Title 3. Case 3.pdf ✅

AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 1 P2 - Case 3 | M/J 2023, V2 (Case 2)
AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 2 (a) (i) Shareholder (ii) (1) Sustainability is regarded as using resources in such a way that they are available for future generations and do not damage the environment. (2) This allows the businesses to build a brand name. (3) Example: If a factory uses solar energy as opposed to using fossil fuel to power up their factories this would reduce the harmful impacts on the society and leave more resources for the future generations. Note: Example is must. (b) (i) Market Share = (Company Sales / Industry Sales) x 100 = (265 / 1203) x 100 = 22.02% (ii) One of the reasons why objectives for MXB will change is because MXB wants to expand its product portfolio and trying to enter the new electric scooter market. This allows MXB to delay its goals of profit and would try to make sure that MXB survives in this market first so that they sustain their revenue because with the current drop of sales of mountain bikes by 12% MXB cannot afford to face any loss.
AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 3 (c) 8 MARKS Outline: [ADV] Attracts new customers base of young people > improve brand cognition > targets other than high income leisure customers > larger market = more sales > improves profits > cover the 12% decrease in mountain bike sale > prevent failure + future growth increases. [DIS] High cost of production + promotion > shifting from urban youth market requires primary research > helps to understand features customers are looking for in a bike > color + travel range etc > added cost to develop the product > difficult to sustain with sales of bicycles already declining > loss of revenue > worse the problem of 12% drop in sales > lower profits > difficult to survive again larger players like PE and LK Answer: One advantage of launching a new range of eclectic scooters is that it will attract a new customer base of younger people. This is will benefit MXB because it will increase their brand recognitions so that not only high-income leisure users buy their products. This larger market will increase their sales which would ultimately boost their profits. As a result, they will use this excess finance to cover the loss from the 12% decrease in mountain bike sales. This would not only prevent business failure but also enable MXB to grow. One disadvantage of launching a new product line of electric scooters is that it will lead to high cost of production and promotion. Since MXB is new into the urban youth market it would require primary market research in order to understand what kind of features are the customers looking for. Example: The travel range of electric scooters, the estimated price or the color range. Developing all these features would put pressure on the financial resources because the sales of MXB's bicycles are already static and it is already difficult for the business to survive. Therefore, launching a new version along with launching extension strategies for bicycles would add cost with no guarantee of sales. This would result in loss of revenue and can make the problem of loss of 12% drop in revenue more serious. As a result, profits will decrease make it difficult to survive against PE and LK which are almost as large as MXB in the market.
AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 4 (d) 12 MARKS Outline: Def > Extension Strategies > Used to extend its product life cycle + It is applied in the maturity stage of the product. Method 1: Lower prices of mountain bikes > static demand + revenue decline by 12% > needs to boost sales in order to stay competitive against LK and PE > lower prices = bikes become more attractive > increases sales > more customers the market share of MXB increases beyond 22% > higher profits > sustain operational activities in the company. [HOWEVER] might lose leisure high income customers > might lose its premium image > loss of brand name > damage sales > lower long-term profits > difficult to sustain operations and reinvest in electric scooters which hinders growth. [EVAL] Therefore lowering prices can be a significant tool to extend the life of a product due to its ability to attract sales which helps to solve the main problem that MXB is currently facing. However, it depends on consumer preferences. Will the high-income consumers react to this drop in price? Unless the increase in sales outweighs the drop in price the revenue can decrease even more. Method 2: Add new features to bicycles and develop new versions for casual users > target a new segment of low-income consumers > helps to capture the mass market > ensures to increase sales beyond $265,000 > boost profits > reinvest in promotion of bicycles > helps to sustain a competitive advantage again LK and PE. [However] cost of R&D + promotion expense > higher prices to customers + lower profits > risk diversification strategy of launching electric scooters > risk company failure. [EVAL] Therefore developing a new version is a significant method to extend the life of a product due to opening a new market with a new segment. However, the success depends on the resources available with MXB to fund such an activity. Since it is public limited company chances are that securing funding won't be difficult but it all depends on how significant is the factor of stagnant sales. If investors feel that the company is not progressing chances are that options to secure funding for a product which is not progressing might be low as it will be perceived be to be too risky and they would rather spend the same money on the electric scooters which shows promising results. FINAL EVAL (1) Overall MXB should choose launching a new casual brand of bicycles because even if it is risky it does not damage the brand name. Lower prices would impact the brand name that MXB has built over the years and it is not worth losing that name over a small drop in sales. (2) However, it depends on how successfully can the company collect the market research data. As long as MXB can conduct primary and secondary research to confirm that market for casual bikes exist this method will work. (3) If the market does not show promising results it is still better to keep investing in promotion and increasing distribution over reducing the price. (4) Lower prices should only be kept as the last resort when nothing else works because once MXB loses its premium image in the high-income market its difficult to overcome it.