Question
La Bonita (LB)
La Bonita $(L B)$ is a beach hotel owned by Felix and Rose Sanchez. Its current target market is families seeking beach holidays. $L B$ offers high-quality service. Customers do not pay in advance and pay in full on departure. $L B$ is located near a capital city.
As there are no hotel training schools locally, Felix provides on the job training to all new recruits. A recent survey by $L B$ to assess brand loyalty found that existing customers remain loyal because:
– they appreciate not having to pay in advance, as required at other local hotels
– employees are polite and helpful and particularly good with children
– the services provided are perceived as very good value for money.
However, many customers have commented that the hotel needs to upgrade its facilities.
In winter, $L B$ has a very low capacity utilization and monthly cash flows are negative. $L B$ gets through these months using bank overdrafts while continuing to pay its suppliers in cash to get generous discounts. Felix is concerned that the cash-flow situation is unsustainable and could get worse because the hotel facilities need upgrading. He proposes that $L B$ raises additional finance and finds ways of reducing cash outflows in the winter (proposal 1).
Rose believes that the cash-flow problem is mainly due to low capacity utilization in the winter months. She wants to diversify and attract a new segment for the winter: business customers. However, this would involve significant expenditure, including upgrading and adding new facilities to the hotel (proposal 2).
a. Define the term brand loyalty.[2]
b. Explain two advantages for $L B$ of using on the job training. $[4]$
c. Explain the importance to $L B$ of two elements of the extended marketing mix.
d. Discuss whether $L B$ should implement proposal 1 or proposal 2.$[10]$
▶️Answer/Explanation
Ans:
a.Consumers’ faithfulness to a particular brand, which will allow a business to see repeat purchasing by consumers and/or over the longer term, much more acceptability in raising the price of its products/services.
Accept any other relevant definition.
N.B.: no application required. Do not credit examples.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition that conveys knowledge and understanding similar to the answer above.
b.
On the job training is cheaper than sending recruits on external training. This is particularly advantageous for LB, as there are no hotel training schools nearby. External training will mean travelling and hosting costs that LB is unlikely to face due to cash-flow problems. Adding on external training costs could worsen LB’s cash-flow postilion.
On the job training will enable new recruits to familiarize themselves with the hotel’s culture and Felix´s way of doing things. A recent survey has revealed that guests are pleased with LB due to employees’ polite and helpful attitude, which means that Felix’s on the job training has been effective. It is unlikely that new recruits will acquire this specific know-how with external training.
With on the job training, trainees will actually serve guests while they receive training. This could help LB with its cash-flow problems, as labour costs could be saved.
Felix will be able to watch the new recruits closely to follow their training. He will be able to screen closely their potentialities and weaknesses and transmit the hotel’s culture to them.
Accept any other relevant advantage
Do not credit an explanation of general training
Mark as 2 + 2.
Award [1] for each correct advantage identified or described and [1] for a relevant explanation with application to LB. Award up to a maximum of [2].
[2] cannot be awarded per advantage if the response lacks either explanation and/or application.
For example: For an identification or description of an advantage with or without application [1]. For explanation of an advantage with no application [1]. For explanation of an advantage and application [2].
c.
Physical evidence is referred to as the environment in which the goods or services are delivered. It is a crucial element for hotels like LB, as hotel customers make their choices based on the appearance and state of hotel facilities to a great extent. Guests’ judgements will be based on LB’s physical evidence, including its location at the beach, to decide whether or not to book a room. There is, however, evidence from the stimulus that LB’s facilities need upgrading.
People makes reference to the way employees relate to and communicate with customers. This is another crucial element for a hotel. LB’s employees are polite and helpful and particularly good with children. This has proved to be very important for LB’s brand loyalty and customers’ perceptions of it, and also provides a service that is perceived as very good value for money.
Process could be related to the way LB provides a unique way of making payment for guests. LB provides a mechanism that allows customers the opportunity to pay on departure and avoid paying in advance.
Accept any other relevant explanation.
Mark as 2 + 2.
Award [1] for each correct element of the extended marketing mix identified and described and [1] for a relevant explanation of the importance with application to LB. Award up to a maximum of [2].
[2] cannot be awarded per element of the extended marketing mix that has been identified if the response lacks either explanation and/or application.
For example: For an identification or a description of an element of the extended marketing mix with or without application [1].
For an explanation of an element of the extended marketing mix with no application [1].
For an explanation of an element of the extended marketing mix and application [2].
d.
Refer to Paper 2 markbands for May 2016 forward, available under the “Your tests” tab > supplemental materials.
Proposal 1
LB could follow Felix’s proposal to solve its cash-flow problems by reducing cash outflows and raising additional finance. It is probably a lower-risk strategy than Rose’s.
Negative cash outflows could be reduced by delaying payment to suppliers in winter, instead of paying cash. However, LB could lose the generous discounts they get, which in turn could lead to increasing direct costs. Eventually, some suppliers may not accept delayed payments and may demand cash on delivery.
LB could also delay hotel maintenance and refurbishments. However, LB already needs some upgrades. Deteriorated facilities couldn’t negatively affect customer perception and brand loyalty. Sales may eventually fall.
