2023 Edexcel IGCSE Business Practice Paper with Answers

Public relations (PR) is a key element of the promotional mix, along with advertising, sales promotion, and personal selling. Penetration pricing is a pricing strategy (Price), distribution channels are part of Place, and product differentiation belongs to Product.

1 mark for the correct option (B). No partial marks.

Job enrichment is a non-financial motivator that involves designing jobs with a wider variety of tasks and greater responsibility. Commission, profit sharing, and performance-related pay are all financial rewards.

1 mark for the correct option (A). No partial marks.

The current ratio includes all current assets, whereas the liquid (acid test) ratio excludes inventory from current assets. A large difference between these two ratios indicates that the business has a substantial amount of capital tied up in inventory.

1 mark for the correct option (B). No partial marks.

A private limited company (Ltd) cannot sell its shares to the general public on a stock exchange. Instead, shares are sold privately, and typically existing shareholders must agree to the sale. Owners also benefit from limited liability.

1 mark for the correct option (C). No partial marks.

Flow production involves the continuous movement of standardized products along an assembly line. This high-volume output allows the business to benefit from economies of scale, resulting in lower average unit costs. It is highly capital-intensive and does not offer high customization.

1 mark for the correct option (D). No partial marks.

In a highly competitive market, there are many rival firms. Since consumers have a high level of choice, businesses must focus on quality, customer service, and competitive pricing to survive and retain market share.

1 mark for the correct option (B). No partial marks.

Market segmentation is the process of splitting a market into distinct sub-groups of customers who share common characteristics, needs or wants.

Give 1 mark for a correct definition. E.g. Dividing a market into smaller groups of customers with similar needs (1). Do not accept definitions of target market.

Diseconomies of scale represent the rising average cost per unit that a business experiences when it expands beyond its optimum size, due to factors like poor communication or coordination.

Give 1 mark for a correct definition. E.g. An increase in unit/average costs due to a business growing in size (1). Reject definitions that only state 'total costs increase' without referencing average/unit costs or scale/size.

One method of external recruitment is placing a job advertisement on an online job board. This allows people from outside the business to see the vacancy and apply.

Award 1 mark for any valid method of external recruitment. Examples include: recruitment agencies, job advertisements on websites or newspapers, university careers fairs, and professional networking sites. Do not accept internal transfer, internal promotion, or internal noticeboards.

First, calculate the contribution per unit:
\(\text{Contribution per unit} = \text{Selling price} - \text{Variable cost}\)
\(\text{Contribution per unit} = £28 - £12 = £16\)

Next, calculate the break-even point:
\(\text{Break-even point} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}\)
\(\text{Break-even point} = \frac{£3,200}{£16} = 200\) hoodies.

1 mark for correct method/formula, e.g.:
\(\frac{\text{Fixed Costs}}{\text{Selling Price} - \text{Variable Cost}}\)
OR
\(\frac{3,200}{16}\)

1 mark for correct answer:
200

Note: Award full 2 marks for the correct answer '200' even if no working is shown.

One benefit to a business of using a penetration pricing strategy is that it allows the business to rapidly gain market share (1). This is because the low introductory price makes the product highly attractive to price-sensitive consumers compared to established competitors (1). As a result, the business can quickly build brand awareness and customer loyalty, making it easier to successfully raise prices in the future (1).

Award 1 mark for identifying a valid benefit, plus 2 further marks for explaining this benefit, up to a maximum of 3 marks.

- 1 mark for identifying a benefit (e.g., helps to quickly gain market share / attracts customers away from competitors / encourages product trial).
- 1 mark for developing the explanation (e.g., because the low initial price makes the product more appealing than existing alternatives).
- 1 mark for further development (e.g., which allows the business to establish brand loyalty and eventually increase prices once a customer base is secured).

Note: Do not accept answers that just define penetration pricing without explaining a benefit to the business.

By partnering with lifestyle or home-decor social media influencers, Scentique can directly target consumers who are already interested in home aesthetics and premium self-care products. Influencers can create visually appealing content, such as videos showing the candle burning or unboxing the winter-themed packaging. This visual representation is highly effective for premium lifestyle products. Additionally, because Scentique is a small business, influencer marketing can be more cost-effective than traditional print ads, allowing Amara to negotiate flexible compensation (such as free products or commission-based affiliate codes). This ensures that the promotional budget is spent directly on reaching engaged potential customers, thereby maximizing the likelihood of increasing sales and brand awareness for the new range.

