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tutor2u™ AQA GCSE BUSINESS STUDIES A
Case Study Toolkit Summer 2005
Marks and Spencer plc Exam Style Questions – Suggested Answers ½ How to Use this Worksheet This worksheet provides a series of exam-style short answer questions based on the Marks and Spencer Case Study text and tables. These questions are intended to show you how the examiner might test your understanding of the key terms, concepts and theories introduced to you during your GCSE Business Studies course. Please note that we have not tried to provide a complete list of all the possible questions that the examiner might throw at you. It’s up to you to make sure that your revision covers all the main areas you have studied during the course. However, this guide should help you to see how the information in the case can be used to respond to the kind of questions you will be set. We have focussed on what we think are the key areas Work your way through the questions and note your answers down in the space provided before checking against the worksheet answer sheet.
tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
The Business Environment What this part of the specification is about: The examiner will want to test your ability to demonstrate an understanding of the nature of the activities carried out by the business within the case study and the industrial sector in which it is located. You will need to understand the relationship that Marks and Spencer has with its customers and with other businesses, including competitors. You will also need to be able to identify and explain the impact of the wider environment on influencing business decisions, creating opportunities and placing constraints on business activity.
Example Questions
Suggested Answers / Approach
State which industrial sector Marks and Spencer falls into, and explain why.
Marks and Spencer is in the tertiary sector. This is because it is a retailer, selling goods, such as food, clothing and furniture (that have been manufactured by other firms) and providing services, such as insurance.
Using examples from the case study, explain the concept of opportunity cost.
Opportunity cost means the sacrifice that has to be made in order to obtain (or carry out) something else. All businesses, no matter how large, have limited resources, meaning that choices have to be made. Marks and Spencer may decide to spend money supporting community projects, rather than on a television advertising campaign.
Describe two ways in which a retailer, such Possible damage to the environment could come from: as Marks and Spencer, could harm the i Congestion and pollution in the areas around stores caused by increased traffic from environment. customer cars and delivery lorries. i Obtaining fruit and vegetables from farmers that use harmful chemicals and pesticides irresponsibly.
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach i Using food processing manufacturers that use genetically-modified products. i Using furniture manufacturers that use raw materials, such as wood, from non-sustainable sources.
What are the benefits to a business like Marks and Spencer from having a good reputation in society?
Possible benefits include: i Positive publicity from activities such as sponsoring local or national events, or adopting initiatives such as ‘GM-free foods’ and promoting healthy eating. This may lead to a competitive edge over rivals, leading to increased sales and profits. i Improved recruitment, in terms of quantity and quality of staff, as more people may want to work for a company with a reputation for caring for its staff. i Positive publicity may also encourage greater loyalty from existing customers, allowing Marks and Spencer to charge higher prices
Describe two ways in which Marks and Spencer behaves in a ‘responsible manner’.
Marks and Spencer’s commitment to responsible behaviour is illustrated by its three statements or principles (see p. 7 of the case study). Specific examples of how these principles are put into practice include: i Looking after the welfare of employees by providing telephone help lines opportunities for education and personal development. i Providing opportunities for work experience for school leavers. i Taking greater responsibility for the quality of its products by having close working relationships with suppliers. i Its commitment to non-GM foods
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach
Identify two pieces of consumer protection legislation that have an impact on Marks and Spencer’s operations.
The main legislation would include: i The Sale and Supply of Goods Act (1994) – this means that all goods sold by Marks and Spencer must be of satisfactory quality, e.g., safe, fit for purpose and free of defects i The Trades Description Act (1972) – this means that Marks and Spencer cannot make any false or misleading descriptions or claims about any of its products, for example, in any of its advertising or promotional materials. i The Consumer Credit Act (1974) – this gives protection to customers buying goods on credit. For example, Marks and Spencer must state the annual percentage rate of interest charged and offer a ‘cooling-off’ period to customers buying goods on credit. It must also not offer credit to customers under 18.
Identify two benefits to Marks and Spencer from the growth in the use of the Internet.
i The Marks and Spencer website can be used by any customer with access to the Internet – this allows the company to pass on information about its products and promotions easily. i Customers can buy products on-line – this means that Marks and Spencer can reach customers nationwide, without needing to have so many stores, cutting costs. i The operation of a web site can result in lower overall operating costs since there is a reduced need to create and manage selling space in retail outlets
Explain two ways in which Marks and Spencer is affected by operating in a highly competitive market.
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i It must ensure that its products closely match its customer needs, by carrying out market research and updating its product lines regularly. i It must price its products in relation to its competitors – this does not mean it has to charge
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach identical prices, but it has to justify any differences! i It must maintain a unique selling point, e.g. its reputation for quality, in order to stand out from its competitors.
Analyse the likely impact of low interest rates on the demand for financial services.
i The interest rate is the ‘price’ charged for borrowing money, i.e., the extra amount that has to be paid back, on top of the actual sum borrowed. Therefore, low interest rates would be expected to encourage more borrowing, via loans and credit cards. i The interest rate also represents the return on savings. High interest rates encourage people to save more money, because they can earn more interest. When interest rates are low, these people may decide to spend their money instead, so the demand for savings products may fall.
Why might low rates of economic growth make people reluctant to borrow money?
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Low rates of economic growth are often accompanied by rising unemployment. During such periods, people may be reluctant to borrow in case they lose their jobs and, because their incomes will fall, be unable to meet loan repayments. This could lead to legal action, as lenders try to recover their money.
