ADVANCED General Certificate of Education 2009 Business Studies Assessment Unit A2 2 assessing Modules 1 to 5 Objectives and The Business Environment, A2T21 People in Organisations, Accounting and Finance, Marketing and Operations Management [A2T21] TUESDAY 26 MAY, AFTERNOON TIME 1 hour 40 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number on the Answer Booklet provided. Answer all questions. INFORMATION FOR CANDIDATES The total mark for this paper is 80. Quality of written communication will be assessed in all questions. Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. ADVICE TO CANDIDATES You are advised to take account of the marks for each question in allocating the available examination time. This is a synoptic paper in which you are expected to demonstrate your understanding of the connections between the different elements of Business Studies. 4433 171269_A2T21_T69190_Bus_Stud_May1 1 14/11/08 16:08:52 Read the information below and answer the questions that follow. The Wrigley Company Ltd 1 The vision of the Wrigley Company is to have “Wrigley brands woven into the fabric of everyday life around the world”. In 1970 the company relocated its UK factory and head office to a 45 acre site in Plymouth in the South West of England. Over 600 staff are currently employed there. 2 The factory’s continuous investment in the latest production technology ensures the business’ ability to innovate and maintain its global competitiveness. Wrigley markets its famous brands worldwide. Two of these brands – Wrigley’s Spearmint and Juicy Fruit – have been in existence for more than a century. Other brands include Doublemint, Life Savers, Big Red, Boomer, Pim Pom, Winterfresh, Extra, Freedent, Hubba Bubba, Orbit, Excel, Creme Savers, Eclipse, Airwaves, Alpine, Solano, Sugus, Cool Air, and P.K. The company has production facilities in 14 countries and offices in about thirty-six countries. It has global sales of more than £2 billion. 3 The Wrigley Company is committed to providing assistance to the local community in which it operates. Over the years, it has been involved in various activities, from fun runs to voluntary work, working with schools and hospitals, to sponsorship of the Devon Junior Minor Football League. Wrigley is a sponsor of a children’s charity called CHICKS (Country Holidays for Inner City Kids) and is a long-term partner of Business in the Community in the South West and the “Year in Industry” gap year scheme. © Adapted from www.wrigley.co.uk - question is hypothetical and does not in any way reflect the views of the Wrigley Company Cadbury versus Wrigley in gum war 4 For almost a century, Wrigley has dominated the chewing gum market in Britain. Since the company’s Spearmint chewing gum was launched in 1911, it has scarcely faced any competition. The company has more than 95% of the market share. 5 However, Wrigley now faces a challenge. Cadbury Schweppes plc, which paid £2.7 billion in 2003 for the American chewing gum company Adams, will tomorrow begin a £10m marketing push with a high-profile television advertising campaign to herald the launch in Britain of its Trident brand. The Adams deal made Cadbury a big player in the global gum market. Wrigley remains the leader with almost 36% of sales, but Cadbury is a close second with more than 25%. A decade ago, chewing gum made up just 2% of Cadbury’s global confectionery sales; today it accounts for about 33%. 4433 2 171269_A2T21_T69190_Bus_Stud_May2 2 14/11/08 16:08:52 6 Britain is one of the few big gum markets where Cadbury has little or no presence. Others include China, Italy and Germany. This week’s launch aims to fill the gap in the UK market. © The Sunday Times 02 2007 adapted from Cadbury v Wrigley in Gum War by Ben Laurance 11 February 200 The British Chewing Gum Market 7 Last year, people in Britain spent an estimated £300m on chewing gum. Moreover, since 2001, global sales of chewing gum have been growing by about 8% per year – far faster than demand for chocolate or sweets. However, that growth hasn’t been reflected in Britain: over the past couple of years chewing gum sales have actually fallen. Cadbury is convinced that the British market can be nudged back into growth, and that it can greatly reduce Wrigley’s dominant market share. 8 Cadbury’s market research indicates that in Britain, most people chew gum as a distraction, or to help clean their teeth and freshen their breath. With the launch of the Trident brand, Cadbury hopes to attract a different type of consumer – people who chew for pleasure. Cadbury’s move into the British chewing gum market is summed up by the term “smart variety”. In essence, it boils down to taking expertise gained from one range of products in one country and applying it to a market elsewhere in the world. 