Level 1 (1-2 marks): Demonstrates limited knowledge and understanding of promotional methods/influencer marketing. Minimal application to the context of a candle business. Analysis is generic or absent.
Level 2 (3-4 marks): Demonstrates good knowledge and understanding of influencer marketing. Some application to Scentique (e.g., mentioning organic candles or the winter range). Analysis is developed, showing how targeting or visual appeal leads to some benefits.
Level 3 (5-6 marks): Demonstrates thorough knowledge and understanding of influencer marketing. Excellent application throughout to Scentique's specific context (premium, handcrafted, visual appeal of winter candles). Fully developed chains of reasoning showing how targeted visual promotion and cost-effectiveness directly benefit a small premium business's sales and brand awareness.

One non-financial method of motivation is job rotation, which involves moving employees between different tasks to increase variety and reduce boredom.

1 mark for stating any valid non-financial method of motivation. Acceptable answers include: job rotation, job enrichment, job enlargement, delegation, praise, employee recognition, team working, or flexible working hours. Do not accept financial rewards such as bonuses, commission, or promotion if it solely implies a pay rise.

The four elements of the traditional marketing mix are Product, Price, Place, and Promotion. Stating any of these is correct.

1 mark for stating one of the following elements: Product, Price, Place, or Promotion. Do not accept elements of the extended 7Ps mix (such as People, Process, Physical evidence) as the core syllabus focuses on the 4Ps.

Penetration pricing involves setting a low initial price to attract a large number of customers and win market share.

- **Point**: Helps a business gain market share quickly (1 mark).
- **Development**: This is because the low introductory price makes the product highly appealing compared to established, higher-priced rivals (1 mark).
- **Further Development**: As a result, this leads to high initial sales volumes and builds brand awareness in a competitive market (1 mark).

Award 1 mark for identifying an advantage, plus 2 marks for logical linked development.

- **Identify advantage (1 mark):** e.g. Allows the business to gain market share quickly.
- **Link 1 (1 mark):** e.g. Because the low price attracts customers from competitors who charge higher prices.
- **Link 2 (1 mark):** e.g. This leads to high sales volume and increases brand awareness.

*Note: Do not award marks for simply listing multiple advantages. Only one advantage should be developed.*

Job enrichment involves giving employees tasks that require more skill and responsibility.

- **Point**: Reduces labour turnover / improves employee retention (1 mark).
- **Development**: This is because workers are given more challenging or complex tasks, which makes them feel more valued and trusted (1 mark).
- **Further Development**: Consequently, this increases job satisfaction, reducing their desire to leave the business for alternative employment (1 mark).

Award 1 mark for identifying an advantage, plus 2 marks for logical linked development.

- **Identify advantage (1 mark):** e.g. Reduces labour turnover.
- **Link 1 (1 mark):** e.g. This is because workers feel more motivated and trusted when given extra responsibilities.
- **Link 2 (1 mark):** e.g. Therefore, they develop greater loyalty to the firm and are less likely to look for other jobs.

*Note: Do not award marks for simply listing multiple advantages. Only one advantage should be developed.*

External recruitment means hiring someone from outside the business to fill a vacancy.

- **Point**: Brings new ideas and perspectives into the business (1 mark).
- **Development**: This is because external candidates may have different experiences or training from working in other firms (1 mark).
- **Further Development**: Consequently, this can help the business implement more efficient working methods or innovate its products (1 mark).

Award 1 mark for identifying an advantage, plus 2 marks for logical linked development.

- **Identify advantage (1 mark):** e.g. Brings new ideas and skills into the business.
- **Link 1 (1 mark):** e.g. Because external applicants may have experience working in different market environments.
- **Link 2 (1 mark):** e.g. This can help the business adopt more competitive practices and improve productivity.

*Note: Do not award marks for simply listing multiple advantages. Only one advantage should be developed.*

Analysis of Option 1 (Department Store):
- Selling through a high-end department store aligns perfectly with the 'premium' brand image of Scented Heaven. The store's existing wealthy clientele are likely to purchase high-priced luxury candles.
- It provides a physical space where customers can experience the product's fragrance (sensory marketing), which is a key buying determinant for candles.
- However, the department store will demand a high trade discount (e.g., 30-50%), which will significantly lower Chloe's profit margins per unit.

Analysis of Option 2 (Social Media Campaign and Website):
- This allows Chloe to maintain direct-to-consumer (DTC) sales, preserving high profit margins because there is no retail intermediary taking a cut.
- Social media platforms allow precise targeting based on interests (e.g., 'organic products', 'home decor'), ensuring highly efficient advertising spending for a small business.
- However, customers cannot smell the candles online, which might make them hesitant to buy a premium-priced sensory product.
- There are also packaging and delivery costs/risks to consider for fragile glass jars.

