intangible service.
The researcher can get information from non-verbal responses, such as
facial expressions or body language.
Information is provided more quickly than if people were interviewed
separately. JJ might want to collect information ASAP for such an important
strategic decision to be made.
Accept any other relevant advantage.
All of the above are particularly relevant / applicable to JJ as the organization
provides an intangible new service.

Disadvantages could include:

As only a small number of consumers are involved, they may not be fully
representative of the target market and therefore the results may be
unreliable. More specifically, the selection of the participant is very
important as they should be the target market. Participants should be
potential or actual first class flyers. Hence they have probably never flown
JustJet. As such they are not aware of the brand name, something the JJ
directors identified as a success factor.
There is the possibility that the members may not express their honest and
personal opinions about the topic at hand. They may be hesitant to express
their thoughts, especially when their thoughts oppose the views of another
participant.
Compared with surveys and questionnaires, focus groups are much more
expensive to execute. Usually, each participant will have to be compensated
in cash or in kind. There is very little in kind that JJ can offer.
Moderators can greatly impact the outcome of a focus group discussion.
They may, intentionally or inadvertently, inject their personal biases into the
participants’ exchange of ideas. This can result in inaccurate results.
Moderators can also lead focus group participants into reaching certain
assumptions or conclusions about an idea or product.
 Accept any other relevant disadvantage.
Mark as 2+2.
Award [1] for each correct advantage / disadvantage identified or described
and [1] for a relevant explanation with application to JJ. Award up to a
maximum of [2].
Application can be regarded as any reference to the company, the service /
product or the industry.
[2] cannot be awarded per advantage / disadvantage if the response lacks
either explanation and / or application.
For example:
For an identification or a description of an advantage / disadvantage with or
without application [1].
For explanation of an advantage / disadvantage with no application [1].
For explanation of an advantage / disadvantage and application [2].
N.B. whether focus groups are “easier” or quicker than other types of primary
market research requires some explanation. In general, if the candidate is
conveying the idea that feedback from focus groups is immediate, that is an
advantage. Compared to surveys, often focus groups are quicker, especially if
the survey is long, detailed and “scientifically” constructed. On the other
hand, companies can, and do, put together quick online surveys that probably
take less time than focus groups. Examiners should be aware that a candidate
may be correct in saying that they are “quick” or be misleading, depending on
the response. Be inclined to give benefit of doubt (BOD).

4c. Using the Ansoff matrix, explain JJ’s strategy of offering the first-class- [4 marks]
only service, JJplus.
 Markscheme
The Ansoff matrix is an analytical model assists organizations to map strategic
product market growth.
The launch of the new airline could be viewed in two different ways:
Product development: this is where a business aims to introduce new
products into an existing market. The first-class-only flights are certainly a
new product and they are hoping to sell it to its existing market – European
customers, more specifically vacationers seeking luxury travel.
Diversification: the first-class-only flights could be regarded as (related)
diversification as this is a new product / service targeted at new
geographical markets (New York and the BRIC countries) as well as new
untapped segments of vacationers seeking luxury travel at lower cost than
first class services offered by other airlines in the European, New York and
the BRIC markets / countries.
N.B. the Ansoff matrix does not need to be drawn for full marks, but reference
has to be made to the type of product and market.
Award [1] some minimal understanding idea of what an Ansoff matrix is or for
just drawing the matrix or inappropriate application.
Award [2] for some limited theoretical understanding of an Ansoff matrix (it
could be drawn) and limited application.
Award [3] for some description and some application/categorization of the
strategy according to the Ansoff matrix, but both lacks some depth / detail.
Award [4] for a clear and relevant explanation and application/categorization
of the strategy according to the Ansoff matrix.

