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CIPS L4M2 Exam
Defining Business Needs (Page 2 )

Updated On: 30-Jan-2026
Page 2 of 30
PDF with 238 Questions

The position of a product in its life cycle can affect the price that suppliers set. Is this statement correct?

  1. No, in market economy, the state decides the price of all goods and services
  2. Yes, each stage in product life cycle requires different levels of investment in promotion and distribution
  3. No, customer's perception of value is the ultimate determinant of the suppliers' price
  4. Yes, it is always the only factor determining the price

Answer(s): B

Explanation:

A firm also has to look at a myriad of other factors before setting its prices. Those factors include the offering's costs, the demand, the customers whose needs it is designed to meet, the external environment--such as the competition, the economy, and government regulations--and other aspects of the marketing mix, such as the nature of the offering, the current stage of its product life cycle, and its promotion and distribution. If a company plans to sell its products or services in international markets, research on the factors for each market must be analyzed before setting prices. Organizations must understand buyers, competitors, the economic conditions, and political regulations in other markets before they can compete successfully.
[...]
The costs of the product--its inputs--including the amount spent on product development, testing, and packaging required have to be taken into account when a pricing decision is made. So do the costs related to promotion and distribution. For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering's stage in the product life cycle can affect its price.


Reference:

- CIPS study guide page 90-91
- 15.2 Factors That Affect Pricing Decisions ­ Principles of Marketing (umn.edu) LO 2, AC 2.2



Despite of better improvement rates than other types of benchmarking, functional benchmarking still has downsides.
Which of the following is most likely to be a disadvantage of functional benchmarking?

  1. Legal issues regarding intellectual property
  2. Unfair competition
  3. Difference of corporate cultures across companies
  4. Benchmarking can only be undertaken within an industry

Answer(s): C

Explanation:

Functional benchmarking is a comparison to similar or identical practices (e.g., the picking process for assembling customer orders, maintaining inventory controls of spare computer parts, logistics to move operational forces, etc.) within the same or similar functions outside the immediate industry. Functional benchmarking might identify practices that are superior in your functional areas in whatever industry they may exist. Functional benchmarking would be accomplished at the federal level by comparing the IRS collections process against those of American Express. Comparing copper mining techniques to coal mining techniques is an example in the private sector.

Benefits
- Provides industry trend information
- Quantitative comparisons
- Better improvement rate
Challenges
- Diverse corporate cultures
- Great need for specificity
- Not invented here. syndrome
- Common functions can be difficult to find
- Takes more time than internal or percent
- Must be able to visualize how to adapt the best practices Source: USN Benchmarking Handbook
LO 1, AC 1.3



Buyers are more powerful than the supplier when they are purchasing from monopoly market. Is this statement true?

  1. False, the buyer will be unable to track and manage supplier's performance
  2. False, buyer will lack negotiating power on cost if the supplier has a monopoly in the market
  3. True, suppliers in monopoly market produce homogenous products
  4. True, in monopoly market, buyer's switching costs from the incumbent supplier to an-other are relatively low

Answer(s): B

Explanation:

A monopoly is a market with a single seller (called the monopolist) but with many buyers. In this market, the bargaining power of supplier is higher than of buyer since the supplier is the only seller.


Reference:

- CIPS study guide page 88-92
- Bargaining Power of Suppliers - Factors that Give Suppliers Power (corporatefinanceinsti-tute.com)
- Monopoly - Understanding How Monopolies Impact Markets (corporatefinanceinstitute.com) LO 2, AC 2.2



Datong is a defence and law enforcement equipment supplier. They are developing new product but largely concerns about the detailed specifications of components and the capability of supply market.
Which of the following approach should Datong adopt in order to optimise the specification and shorten time to market?

  1. Request for quotation from potential suppliers
  2. Invite the supplier to tendering process
  3. Early supplier involvement
  4. Control the budget tightly

Answer(s): C

Explanation:

To improve production process and reduce supply risk, Datong should collaborate with suppliers early in procurement cycle. Collaborating with suppliers in this way is often referred as Early Supplier Involvement (ESI)
'Request for quotation from potential suppliers': Quotations should only be requested if the buyer know exactly what they need. In this scenario, Datong is not yet sure about the specifications of product's components, request for quotation is not a good idea. 'Mapping out business plan': A business plan, as defined by Entrepreneur, is a "written document describing the nature of the business, the sales and marketing strategy, and the financial back- ground, and containing a projected profit and loss statement." A business plan is not appropriate with improving production process and reducing supply risk. 'Budget controlling': Budget controlling largely concerns with dealing with budget variances. Tighter budget alone cannot lead to improved processes and fewer risks.
LO 3, AC 3.1



When devising a business case for purchasing a new copier, Maria analyses its whole-life costs as following:



Though cost generating activities are identified, she has not categorised the costs.
What is the total value of copier's end of life costs?

  1. $450
  2. $75
  3. $150
  4. $300

Answer(s): C

Explanation:

Life cycle costing is a key asset management tool that takes into account the whole of life implications of planning, acquiring, operating, maintaining and disposing of an asset. The process is an evaluation method that considers all ownership and management costs. These include;
- Concept and definition;
- Design and development;
- Manufacturing and installation;
- Maintenance;
- Support services; and
- Retirement, remediation and disposal costs.
End of life costs often comprise of decommissioning, removing and disposal costs. In the copier scenario, the end of life costs equal to removal cost, which is $150.


Reference:

- Life Cycle Cost Guidelines (dlgsc.wa.gov.au)
- CIPS study guide page 36-40
LO 1, AC 1.2



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