Conclusion/Justification:
- Chloe should choose Option 1 if her primary goal is rapid brand establishment and immediate high-volume sales, as the physical sensory experience of a candle is crucial for a premium brand. Although margins are lower, the volume of sales will compensate.
- Alternatively, Chloe should choose Option 2 if she wants to build long-term customer loyalty, collect customer data for repeat marketing, and maintain high profit margins, provided she can use high-quality visual content and customer reviews to overcome the lack of scent online.

Level 1 (1-3 marks): Focuses on basic advantages/disadvantages of either option (e.g., department stores have many customers, social media is cheap). Minimal or no application to Scented Heaven or the premium candle market.

Level 2 (4-6 marks): Detailed analysis of one or both options with clear application to the scenario (e.g., mentioning that customers can smell the premium soy candles in a physical store, or discussing the shipping of fragile candles purchased online). A balanced discussion is present, but evaluation of which option is better is weak or missing.

Level 3 (7-9 marks): Deep evaluation that compares both options in the context of Scented Heaven. Synthesizes points to make a clear, justified recommendation. Shows understanding of the trade-off between profit margins (Option 2) and sensory product trial (Option 1).

A person specification details the personal characteristics, skills, experience, and qualifications needed by a candidate to carry out a job role successfully.

Award 1 mark for a complete and accurate definition of a person specification. Examples: A profile of the personal skills, qualifications, and experience required for a job (1 mark). A document listing the qualities needed by a candidate to perform a specific job (1 mark). Do not accept: A list of the duties and responsibilities of the job (this defines a job description).

Promotion is used to inform customers about a product and persuade them to buy it. For Sanjay, running promotions (such as social media posts showing his designs) helps build awareness of his high-quality, hand-decorated wedding cakes. This targets couples planning their big day, encouraging them to book a consultation or order from 'Sanjay's Sweet Treats' rather than rival bakeries.

Award 1 mark for identifying a valid reason to use promotion (AO1) and 1 mark for applying it to the context of the bakery/wedding cakes (AO2).

- **Knowledge (1 mark):** e.g. To raise awareness of a new or existing product.
- **Application (1 mark):** e.g. ...of his hand-decorated wedding cakes so that couples planning their weddings choose his bakery over competitors.

*Note: To secure the second mark, the response must relate clearly to the scenario (e.g., cakes, bakery, weddings, couples, decorating).*

Step 1: Calculate Gross Profit
\(\text{Gross Profit} = \text{Revenue} - \text{Cost of Sales}\)
\(\text{Gross Profit} = £180,000 - £117,000 = £63,000\)

Step 2: Calculate Gross Profit Margin
\(\text{Gross Profit Margin} = \left(\frac{\text{Gross Profit}}{\text{Revenue}}\right) \times 100\)
\(\text{Gross Profit Margin} = \left(\frac{£63,000}{£180,000}\right) \times 100 = 35\%\)

Award 1 mark for showing correct method / working:
- \(\frac{63,000}{180,000} \times 100\) OR finding the gross profit of \(£63,000\)

Award 1 mark for the correct answer:
- \(35\%\) (also accept \(35\) or \(0.35\))

Maximum 2 marks.

Step 1: Calculate Gross Profit
\(\text{Gross Profit} = \text{Revenue} - \text{Cost of Sales}\)
\(\text{Gross Profit} = £180,000 - £117,000 = £63,000\)

Step 2: Calculate Gross Profit Margin
\(\text{Gross Profit Margin} = \left(\frac{\text{Gross Profit}}{\text{Revenue}}\right) \times 100\)
\(\text{Gross Profit Margin} = \left(\frac{£63,000}{£180,000}\right) \times 100 = 35\%\)

Award 1 mark for showing correct workings:
- \(\frac{63,000}{180,000} \times 100\) or \(180,000 - 117,000 = 63,000\)

Award 1 mark for correct answer:
- \(35\%\) (accept \(35\) or \(0.35\))

Maximum 2 marks.

Introducing a piece-rate pay system can have several key effects on Sita's Spices: 1. Increased Output to Meet Demand: By paying workers based on the number of organic spice packs they package, workers are financially motivated to work faster. This increase in productivity will directly help Sita's Spices produce a higher volume of goods, allowing the business to satisfy the rising market demand and increase sales. 2. Risk of Lower Quality: Since workers are rewarded for speed, they may rush the manual hand-packaging process. This could result in poorly sealed spice bags, inaccurate measurements, or contaminated mixtures. For a brand marketed as premium and organic, such quality issues can lead to increased wastage, customer complaints, and long-term damage to the business reputation, ultimately reducing customer loyalty and overall revenue.