9 Trident is being launched in Britain with two flavours of uncoated chewing gum and two flavours of the more sophisticated “Splash” brand. The Trident sold in Britain will come from a Cadbury manufacturing plant in Turkey. Wrigley is expected to respond to the launch of Trident by increasing its marketing effort in an attempt to maintain its market share. It was recently accepted as the “official gum provider” for the FA Premiership. 10 Wrigley’s recent trading performance worldwide has not been entirely successful. During the autumn of 2006 it appointed William Perez, a former head of the sportswear company Nike. He was the company’s first Chief Executive to come from outside Wrigley’s founding family. Perez replaced Bill Wrigley Junior, who had taken several poor decisions during his seven years in charge. Under his leadership the Wrigley company tried and failed to take over the iconic American chocolate company Hershey in 2002. In 2005, it succeeded in buying a number of confectionery brands, including Life Savers and Altoids from Kraft Foods. © The Sunday Times 02 2007 adapted from Cadbury v Wrigley in Gum War by Ben Laurance 11 February 2007 The Chewing Gum War 11 In response to Wrigley’s domination of the British chewing gum market, Cadbury (the world’s largest confectionery company) launched four Trident products in Britain in February 2007, which appeared on retailers’ shelves alongside the 32 gum products sold by Wrigley. Other Cadbury brands include, Cadbury Dairy Milk, Milk Tray, Heroes, Crunchie, Double Decker, Picnic, Bourneville, Crème Eggs, Flake, Hot Chocolate, Melts and Wispa. 12 The Wrigley company stated that it had anticipated Cadbury’s move into its territory. “We’ve been expecting it for a number of years, since they’ve been buying chewing gum companies around the world,” said Garry Eccles, Managing Director of Wrigley UK. Mr Eccles claimed that Wrigleys would relish the prospect of increased competition, stating “If you’re running a race, running it on your own is actually no fun.” 4433 [Turn over 171269_A2T21_T69190_Bus_Stud_May3 3 14/11/08 16:08:52 13 According to the latest market figures, Trident is taking a 12.5% share of the market, leaving Wrigley with a dominant 86.3% share. The good news for both companies is that the total chewing gum industry is up almost 20% on this time last year and Wrigley itself has increased its sales by 5%, with new products such as “Orbit Complete”. 14 Both companies have been striving to differentiate themselves. Cadbury wants to stress how it is bringing its confectionery experience to the chewing gum market. A company spokesperson declared, “Pleasure and indulgence is what we know best.” Wrigley is anxious not to be painted as the functional alternative to the indulgence of Cadbury, but nevertheless has set up a research programme under the title, “The Wrigley Science Institute”. Based in Chicago, it sponsors research at universities around the world, looking for health benefits of chewing gum. So far, they have established that chewing gum can help reduce tooth decay. Newer claims that chewing gum during learning can improve memory have yet to be confirmed. 15 For all the competition between the two companies, Wrigley and Cadbury are united on the issue of chewing gum litter. Both companies want to avoid regulation and are co-operating with a government initiative to control litter. Under the auspices of DEFRA (The Department for Environment, Food and Rural Affairs), the companies are represented on the Chewing Gum Action Group. This Group has a budget of £600,000 provided by the manufacturers to help local authorities publicise anti-chewing gum litter messages. © BBC. Adapted from: The Chewing Gum War by Charles Miller, BBC Money Programme, 24 May 2007 http://news.bbc.co.uk/1/hi/business/6683389.stm 1 Evaluate whether Wrigley’s and Cadbury’s domination of the UK chewing gum market is in the interest of consumers. [20] 2 Evaluate Cadbury’s decision to enter the UK chewing gum market. [30] Wrigley manufactures over 32 chewing gum products. Evaluate whether Wrigley should maintain such a wide product range. [30] Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright holders may have been unsuccessful and CCEA will be happy to rectify any omissions of acknowledgement in future if notified. T69190/2 171269_A2T21_T69190_Bus_Stud_May4 4 14/11/08 16:08:52.