4d. Evaluate JJ’s proposal to launch the JJplus service. [10 marks]

Markscheme
The new target market consists of two market segments:
• vacationers seeking luxury travel at a price lower than other airlines,
• business flyers, such as entrepreneurs from BRIC countries.
JJ already has a well-known brand name within Europe and is a market leader
in the budget flights market. This can be both an advantage and a
disadvantage. Existing, satisfied customers may decide to upscale and
purchase first-class-only flights based on their previous experience with the
airline. However it has a “no frills” image which could count against it in this
new market where the quality of the product will be a key factor in selling
tickets. Also JJ is only well-known within Europe. Its aim is to break into the
American and BRIC markets – here it will have very little brand recognition,
which will count against it.
Will the JJ brand image affect the image it is trying to create for JJplus or the
other way around? This may be the greatest challenge the business faces.
Pricing and branding also intertwine – setting the price too low might create
the wrong brand image, an image that is already a possible issue as it has
built its reputation as a business that offers only economy seating and charges
for all extra services on board. It is also an unknown brand in the American
and BRIC markets and it will take time and funding before it can establish a
suitable brand image. Still, JJ is profitable so the cost argument might not be of
significant importance.
JJ has decided to set its prices below those of rival, established airlines offering
flights with first-class seats to persuade their customers to switch allegiance.
These airlines are likely to already have brand loyal customers. Lower fares
than the main competitors might confuse the luxury seeking business flyers
from the BRIC countries, assuming the quality is not as high. However, it may
be more successful in attracting business flyers from smaller companies
where travel costs may be considered to be more important.
To break even, each flight has to sell at least 90 % of the seats. This is
potentially a small margin of safety as there might be little, or no opportunity
to cut cost for such a service.
JJ has only used focus groups so the market research is limited.
It will need to offer a sufficient discount compared to the prices charged by
established carriers if it to be a success. If it is successful initially it might
invite retaliation from existing airlines – a price war might develop and this
may force the business to cut its prices below costs and operate at a loss. The
business can finance this, at least in the short-term, from the profits being
made by its existing and original business, which is very profitable, but does it
really have the financial fortitude especially if competitors retaliate?
Other airlines offering a first-class service failed, so perhaps one might argue
that JJ should be cautious. However, this was a while ago so perhaps the new
external environment is more favourable, allowing the business to grow the
market. Some favourable PEST factors in the BRIC countries, such as increases
in income, changes in taste / preference, to name just a few, might create
opportunities for the JJplus service.

Candidates are expected to provide conclusions and judgment.

Accept any other relevant answer.
Marks should be allocated according to 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 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.
 [Author: Clker-Free-Vector-Images (pixabay.com).]
Trestle Z PLC (TZ)
Trestle Z PLC (TZ), a specialist coffee roaster, operates in the secondary sector. Its
instant coffees are sold worldwide in a very competitive market. Consumers in this
market have strong brand loyalty.
Although demand for instant coffee has not grown in many richer countries, it is
growing in emerging markets and Eastern Europe. TZ has no control over the
price of its raw material (coffee beans), as prices are determined by world
markets.
The directors of TZ want to increase the company’s gross profit margin and net
profit margin and grow the business. Table 5 gives selected financial information
for the company for 2019 and 2020.
Table 5: Selected financial information for TZ

TZ’s directors are considering two options.

Option 1: Take over a specialist coffee business
TZ is considering taking over Green Glass (GG) for $600 million. GG owns 1000
cafés in the USA that sell speciality products at high prices. It also has an e-
commerce subscription service that sells its coffee beans to consumers. In 2020,
GG’s net profits were $120 million. GG has a well-organized distribution channel
and strong brand awareness in the USA. TZ would operate the cafés using the GG
branding.
Option 2: Launch its own chain of cafés
These cafés would compete against established chains of cafés serving the mass
market. Initially, the launch would be in three EU countries but would then, if
successful, be launched across the world. TZ would produce a range of freshly
ground coffees for sale in the cafés.

5a. Define the term secondary sector . [2 marks]

 Markscheme
This sector includes both construction and manufacturing. It uses resources
from the primary sector to manufacture finished goods or process raw
materials to be used for other secondary sector business. The secondary
sector supports both the primary and tertiary sector.
Award [1] for some understanding.
Award [2] for a clear definition.
Providing examples of secondary sector business alone is insufficient to
receive marks. However, exemplification can strengthen a definition and be a
basis for a second mark (if the definition was not fully complete).

5b. Explain two factors that might prevent TZ from increasing its gross [4 marks]
profit margin.