Level 1 (1-2 marks): Candidate shows basic knowledge of piece-rate pay but with little or no application to the scenario. Answers may simply define piece-rate pay or state that it increases speed, without a clear chain of reasoning. Level 2 (3-4 marks): Candidate applies knowledge to the scenario (e.g., mentioning organic spices, hand-packaging, or high demand) and develops a simple chain of reasoning explaining either a benefit or a drawback of the payment change. Level 3 (5-6 marks): Candidate provides detailed application to the context of Sita's Spices. A thorough chain of reasoning is developed to analyse both the positive effects (increased productivity to meet high market demand) and negative effects (potential reduction in quality of the premium spice packaging, leading to brand damage).

### Model Answer

**Arguments for Option 1 (Free Delivery over £30):**
* **Higher Average Order Value:** By setting a £30 threshold, customers who might have only spent £15–£20 will be incentivised to purchase an additional toy or accessory to qualify for free delivery, boosting the overall sales revenue per transaction.
* **Lower Risk and Overheads:** Offering free delivery relies on the existing website infrastructure. There is no need to commit to expensive short-term lease contracts or hire seasonal physical retail staff, making it a lower-risk option for a small business.
* **National Reach:** Unlike a physical kiosk which is limited to shoppers in a single city, online free delivery can attract customers nationwide, expanding the business's target market.

**Arguments for Option 2 (Pop-up Kiosk in Shopping Mall):**
* **Sensory Engagement with Premium Products:** High-quality wooden toys are tactile. Parents and children can touch, feel, and play with the toys at the kiosk, which highlights their premium quality much better than 2D images on a website. This physical interaction can justify the premium price point and drive impulse purchases.
* **High Holiday Footfall:** Shopping malls experience peak traffic during the festive season. This gives Hana Toys immediate and intense brand exposure to thousands of targeted gift-buyers who might not have found their website online.

**Conclusion & Recommendation:**
* Hana Toys should choose **Option 2** if they have the cash flow to cover the upfront renting and staffing costs. Premium wooden toys rely heavily on quality perception; allowing consumers to physically feel the weight and smooth finish of the wood is a powerful sales tool that cannot be replicated online. While Option 1 is lower risk, it is unlikely to generate the same level of brand excitement and rapid sales volume increase during the crucial festive window. However, if cash flow is extremely tight, Option 1 remains the safer, more scalable alternative.

**Marking Criteria:**

* **Level 1 (1–3 marks):** Isolated points of knowledge and understanding of promotional methods, location, or delivery options. Weak or non-existent application to the context of premium wooden toys. Chain of reasoning is absent or very weak.
* **Level 2 (4–6 marks):** Applied points of analysis showing the advantages and/or disadvantages of one or both options. The response links how the option impacts sales volume or costs. Points are contextualised to Hana Toys (e.g., premium nature of toys, festive season).
* **Level 3 (7–9 marks):** Balanced, detailed evaluation of both options. The candidate provides a clear, justified recommendation, weighing up the trade-offs (e.g., risk/cost of physical retail vs. lower impact of online promotion). The conclusion is well-supported and directly addresses which option is best for Hana Toys' specific context.

Step 1: Calculate Gross Profit. \( \text{Gross Profit} = \text{Revenue} - \text{Cost of Sales} \). \( \text{Gross Profit} = £480,000 - £312,000 = £168,000 \). Step 2: Calculate Gross Profit Margin. \( \text{Gross Profit Margin} = \left( \frac{\text{Gross Profit}}{\text{Revenue}} \right) \times 100 \). \( \text{Gross Profit Margin} = \left( \frac{168,000}{480,000} \right) \times 100 = 35\% \).

1 mark for showing correct working/formula, e.g. \( \frac{480,000 - 312,000}{480,000} \times 100 \) OR \( \frac{168,000}{480,000} \times 100 \). 1 mark for the correct answer: 35% (or 35). Award full 2 marks for a correct answer with no workings.

One positive impact of moving to a direct-to-consumer (D2C) online channel is the elimination of intermediaries. Currently, luxury boutiques and department stores take a significant percentage of the retail price as their profit margin. By selling directly through its own website, GlowSkin Ltd keeps 100% of the sales revenue, significantly increasing its gross profit margins. This extra profit can be reinvested into digital marketing to drive online traffic. Conversely, a negative impact is the loss of the physical retail experience. Premium organic serums are high-involvement products where customers often expect to test textures, smell the ingredients, and receive face-to-face skincare advice from boutique staff. Without these physical touchpoints, potential customers may hesitate to purchase a premium-priced product online, which could lower overall conversion rates and sales volume unless GlowSkin Ltd invests in expensive alternatives like free samples or virtual consultations.

