L4M2 CIPS Defining Business Needs Free Practice Exam Questions (2025 Updated)

Explanation

In sales and marketing, market segmentation is the process of trying to understand clusters of cus-tomers in terms of their buying behavior and their buying characteristics. There are some traditional segmentation approaches: geography, demography, types of industry and the benefits. Then there are newer segmentation approaches: behavioral, situational, and psychographic.

Procurement professionals can learn market segmentation from sales and marketing. Segmenting the market can help them to shape and manage the supply market effectively. According to Michael Porter, a market can be segment with array of products and buyers.

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Source: Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 234). Free Press. Kindle Edition.

In the scenario, the products that Dana needs to source is distinct in their features. The best way is to segment the market by product varieties.

Explanation

Writing a high-quality specification is very crucial in every purchase. In through-life management, it is even more important since the assets often have very high value. Defining user requirement is the first step to write a specification. Without doing this right, many problems may arise in later stages.

Explanation

According to Michael Porter, the threat of substitution, is a function of three factors:

• The relative value/ price of a substitute compared to an industry’s product

• The cost of switching to the substitute

• The buyer’s propensity to switch

(Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 278). Free Press. Kindle Edition.)

Explanation

For straight re-buy, the specifications for the products are known. Generally, there will be an existing contract with supplier in place. The business need is challenged annually, only on the annual demand. So effective inventory control will help procurement successfully manage straight re-buy.

Explanation

Kano model of excitement and basic quality (Kano et al, 1984; Berger et al, 1993; Matzler et al, 1996) brings a different perspective for the analysis of improvement opportunities in products and services because it takes in consideration the asymmetrical and non-linear relationship between performance and satisfaction. The Kano model classifies customers requirements in three categories (figure 3):

a) Basic Requirements. The basic requirements fulfill the basic functions of a product. If they are not present or their performance is insufficient, customers will be extremely dissatisfied. On the other hand, if they are present or have sufficient performance, they don't bring satisfaction. Customers see them as prerequisites. For instance, for luxury automobiles, "air bags" are considered basic. A customer won't feel satisfied if the automobile has "air bag", however he/she will not buy it if “air bag” is not present.

b) Performance Requirements. As for these requirements, satisfaction is proportional to the performance level – the higher the performance, the higher the customer's satisfaction will be and vice-versa. Gas consumption in automobiles is an example of these requirements. Usually customers explicitly demand performance requirements.

c) Excitement Requirements. These requirements are key to customer satisfaction. If they are pre-sent or have sufficient performance, they will bring superior satisfaction. On the other hand, if they are not present or their performance is insufficient, customers will not get dissatisfied. For instance, a surprise gift at the end of a dinner in a restaurant will certainly bring satisfaction, but it will not cause dissatisfaction if not offered. These requirements are not demanded nor expected by customers.

Two other types of requirements may be identified in the Kano model: neutral and reverse ones. Neutral requirements do not bring either satisfaction or dissatisfaction. Reverse requirements bring more satisfaction if absent than if present.

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Detailed Explanation:

A fixed price with adjustment for inflation provides cost predictability while accounting for potential increases due to inflation. This strikes a balance between fixed costs and market realities. Reference: CIPS Level 4, Pricing Strategies.

Explanation

Lean design is about maximising the value that a customer receives and at the same time minimis-ing waste in delivering that value.

For an organisation to be ‘lean’ it must have had all non-essential resources removed (ie. anything that does not add value, see below). This is efficient and cost effective, in that the value/supply chain can theoretically do exactly what is needed of it and no more, but requires sound forecasting and planning of demand and supply. It is most suitable for industries with stable product specifications, long lead times and few impulse purchases.

Organisations which are ‘agile’ react as quickly as is practicable to provide a cost effective response to customer demand. This is based on flexibility in design, supply, production and distribution. It is most appropriate for products such as fast fashion and foodstuffs which must be on display and available when wanted by the customer.

Explanation

As you can see from the scenario, ABC Group is developing the new product. It might be using value engineering. The latter sentences confirm this: the cross-functional team in ABC is mapping the functions and surveying the customers. Their method is known as Kano model.

Comprehensive and Detailed Explanation (from CIPS L4M2: Specification and Buying Situations)

CIPS identifies three main buying types:

Straight re-buy – same product, same conditions.

Modified re-buy – some aspects changed (e.g. packaging, quantity, or delivery).

New buy – first-time purchase.

Since the product is the same but the packaging is changed, it fits modified re-buy.

Relevant CIPS L4M2 Sections:

Buying situations and procurement complexity

Modified re-buy examples

Explanation

There are three major types of buying situations, which are new purchase, modified rebuy and straight rebuy. Three factors make the buying situations be different from the others, customers may face different problems in these situations.

A new purchase is a situation requiring the purchase of a product for the very first time.

A straight rebuy is when a company places a second order with a supplier that is identical to the first purchase it made.

A modified rebuy is when a company orders again from a supplier, but wants to change some as-pect of the order, such as the quantity, packaging, product features, or delivery times. The scenario above is an example of modified rebuy.

Explanation

The following are typical social criteria in procurement:

• Reducing unemployment

• Preventing the use of child labour

• Preventing discrimination on the grounds of race, religion, disability, sex or sexual orientation

• Encouraging good employment practice

• Reducing local unemployment

• Reducing social exclusion

• Promoting training opportunities for the young or disadvantaged

• Encouraging access to work for people with disabilities

Comprehensive and Detailed Explanation (from CIPS L4M2 – Market Management)

The number of suppliers and market concentration determine competitiveness.

A market with many suppliers tends to be more competitive; fewer suppliers increase supplier power and reduce price competition.

Hence, Option C correctly identifies a key factor in market competitiveness.

Relevant L4M2 references:

Section: “Assessing supply market structures”

Model: “Porter’s Five Forces – Supplier Power”