However the trial period is during the months when

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However, the trial period is during the months when the firm may be changing its production line. Is this a problem? The case suggests that they need to work at full capacity for 12 weeks to build up stocks. Thus, if also going ahead with change to production this could result in difficulty in meeting all customer orders. Will other retailers find out that 3D only pay $ 0.5? If they do, they may seek to renegotiate terms with LF resulting in a loss of revenue and profit. How important is it to win the order to LF? Currently the cinema only stocks a competitor brand. If the trial is successful this could lead to much larger orders and further increase LF’s market share. Evaluation: Which is the most important consideration? Final judgement should be weighed carefully and be based on preceding analysis.
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Page 5 Mark Scheme Syllabus Paper Cambridge International A Level – May/June 2015 9707 33 © Cambridge International Examinations 2015 4 (a) Using the data in Appendix C, calculate: (i) promotional elasticity of demand for Lemonfizz [3] AED = % change quantity demanded / % change advertising expenditure (1) % change advertising exp = 10% (1) AED = 5/10 = 0.5 (3) If equation inverted 0 marks, but using OFR if correct calculation 2 marks Sign not essential for marks (ii) price elasticity of demand for Lemonfizz. [3] PED = % change quantity demanded / % change price (1) % change price = –3.33% (1) PED = 5/-3.33 = –1.5 (3) (b) Discuss whether LF should reduce price or increase promotional expenditure in order to increase sales of Lemonfizz. Refer to your results from (a) and any other relevant information. [14] Knowledge 2 marks Application 2 marks Analysis 5 marks Evaluation 5 marks Level 2 2 marks Good knowledge shown 2 marks Points made are well applied 3–5 marks Good use of reasoned argument or theory to explain uses/limitations 3–5 marks Good judgement shown in answer and conclusion Level 1 1 mark Knowledge shown of relevant issues 1 mark Some attempt to apply 1–2 marks Some use of reasoned argument or theory to explain uses/limitations 1–2 marks Some judgement shown in answer and/or conclusion If only results from (a) or other information used – max. Level 1 for Analysis and Evaluation. Although AED is less than 1 (+0.5) this does not mean that advertising is a waste of money. An increase in sales of 5% if maintained over the course of a year would be 13.5 million litres extra – potentially $ 8.1 m. [90% of 300 m = 270 m litres. 5% of this = 13.5 m × $ 0.60 = $ 8.1 m] However, production costs of $ 4.745 m ($ 0.35 × 13.5 m) must be taken into account. PED may be elastic (5 / – 3.33 = – 1.5) and there would be an increase in revenue [270 m × $ 0.60 = $ 162 m but 283.5 m × $ 0.58 = $ 164.43]. However, that does not necessarily mean an increase in profits. Again, production costs must be accounted for. [270 m × $ 0.35 = $ 94.5 m but 283.5 m × $ 0.35 = $ 99.25 m so profit will actually fall.]
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Page 6 Mark Scheme Syllabus Paper Cambridge International A Level – May/June 2015 9707 33 © Cambridge International Examinations 2015 Other considerations: How does a change in price or advertising fit in with other elements of the marketing mix?
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