Level 1 (1-2 marks): Focuses on basic advantages or disadvantages of online selling without context. For example, 'Selling online is cheaper because there is no rent to pay' or 'Customers might not trust the website.' No real connection to GlowSkin Ltd or premium skincare.

Level 2 (3-4 marks): Application and analytical points are developed. Shows how GlowSkin Ltd is affected. For example, explaining that by cutting out boutiques, GlowSkin Ltd can save on intermediary costs, which improves its profit margins. There is a logical link, but it may lack depth or miss the specific nature of organic skincare products.

Level 3 (5-6 marks): Detailed analysis of the impact, fully contextualised to GlowSkin Ltd (e.g., premium organic serums, sensory testing of textures/scents, luxury boutique positioning). Two complete, logical chains of reasoning are provided (one positive, one negative, or two highly detailed impacts) showing clear understanding of how the change in the marketing mix (place) impacts sales volume, costs, or customer relationships.

### Indicative Content

**Option 1: Lowering the price by 15% (to \( \text{\pounds}2,125 \))**
* **Pros:**
* This makes the premium e-bikes accessible to a larger demographic who previously found the \( \text{\pounds}2,500 \) price tag prohibitive.
* It directly narrows the price gap between VeloCycles and cheap imports, which may tempt buyers to upgrade to VeloCycles' superior quality.
* Higher sales volume could help VeloCycles achieve purchasing economies of scale, reducing unit production costs.
* **Cons:**
* Lowering the price might dilute the premium brand image, as consumers often associate high price with high quality.
* A 15% price cut reduces the profit margin per unit significantly, meaning they must sell substantially more e-bikes just to maintain current revenue levels.

**Option 2: Social media and influencer promotional campaign**
* **Pros:**
* Maintains the premium brand identity and the healthy profit margin associated with the \( \text{\pounds}2,500 \) retail price.
* Targeting environmental influencers ensures the promotion reaches a highly relevant, eco-conscious, and affluent target market.
* Builds long-term brand equity and customer loyalty, which protects the business from future price wars.
* **Cons:**
* Social media campaigns, especially those involving high-profile influencers, require significant up-front cash outflows with no guaranteed return on investment.
* It does not address the core issue of customers who simply cannot afford a \( \text{\pounds}2,500 \) bicycle, potentially limiting the growth in market share.

**Conclusion / Recommendation (Examples of balanced evaluation):**
* **Choosing Option 2** may be the most sustainable choice because VeloCycles' core competitive advantage lies in its premium engineering and reputation. Competing on price via Option 1 risk positioning VeloCycles in a crowded middle-market where they cannot compete on cost with massive foreign manufacturers. By reinforcing their premium status through targeted promotion, they preserve their high margins.
* **Choosing Option 1** might be preferred if the market has reached a saturation point where premium buyers are fully tapped out. If the market is highly price-elastic, a 15% price reduction could lead to a disproportionately larger percentage increase in demand, successfully capturing market share from mid-tier rivals.

**Mark Scheme - 12 Marks**

* **Level 1 (1-3 Marks):**
* Demonstrates isolated elements of knowledge and understanding of pricing strategies or promotional methods.
* Weak or generic application to the e-bike context.
* Assessment is highly one-sided or purely descriptive.

* **Level 2 (4-6 Marks):**
* Demonstrates some knowledge and understanding, applying ideas to VeloCycles (e.g., mentions the price drop to \( \text{\pounds}2,125 \) or the use of eco-influencers).
* Chains of reasoning are presented but may be incomplete or lack depth.
* Suggests some advantages/disadvantages of one or both options but lacks balanced comparison.

* **Level 3 (7-9 Marks):**
* Demonstrates good knowledge and understanding, well-applied to the context of a premium bicycle brand facing cheap import competition.
* Developed chains of reasoning showing clear cause-and-effect relationships for both options.
* A balanced assessment of both options is present, though the final recommendation may lack full justification or critical depth.

* **Level 4 (10-12 Marks):**
* Demonstrates excellent, comprehensive knowledge and understanding, fully contextualised to VeloCycles.
* Strong, coherent, and logical chains of reasoning analyze the trade-offs of both options.
* Offers a highly critical, balanced evaluation. The choice is clearly justified, considering both short-term and long-term impacts, and recognizes that the 'best' decision depends on factors like VeloCycles' budget and brand priority.