A-level Business (7132) · Paper 2: Business 2

01.1 [2 marks]

Using Appendix A, calculate the percentage change in PeakFit Gyms plc's membership between 2023 and 2024.

(468,000 - 412,000) / 412,000 x 100 = +13.6%.

• 1 mark: correct method.
• 1 mark: 13.6% increase.

01.2 [2 marks]

Using Appendix A, calculate PeakFit Gyms plc's current ratio for 2024.

9.6 / 16.0 = 0.6 : 1 (accept 0.60).

• 1 mark: current assets / current liabilities.
• 1 mark: 0.6 : 1.

01.3 [4 marks]

Explain one benefit to PeakFit Gyms plc of using a stratified sample for its survey in Appendix C.

• Stratified sampling chooses respondents in proportion to sub-groups (age, region) - results reflect the make-up of the membership.
• PeakFit can see whether demand for 'PeakFit Plus' differs by age or region - helps choose which 20 gyms to convert.
• Reduces sampling bias compared with an unstructured sample; with 3 000 respondents results are more reliable.
• Marks: 1 knowledge, 1 application, 2 developed explanation.

01.4 [9 marks]

Using Porter's five forces, analyse why profit margins in the UK budget gym market may be low.

• Rivalry: three large chains plus many independents; PeakFit's share only 7.2% - competition on price keeps fees low.
• Buyer power: no contracts and easy switching; 68% chose on price - members move for cheaper fees.
• Threat of substitutes: free apps and online classes (57% used one) cap the price gyms can charge.
• Threat of entry: cheaper town-centre buildings lower barriers; independent gyms can enter easily.
• Supplier power is probably moderate (landlords, equipment suppliers) - but rising energy costs for 24-hour gyms squeeze margins.
• Analysis should link each force to lower prices or higher costs and therefore lower margins.

01.5 [16 marks]

To what extent does the information suggest that launching 'PeakFit Plus' is a good strategic decision?

• For: differentiated product with higher fees raises revenue per member; reduces dependence on price competition and the substitute threat (personal trainers can't be replicated by an app).
• For: 21% would pay £15 more - from 468 000 members that is a large potential customer base, especially in the largest gyms.
• Against: 68% chose PeakFit on price - brand associated with 'budget'; brand confusion could damage both offers.
• Against: mid-market and premium chains already hold 21% of the market - strong competition; spa facilities require capital investment while the current ratio is only 0.6.
• Against: survey intentions may overstate actual behaviour ('would pay' v will pay).
• Judgement: a trial in a few gyms, using sales data to test demand, could reduce risk; success depends on execution, location and whether costs can be covered.

02.1 [2 marks]

What is meant by benchmarking?

• Comparing a business's products, processes or performance against those of the best in the industry (or other industries) to identify improvements. 1 mark partial, 2 marks full.

02.2 [3 marks]

Using Table 1, calculate Lumen Ltd's R&D spending as a percentage of its revenue.

£3.9m / £52m x 100 = 7.5%.

• 1 mark: correct figures selected.
• 1 mark: correct method.
• 1 mark: 7.5%.

02.3 [4 marks]

Explain how patents might benefit Lumen Ltd.

• Patents give the legal right to stop others copying an invention for up to 20 years.
• Lumen can charge higher prices (inelastic demand) without rivals undercutting with copies - earns a return on high R&D spending.
• Can license patents to others for royalties; patents add value to the business (asset for investors).
• Marks: 1 knowledge, 1 application, 2 developed reasoning.

02.4 [9 marks]

Analyse how intrapreneurship might help Lumen Ltd to remain innovative.

• Gives engineers time and funding to pursue ideas - generates new products from inside the business (two best-sellers started this way).
• Motivates skilled staff through responsibility, achievement and recognition (Herzberg) - helps retain talent in a competitive labour market.
• Ideas come from people closest to the technology and customers - faster process and product innovation.
• Supports an innovative (task) culture rather than relying only on a central R&D department.
• BUT reduces time on customer orders; many projects fail; needs good selection of ideas to justify the 10% time cost.

02.5 [16 marks]

Is investing in research and development the best way for all businesses to become innovative? Justify your view.

• For: R&D produces new technology and patentable products - essential in tech/pharma (Lumen spends 7.5% of revenue; 41% revenue from new products).
• For: R&D builds core competences that are hard to copy.
• Against: expensive and risky - most projects fail; small firms or low-margin businesses may not afford it.
• Against: other routes - kaizen (incremental process innovation), intrapreneurship, benchmarking, acquiring innovative firms, licensing, customer co-creation.
• Against: in services (retail, hospitality) innovation is often in process and customer experience rather than lab-based R&D.
• Judgement: depends on industry, size, finance and culture - culture and leadership are often what make R&D spending effective.

03.1 [2 marks]

What is meant by crowd funding?

• Raising finance from a large number of people, each investing a small amount, usually through an online platform (in return for shares, rewards or interest).

03.2 [2 marks]

Using Table 1, calculate Riverside Brewery Ltd's gearing.

1.8 / (1.8 + 4.2) x 100 = 30%.

• 1 mark: correct method.
• 1 mark: 30%.

03.3 [4 marks]

Explain one reason why Sam Holt might not want Riverside Brewery Ltd to become a public limited company.

• Loss of control - shares sold publicly could be bought by large investors or rivals (takeover risk).
• Pressure for short-term profit from shareholders could conflict with the 'brewed slowly' mission (higher costs).
• Costs and disclosure requirements of a stock market listing.
• Marks: 1 knowledge, 1 application, 2 development.

03.4 [9 marks]

Analyse the benefits to Riverside Brewery Ltd of using crowd funding rather than the bank loan.

• No interest or repayments - protects cash flow while new equipment is installed; gearing stays at 30% rather than rising (to about 48% with the loan).
• Investors become loyal customers and brand ambassadors - discounts encourage repeat purchase; free marketing and publicity.
• Campaign success shows demand evidence (market research) and may attract pub stockists.
• Many small investors keep the Holt family in control (no single large shareholder).
• BUT shares are diluted; fees; campaign may fail; many shareholders to communicate with.

03.5 [16 marks]

To what extent is crowd funding a better source of finance than a bank loan for all small businesses?

• For: no interest, accessible when banks refuse lending, marketing benefits, investor-customers.
• Against: suits consumer-facing brands with a story (breweries, food, tech gadgets) - B2B or unexciting businesses struggle to attract crowds.
• Against: dilution of ownership and future dividends; failure is public and damaging.
• Against: bank loans are quicker, keep ownership, interest is tax-deductible, and suit businesses with stable cash flow and assets for security.
• Depends on: amount needed, gearing, interest rates, the business's appeal to the public, owners' attitude to control.
• Judgement: neither is better for all - the best source depends on purpose, timescale and business type.