The company has always
placed a high emphasis on health and safety in what could be a dangerous environment for
its customers, and its employees are relatively well paid. Over 65% of its
training budget is used for health and safety training and this budget is
unchanged for 2012 at 4% of company revenue. The company has received a rising
level of complaints about long queues at its sites, especially the sites opened
recently. Site managers at these locations argue that there are insufficient
facilities for the customer numbers, and that prices, at £33 per adult, are too
high, especially given these shortcomings. One manager noted that a 2007 survey
showed price elasticity of demand for this type of leisure product was –2.0.
There is increasing
dissatisfaction from employees about their workloads and lack of job rotation.
Since 2009, annual labour turnover has doubled to 24%.
In early May 2012,
Carmella and the other directors made a number of key decisions to:
continue with the policy of setting prices 10%
above those of rivals
switch £1.5 million from market research to
advertising and sales promotions targeted at increasing customer
numbers at less profitable sites
delegate control of budgets to site managers at
each of its 28 sites with immediate effect; they would then have more
freedom in setting budgets.
Carmella believes that the
company should adopt a policy of linking employees’ pay to achieving targets
for customer numbers at all of its sites. She forecasts that adopting this
policy would increase average wages by 4% and increase customer numbers by 5%.
A decision on this is to made next month.
In May 2012, Carmella and
the other directors decided to continue setting prices 10% above those of rivals. Do
you think that this is the correct decision?
Justify your view.