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Business Structure, Control and Organisation What this part of the specification is about: The examiner will want to test your ability to demonstrate an understanding of the main aims and objectives that a business may have, the various ways in which a business may be organised and the influence of the wider environment on the choices made. You will need to be able to identify Marks and Spencer’s main objectives and describe the company’s organisation and structure, commenting on their appropriateness. You will also need to be able to explain the ways in which Marks and Spencer can continue to achieve growth, and the impact of this upon its stakeholders, as well as the company itself.
Example Questions
Suggested Answers / Approach
State two reasons why Michael Marks, one of the company’s original owners, might have decided to take a partner.
Possible reasons include: i Taking a partner would have meant that more capital was injected into the business – Tom Spencer paid £300 for his half share of the business. i A new partner would bring new ideas and expertise into the business – Tom Spencer was a cashier at a wholesaler, so he may have had a better understanding of financial matters. i An increase in the number of partners would allow for each partner to concentrate or specialise in certain areas (known as the division of labour), so that the business can be run more efficiently.
Describe two limitations of being a partnership
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Possible limitations include: i Partnerships may still be short of cash. Partnerships usually have less than 5-10 partners, and the amount each partner can invest may be relatively small.
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach i Partners have unlimited liability. This means that the owners of the business will be personally liable for any debts that the business runs up. i Disagreement between the partners (or death of one of them) may bring the business to an end.
What factors might have influenced the decision for Marks and Spencer to become a public limited company in 1926?
The company had experienced a period of rapid growth and may have needed to obtain finance and so it is likely that the decision was influenced by the need to raise more capital. Becoming a public limited company would have helped to do this because: i Shares in plcs can be bought by members of the general public, making it easier to access a wider pool of funds. i Shares in plcs can be resold easily via the Stock Exchange, making investors more willing to buy them. i Banks and other financial institutions are usually more willing to lend to plcs, because of the greater capital they control.
Identify two economies of scale and two diseconomies of scale that the company is likely to have experienced as it continued to grow.
i Economies of scale occur when average costs fall as a business increases in size. Possible economies of scale enjoyed by Marks and Spencer include: i Purchasing economies of scale – Marks and Spencer would have been able to negotiate lower unit prices from suppliers by buying in bulk. i Managerial economies of scale – as the company grew, it would have been able to afford to appoint specialist managers in areas such as marketing, purchasing, finance and personnel,
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach with the expertise to run the company more efficiently. i Financial economies of scale – as a large company, Marks and Spencer would have found it easier to raise capital through borrowing, as they would have been able to offer lenders more security. This may have allowed them to negotiate better terms, such as lower interest rates. i Diseconomies of scale occur when average costs rise as a business grows in size. Possible diseconomies of scale incurred by Marks and Spencer include: i Co-ordination problems – more layers of management tend to be added to an organisation’s structure as it grows in size. This increases staffing costs and also means decisions take longer as more people have to be consulted. i Communication problems – it becomes more difficult to speak to people directly, so there is a greater reliance on written communication, increasing administration costs. i The senior managers responsible for decision-making become too remote from employees and the market – this may lead to a lack of awareness, leading to important opportunities being missed.
Explain the possible reasons why Marks and Spencer decided to decentralise by having several headquarters throughout the country, rather than one head office, based in London.
Decentralisation may lead to a number of benefits, including: i Decisions can be taken by managers on the spot – i.e., by those who understand the local conditions – improving the quality of decisions. i Decisions can be taken more quickly because fewer people need to be consulted – improving the speed of decisions. i Managers of the regional headquarters may become more motivated by the extra
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach responsibility and opportunity to show initiative.
Describe one advantage and one disadvantage of franchising: - to the franchisee - to the franchisor.
For the franchisee: Advantages: i There is a greater chance of succeeding as the product is already successful and established in the market. i Access to financial, marketing and other support from the franchisor. i A greater chance of securing finance from banks that are likely to be more comfortable lending to franchises than businesses with brand new products. Disadvantages: i Much less control over the product and how it is marketed, as this is decided by the franchisor. i A proportion of any profits made will be paid to the franchisor, in the form of royalty payments. i The franchisee may be forced to buy all of its supplies from the franchisor at a more expensive price. For the franchisor: Advantages:
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tutor2u AQA GCSE Business Studies: Marks and Spencer Toolkit June 2005
Example Questions
Suggested Answers / Approach i It allows them to expand the business without having to risk investing large sums of money. i Regular royalty payments are received from the franchisee. Disadvantages: i The costs of supporting the franchisee in terms of training, product promotion and possible finance. i The risk of damage to the reputation of the franchisor and/or its products if the franchisee does not maintain the same standards of quality or service.
Suggest reasons why the company decided Possible reasons include: to diversify into the financial sector in the i To develop new sources of sales revenue, especially in markets that are growing. The 1980s. evidence suggests that the financial services sector was considered to be a major source of growth in the 1980s and 1990s. i To spread risks – growing sales in new markets such as financial services can offset a decline in sales elsewhere. i To stay in line with competitors – During this time, other major retailers, such as Sainsbury and Tesco, began to offer financial products, such as loans and savings accounts. Marks and Spencer may have felt it necessary to offer similar products in order to remain competitive and maintain its market share. i To exploit M&S’s strong relationship with customers and its brand image. At the time of the diversification, M&S was perhaps Britain’s best-known and trusted retailer, making it more
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