Markscheme
TZ will find it very difficult to reduce its cost of sales as raw material prices are
dependent on the world price of coffee beans and TZ has no control over
these prices (it is a price taker).
TZ will find it very difficult to raise prices as TZ operates in a “very competitive
market”.
To increase its gross profit margin TZ would need to either
raise its price OR
reduce its costs of sales.
Mark as [2+2].
Award [1] for stating a reason why TZ might not be able to increase its gross
profit margin and an additional [1] for its explanation with reference to TZ.
Award a maximum of [2].

5c. Explain, using the Ansoff Matrix, TZ’s proposed takeover of GG. [4 marks]
 Markscheme
Candidates can be awarded up to 2 marks for demonstrating a knowledge of
the Ansoff Matrix and a further 2 marks for applying it the stimulus.
Candidates do NOT need to draw the Ansoff Matrix, but marks can be awarded
if they do and place the takeover of GG in an appropriate sector. However,
such an answer without any commentary is restricted to a maximum of 2
marks.
There is no single correct answer.
Candidates can be rewarded application marks if they suggest the takeover is
either:
product development as coffee retailers look at their existing market and
seek to gain their customers' loyalty with new and more exciting products,
or
market development as they take their existing product, coffee, and aim to
extend to new niche markets (of their own creation) by educating their
consumers to seek a new experience – or
market penetration – It is a good example of a product extension strategy,
adding value to a product for the consumer.
diversification – From a certain perspective, TZ’s proposed takeover of GG is
a form of diversification, related diversification (though candidates are not
required to use the word related).
Award [1] if the answer demonstrates a weak grasp of the Ansoff Matrix.
Award [2] if the answer demonstrates a sound grasp of the Ansoff Matrix.
Award [3] if the answer demonstrates a sound grasp of the Ansoff Matrix and
the candidate explains why it might be considered to be either PD, MD or MP
using the stimulus.
Award [4] if the answer demonstrates a sound grasp of the Ansoff Matrix and
the candidate explains why it might be considered to be more than just one
classification i.e. either PD or MD or PD or MP, MD or MP using the stimulus.

5d. Recommend whether TZ’s directors should choose Option 1 or Option [10 marks]
2.

Markscheme
Refer to Paper 2 markbands for 2016 forward, available under the "Your tests"
tab > supplemental materials.
Option 1 Advantages
Speed – once the deal is struck TZ will have expanded quickly.
Proven profitability GG made a profit of $120m in 2021 – is therefore less
risky than Option 2.
This business has a well organised distribution channel and strong brand
 awareness in the USA and therefore is already well established.
Option 1 Disadvantages
TZ only has $400m in cash and the takeover price is $600m and therefore
TZ will need external finance the purchase.
TZ will have to raise external finance, which means that its debt (and
interest expense) will increase or some dilution of ownership will occur.
This option is only based in US – will the concept transfer to other countries
and how much cost will be incurred to establish its brand overseas?
Option 2 Advantages
This can be seen as diversification, reducing risks as the market of jars of
coffee has stagnated in many richer countries.
It already has experience of purchasing coffee beans on a large scale and
can use the same suppliers for its new chain of cafes.
It has great potential as demand is growing in eastern Europe. Demand is
also growing in emerging markets so the prospects for sales may be good.
Option 2 Disadvantages
TZ has no experience of running cafes selling coffee.
It will have to go head on with established brands (students are likely to
name them e.g. Starbucks, Dunkin Donuts etc.) and may find it hard to
compete with the brand loyalties already established.
Will not have the economies of scale that existing chains have.
Will take much longer – is only trialling this in 3 countries in EU.
If successful in these countries will it work worldwide? – cannot be certain as
consumers in these countries may have different tastes or attitudes to rest
of the world.
In order to reach the top bands of the markscheme candidates must have a
balanced view, made a judgement AND also used the data in Table 3
effectively.
Accept any other relevant evaluation.
The table below should be followed (along with the paper 2 markbands).
These mark awards in the table below should be viewed as maximums. That
is, just because a candidate has one argument for option 1 and one argument
against does not mean that they will automatically get a 4. One strong
argument for one side and merely a weak or nominal argument for the other
side might result in a 3.
 Marks should be allocated according to the paper 2 markbands for May 2016
forward.

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