JP

JP produces electric guitars. It is a cooperative owned by a committed workforce who share in the management and success (or failure) of the company and its profits. Workers enjoy having control over the workplace and are productive. However, JP’s continued success is threatened by insufficient finance, which prevents them from spending more on traditional promotional methods.

JP’s guitars are expensive relative to the competition but are known for their quality. Its customers are very brand loyal. The use of social media marketing by many famous musicians influences JP’s brand loyalty and awareness. Unfortunately for JP, one especially famous musician using a _JP_guitar on social media recently received negative publicity about his private life.

JP follows strict quality procedures that include quality circles. JP’s management believe that teams of workers employed on the production line know the production process best and are in the best position to make any necessary improvements. Staff turnover at JP is very low.

XYZ, a large company known for its kitchen appliances, is considering moving into the musical instrument market as part of a growth strategy – they want the high gross profit margins on guitars (compared to the low profit margins on kitchen appliances). XYZ wants to take over JP. XYZ has a strong balance sheet and large cash reserves and is an expert at marketing.

The cooperative has refused to consider the takeover bid from XYZ. The cooperative has argued that the culture of XYZ is too different to JP’s. XYZ’s management are viewed as too controlling. However, increased price competition has led to falling sales, forcing JP to make redundancies. Some cooperative members argue that unless JP accepts XYZ’s bid, additional jobs will be lost.

La Bonita (LB)

La Bonita (LB) is a beach hotel owned by Felix and Rose Sanchez. Its current target market is families seeking beach holidays. LB offers high-quality service. Customers do not pay in advance and pay in full on departure. LB 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 LB 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, LB has a very low capacity utilization and monthly cash flows are negative. LB 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 LB 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).