AQA A-Level Business: Choosing strategic direction (7132) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover topic 8, Choosing strategic direction, of the AQA A-level Business (7132) specification (A-level only, sections 3.8.1 and 3.8.2). All businesses are invented. Revise first with the study guide and the revision notes. The course page is AQA A-level Business and the printable checklist lists every topic.

Questions

1. State two factors that could influence which markets a business chooses to compete in. [2]

2. Define “market penetration”. [2]

3. Fernbaulk Garden Tools has sales revenue of £6m in a market worth £50m a year. The market is not growing. A £380,000 promotion campaign is expected to raise its market share to 15%. Contribution is 30% of sales revenue. Calculate the net gain from the campaign in the first year. [4]

4. Jessamyn Tea sells loose-leaf tea through its own shops. It plans to launch a range of tea-based skincare to its existing customers. Identify the Ansoff direction this represents and explain one risk of it. [4]

5. Distinguish between a low cost strategy and a differentiation strategy as set out by Porter. [4]

6. Vanbrook Bikes can follow one of two routes. Route A: a price of £520, unit cost £430, 3,000 sales a year. Route B: a price of £900, unit cost £640, 1,100 sales a year.

(a) Calculate the profit margin for each route, to one decimal place. [2] (b) Calculate the total profit before fixed costs for each route. [2] (c) Explain one reason why Vanbrook should not decide on these figures alone. [2]

7. Tessmere Coffee charges the same prices as its rivals but has cut the size of its drinks and switched to cheaper beans. Customers see little to value in its cafes. Identify its position on Bowman’s strategic clock and explain why this position is unlikely to last. [4]

8. Wyndholt Print wins orders because it owns specialist digital printing equipment that rivals lack. Analyse two difficulties it may face in maintaining this competitive advantage. [6]

9. Explain two ways in which a business gains from holding a competitive advantage. [4]

10. Naylorby Bakery has three shops and sales revenue of £2.4m a year. The owner is choosing between two proposals. Contribution is 40% of extra sales revenue in both cases.

Proposal 1: spend £70,000 on local advertising and a loyalty card. This is expected to add £0.3m of sales revenue a year. Proposal 2: invest £600,000 in an events catering business. Expected extra contribution is £150,000 a year. The bakery has no catering experience and £350,000 in cash; the rest would be borrowed.

Evaluate which proposal the owner should choose. [10]

11. Dovecliffe Hotels runs six boutique hotels. The average room rate is £140 a night and the cost per occupied room-night is £95. A budget chain plans to open nearby charging £70 a night. A guest survey shows most customers return for the service and design. Justify the strategic positioning Dovecliffe should adopt, using Porter’s strategies and Bowman’s strategic clock. [9]

Answers

1. Any two, each stated and not just named, such as: the size and growth of the market [1]; the strength of competition and barriers to entry (or the firm’s resources and finance) [1]. [2] Examiner insight: Two separate factors are needed; the same idea reworded tends to earn only one point.

2. Selling more of the existing products in existing markets [1], so as to increase market share (for example through promotion or price cuts) [1]. [2] Examiner insight: A definition is strongest when it includes both “existing products” and “existing markets”; naming only one leaves the idea half-formed.

3. Current share = 6 / 50 = 12% [1]. New sales = 15% × £50m = £7.5m, an increase of £1.5m [1]. Extra contribution = £1.5m × 30% = £450,000 [1]. Net gain = £450,000 - £380,000 = £70,000 [1]. [4] Examiner insight: Show each step. A common slip is stopping at the contribution figure and forgetting to subtract the campaign cost.

4. The direction is new product development (new product, existing market) [1]. A risk: the skincare may not suit customers who buy tea [1], so the development costs and stock may not be recovered [1], and a poor product could damage the existing tea brand [1]. [4] Examiner insight: The risk should be tied to this business. Generic comments about “failure” gain little without a link to the tea shops’ customers.

5. Low cost: the business aims to have the lowest unit costs in a broad market [1], so it can price at or below rivals while keeping margin [1]. Differentiation: the business makes its product seem unique through features, brand or service [1], so customers will pay a higher price [1]. [4] Examiner insight: A distinction needs a point about each side. Describing only one strategy does not show the difference.

6. (a) A: (520 - 430) / 520 = 17.3% [1]. B: (900 - 640) / 900 = 28.9% [1]. [2] (b) A: £90 × 3,000 = £270,000 [1]. B: £260 × 1,100 = £286,000 [1]. [2] (c) Sales volumes are forecasts and may not be achieved [1]; for example the premium bikes might sell fewer than 1,100 if customers do not value the extra benefits, so the apparent £16,000 advantage could vanish [1]. (Other acceptable reasons: fixed costs, risk, brand fit.) [2] Examiner insight: Credit tends to follow reasons that refer to the numbers given, such as how small the gap in total profit is.

