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9609 · 6.1.5

Competitors and suppliers — practice questions

Practice and worked examples for 9609 Competitors and suppliers. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Smartphone market: 5 global brands hold 80% share; screens supplied by 2 manufacturers. Analyse implications for a mid-size phone maker.

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Competition: Intense rivalry — price wars, rapid innovation cycles, high marketing spend; mid-size firm needs niche differentiation (3.1.5) or feature focus.

Suppliers: Dual-source risk — screen shortages or price hikes hit all rivals; mid-size firm has weak bargaining power vs giants.

Strategies: Long-term supplier contracts; invest in unique software/brand; avoid head-on price competition with leaders.

Worked example 2

CafeLuxe, a premium coffee shop chain, has an annual revenue of $5,000,000. Its current Cost of Goods Sold (COGS) is $2,000,000. A single supplier provides all of its coffee beans, which account for 75% of its COGS. This supplier announces a 15% price increase. Calculate the impact of this price increase on CafeLuxe's Gross Profit and Gross Profit Margin.

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Step 1: Calculate initial Gross Profit and Gross Profit Margin.

  • Initial Gross Profit = Revenue - COGS
  • Initial Gross Profit = 5,000,000−5,000,000 - 2,000,000 = 3,000,0003,000,000
  • Initial Gross Profit Margin = (Gross Profit / Revenue) * 100%
  • Initial Gross Profit Margin = (3,000,000/3,000,000 / 5,000,000) * 100% = 60.0%

Step 2: Calculate the cost of coffee beans and the value of the price increase.

  • Cost of beans = 75% of COGS = 0.75 * 2,000,000=2,000,000 = 1,500,000
  • Price increase amount = 15% of bean cost = 0.15 * 1,500,000=1,500,000 = 225,000

Step 3: Calculate the new COGS, Gross Profit, and Gross Profit Margin.

  • New COGS = Initial COGS + Price increase amount
  • New COGS = 2,000,000+2,000,000 + 225,000 = 2,225,0002,225,000
  • New Gross Profit = Revenue - New COGS
  • New Gross Profit = 5,000,000−5,000,000 - 2,225,000 = 2,775,0002,775,000
  • New Gross Profit Margin = (New Gross Profit / Revenue) * 100%
  • New Gross Profit Margin = (2,775,000/2,775,000 / 5,000,000) * 100% = 55.5%

Step 4: Final Answer and Interpretation. The supplier's price increase will reduce CafeLuxe's Gross Profit by $225,000 (from $3,000,000 to 2,775,000).2,775,000). The Gross Profit Margin will decrease from 60.0% to 55.5%. This 4.5 percentage point drop demonstrates the significant financial risk associated with high supplier power from a single-source dependency.

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