LB can cut other overhead spending such as advertising or promotion costs. These costs will reduce payments without affecting the quality of the service provided. However, future demand may fall if LB is not promoted effectively.
Felix could lay-off some hotel staff or ask them to switch to part-time working. He may even close the hotel completely for the winter season. However this risks losing the services and know-how of key staff, who may not return in the high-season.
Felix has also proposed to raise additional finance. LB could ask for a short-term loan or look for a new business partner. Probably, interest rates will be lower than overdraft rates and LB could save on some costs by substituting the overdraft for a less expensive source of finance. A new business partner will probably require some form of managerial control but fresh/innovative thinking can be introduced into LB.
Alternative short-term sources of finance, such as the sale of assets and debts factoring, seem unlikely to work for LB. It seems that LB does not have assets to sell and there is no evidence that LB has many debtors.
Proposal 2
On the other hand, Rose believes that LB’s cash flow problems are due to low capacity utilization in winter. She has proposed to attract a new segment of customers.
If new business customers come in winter, cash inflows will increase. However, to attract these customers, LB will need to build new facilities, such as a convention centre or a gymnasium, to cater for the needs of this particular market segment. This would involve a significant amount of finance that LB does not have.
LB could try to find external finance, such as a long-term loan, equity finance or a venture capitalist. However, these alternatives seem unlikely for LB in the short term. All of them take time to be found. Bank loans are expensive and LB may not have enough assets to present as collateral. Floating the company could be quite expensive for a family-owned business.
Venture capitalists are not easy to find, particularly if the business is not a promise of extraordinary profits.
LB will need to conduct extensive market research around the new market segment and currently this will increase outflows at a time when monthly cash flows are negative.
It can be concluded that Rose’s alternative seems to be more risky and expensive than Felix’s. What if business customers are not attracted? LB will be indebted with facilities that would remain obsolete for its current market segment. Felix’s proposal, on the other hand, seems more plausible and conservative. Some of the alternatives, such as delaying payments, could work without much risk involved. However, LB should also find a way to increase inflows by tackling its capacity utilization problem. Diversifying into another market segment (such as elderly tourism?) that may not involve a great investment could help to increase inflows in winter.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
A balanced response is one that covers at least one argument for and one against each proposal.
For one relevant argument that is one-sided, award up to [3]. For more than one relevant argument that is one-sided, award up to a maximum of [4].
If a candidate evaluates/addresses only one proposal, award a maximum of [5]. Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Question
The Warriors
The Warriors are a soccer* club who perform well but have not won any trophies. Recently, The Warriors have had above average turnover of managers, increasing time spent on recruitment. Player turnover has also been higher than that of other clubs.
Dave Atkinson, owner and former player, is an autocratic leader who denies blame for the high manager and player turnover. He publicly criticizes players. However, fans adore Dave. He was a successful player, supports the fans and is committed to corporate social responsibility (CSR). He has:
reduced ticket prices to the lowest in the league
provided free, healthy snacks for junior supporters
donated 20 % of The Warriors’ profits to local schools to encourage young people to play sport.
After a recent poor performance, Dave demanded that all players donate 50 % of their pay for that match to good causes. Two new players used social media to complain. In response, Dave threatened to cancel their contracts. The other players refused to turn up for training to show solidarity. Dave then locked the players out of the stadium.
This controversy comes at a critical time for The Warriors. With a dynamic new manager, they have their first chance to win an important final and with it significant financial gain, which is needed to support corporate social responsibility (CSR) and upgrade spectator facilities. On social media, the fans have asked Dave not to enforce the lock-out.
Dave wants to resolve the conflict and privately regrets the lock-out. He is angry with the team but wants to increase The Warriors’ corporate social responsibility (CSR). Without wishing to appear as a weak leader, he asked another popular former player for advice.
* soccer: football
a.Outline two features of autocratic leadership.[2]
b.Explain one cost and one benefit of a high labour turnover of managers for The Warriors.[4]
c.Explain one cost and one benefit to The Warriors of committing to corporate social responsibility (CSR).[4]
d. Discuss two methods to resolve conflict for The Warriors other than a lock-out.[10]
▶️Answer/Explanation
Ans:
a.Decision making is carried out by an individual or select few individuals.
Communication tends to be one way only- top down.
Organization is characterized by a role culture.
Any other suitable feature outlined
Award [1] for each feature identified.
b.
Costs of a high turnover of managers include increased recruitment costs and a management system that may be confusing for the subordinates to follow if managers keep changing. This may have further motivational issues, as the work force may be unsettled and impact on the players’ performance.
From the stimulus, there is evidence that The Warriors recruitment costs are higher than desirable given the time spent looking for new managers. More costs will result in less funds being available to support The Warriors corporate social responsibility practices and risk Dave’s achievement- see bullet points in stimulus.
Player turnover has also been high, which may impact on teamwork on and off the pitch and reduces The Warriors chances for commercial success. There is also evidence in the stimulus that two new players who presumably have not gelled yet with the team, or The Warriors culture, are unhappy and complained on social media. This is bad publicity for The Warriors.