7. Standard price with low perceived benefits is Bowman position 8 [1]. Customers receive poor value for the price [1], so they can switch to rivals offering more for the same money [1], which leads to falling sales and share [1]. [4] Examiner insight: Naming the position is worth little unless you also say why customers would leave.

8. Difficulty 1: rivals can buy similar machines or develop alternative technology [1], so the advantage disappears and Wyndholt may be forced to compete on price [1], cutting its margins [1]. Difficulty 2: technology changes quickly, so the equipment may become outdated [1]; replacing it needs continuing investment, which strains cash flow [1], and if Wyndholt does not keep up, customers may move to firms with newer methods [1]. [6] Examiner insight: Analysis works best as a chain from cause to consequence; a list of difficulties with no development usually stays at a low level.

9. Benefit 1: higher prices or margins, as customers will pay for what rivals cannot match [1], which raises profit and can fund further investment [1]. Benefit 2: customer loyalty and resilience [1], so sales hold up better when competitors cut prices or in a downturn [1]. (Other valid benefits: higher market share, attracting investors or staff.) [4] Examiner insight: Give each benefit a reason it helps, not just a label.

10. Proposal 1: extra contribution = £0.3m × 40% = £120,000 [1]. Net gain in year 1 = £120,000 - £70,000 = £50,000; payback = 70 / 120 = 0.58 years, about 7 months [1]. Proposal 2: payback = 600 / 150 = 4 years [1]. Proposal 1 is market penetration: low risk, quick return and uses existing skills [1], but growth is limited by local demand and rivals may respond with promotions [1]. Proposal 2 is diversification: it spreads risk away from baking and could grow strongly [1], yet the owner must borrow £250,000 (600 - 350) and lacks catering experience, so failure is more likely [1]. Judgement: criteria are risk, speed of return and fit with the owner’s objectives [1]; Proposal 1 is the better choice now because of its quick payback and low risk [1], with Proposal 2 considered later if the bakery builds cash and the owner wants long-term growth [1]. [10] Examiner insight: A strong evaluation reaches a judgement and says what it depends on; calculations alone, without a recommendation, leave the question unfinished.

11. Dovecliffe’s margin is (140 - 95) / 140 = 32.1% [1]. Cost leadership is not realistic: to match £70 with a similar margin its costs would have to roughly halve [1], which is unlikely for hotels with high staffing and design costs [1]. Differentiation (or focus on guests wanting a boutique experience) fits the survey showing guests value service and design [1]. On Bowman’s clock this is a high-benefit, higher-price position, such as focused differentiation (position 5) [1]. It should not drop price, because a move towards the hybrid position would need lower costs [1]. A difficulty is that the budget chain may attract price-sensitive guests and rivals could copy the style [1]. Judgement: the strategy is justified if the survey result holds and Dovecliffe keeps investing in service and design [1]; if the gap in room rate widens, it may need to reassess [1]. [9] Examiner insight: A justification is stronger when it also explains why the alternative was rejected, using figures from the case.

Where marks are usually lost

• Naming an Ansoff direction without saying what the product and market are in the case.
• Mixing up market development (new market) with new product development (new product).
• Forgetting to subtract the cost of a campaign or investment when calculating net gain.
• Treating cost leadership as simply having the lowest price.
• Giving a list of difficulties or benefits with no consequence for the business.
• Placing a business on Bowman’s clock without explaining why customers would, or would not, stay.
• Calculating margin but ignoring volume, or the reverse.
• Evaluation questions answered with no judgement, no criterion or no condition.
• Ignoring the numbers in the case study when they are plainly relevant.

Next steps

• Review the revision notes and the study guide.
• Use the checklist and the course hub.
• Take the free 10-minute diagnostics to find weak topics.
• Book a free trial class at /trial/.

Frequently asked questions

What is the difference between market development and new product development? Market development sells existing products in a new market, while new product development launches new products in an existing market. Mixing these up is one of the most common errors in AQA 7132 Ansoff answers.

How do you calculate the net gain from a marketing campaign? Work out the extra contribution from the extra sales, then subtract the cost of the campaign or investment. Forgetting to subtract the cost is a frequent mistake.

Does a higher profit margin mean higher total profit? Not necessarily. Total profit depends on volume as well as margin, so a strategy with a lower margin but much higher sales can earn more. Calculating margin while ignoring volume, or the reverse, loses marks.

How should you use Bowman’s strategic clock in an answer? Place the business on the clock and explain why customers would, or would not, stay with it at that combination of price and perceived benefits. Placing it without that explanation earns little credit.

Official syllabus

AQA AS and A-level Business specification (7131 and 7132), section 3.8 Choosing strategic direction (A-level only).