The benefits are that poorly performing managers are not allowed to make things worse for the club. Underperforming managers can be moved on and fresh thinking and ideas can be introduced. Dave who is actually very popular with the fans, will probably enjoy even further support from the fans if he removes underperforming managers or players quickly. The Warriors have not yet won a trophy and the appointment of a dynamic new manager has put them on the verge of winning a final for the first time.
Accept any other relevant benefit/cost.
While managers are technically employees, It is expected that the candidates apply the advantages/ disadvantages to the roles/ behaviour of the managers and/or possible impact on the players due to the changes in management.
Mark as 2 + 2.
For an identification or a description of one benefit/cost with or without application [1].
For explanation of one benefit/cost with no application [1].
For explanation of one benefit/cost and application [2].
Application must refer to the high turnover of managers for The Warriors.
c.
The costs to The Warriors of committing to CSR involve the opportunity costs. Reduced ticket prices and healthy snacks, etc, divert funds when the funds could be used to purchase improved players, hire more experienced managers or improve spectator facilities. CSR improves the image of the team off the pitch in the eyes of the stakeholders, but perhaps greater consideration should be given to what is happening on it.
The benefits of the commitment to CSR include brand development and loyalty through the eyes of its junior supporter group – an important group of longer-term stakeholders – that are willing to come and watch the games despite lack of success which ensures some financial sustainability of the club at a time when they are still waiting to win their first trophy.
The benefits/costs should refer/ apply to The Warriors and not to different stakeholders.
The impact on different stakeholders may be used as long as the final costs/ benefits refer to The Warriors.
Accept any other relevant cost and benefit.
Mark as 2 + 2.
For an identification or a description of one benefit/cost with or without application [1].
For explanation of one benefit/cost with no application [1].
For explanation of one benefit/cost and application [2].
Application must refer to The Warriors committing to CSR.
d.
Refer to Paper 2 markbands for 2016 forward, available under the “Your tests” tab > supplemental materials.
The question asks candidates to examine the stimulus and make reasoned judgements to suggest appropriate methods to resolve the conflict for The Warriors.
Candidates are expected to be familiar with:
Conciliation and Arbitration
Employee participation in industrial democracy
No strike agreements
Single union agreement
Given the stimulus, it could be argued that with an important final coming up and The Warriors being on the verge of winning their first trophy and given the lock-out, Dave is highly likely to push for non- strike agreement as any action such as strike action is likely to result in an irreversible negative impact and can easily be used by the players to send a message to Dave : they are serious about Dave’s actions but do not wish to jeopardize being in the final. The players have clearly had enough of Dave’s autocratic style and wish to see a change.
Dave and the fans are likely to be very worried as short term strike action is possible and could send a very serious message to stakeholders that the players’ dissatisfaction is real.
However, the players are unlikely to agree without some form of compromise from Dave and the realization that a strike or not regularly training can reduce the chance of success. Also, loss of earnings, fear of management response etc might facilitiate some conflict resolution.
Other methods could include conciliation and arbitration, where Dave will ask for an independent adjudicator to rule on the lock-out and other issues and bring both sides together. This, however, will take time and is a medium term solution and the final is approaching. Costs of organizing this could impact on The Warriors’ CSR.
Dave’s habit of impulsive behaviour towards his managers and staff indicate that he would not be able to see the value in this solution. Given the stimulus, this may be difficult, especially if the arbitrator rules against Dave’s decision and the decision is binding. The players might support this method but need to ensure that they are able to represent their case or have a representative.
Candidates can use conciliation and arbitration as two different methods provided that there is a clear explanation of the differences.
Industrial democracy
Dave could seek to modify his management style and allow greater employee participation and publicly promise not to be so harsh on players. There is evidence that he is willing to consult with a former player to sort out the lock-out. But we must ask the question of, given Dave’s autocratic style, how likely this modification would be given Dave’s track record. Dave’s management style has to change to be more democratic which might be challenging for him but acceptable for the players.
Dave is clearly a leader with a vision to do the right thing by his community. The conflict is affecting him, as he has admitted in private. He risks undoing some of the CSR that has put him in a favourable position with the supporters and in the absence of any trophy wins, he cannot afford to do this. It would seem that it would be in the best interests of the club and the fans to solve this conflict quickly. Dave will have to change his leadership style and allow greater employee participation. However, this could all change if The Warriors win this for the first time.
Students may also evaluate the single union agreement
A conclusion with judgment is expected.
The candidates should refer to methods of conflict resolution not actions/industrial relation that can be taken.
Please note that in the question, an example of industrial relation was given- a lock out hence some candidates may follow with other examples.
Candidates that refer only to industrial employee relations and not to methods of conflict resolution cannot reach the top mark bands – see below.
A balanced response is one that covers at least one argument for and at least one argument against each option.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
For one relevant issue/ method that is balanced with sufficient depth award up to [5]
Accept methods/suggestions that are related to industrial democracy without naming the methods like- change leadership style, consultation/ discussion.
If the candidates provided just examples of industrial relations and not conflict resolution, but the methods are well covered/ evaluated award up to [6]
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Candidates cannot reach the top marks if there is no relevant reference/application to The Warriors.