The sales of your company are 100. Thousands, millions, billions, whatever you like. If it’s a small company, imagine $100,000. If it’s a global multinational, imagine $100 Billion. The firm has financial trouble, and they have asked you to increase profitability by 4%.
The Selling, General, and Administrative expenses, including payroll, rent, and other expenses, are about 16% of sales. It varies by company. At McDonald’s, it’s 23% and at Apple 6%. On average is 16%. Out of that, payroll is one-half or 8%.
To increase profitability by 4%, would you fire ½ of the entire team or increase prices by 4%? The financial impact is the same.
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I think realistically both always happen at the same time. In companies, there are always ways to be more productive with fewer people, and brands can handle pricing sustainably if their elasticity levels and competition is on their side. Tracking sales in a pricing execution is key to avoid future risks and portfolio management is of the essence (playing where we have more room). Regarding letting go personnel, it’s a reality for companies, but is key to do so in a sensitive matter to avoid reputational damages and loss in productivity due to new learning curves or staff that are over their work capacity.
I will choose to increase the price instead of laying off 50% employees. With higher price, the company might lose some of the customers to competitors. However, most of the customer might stay due to brand loyalty and familiarity. Also, all employees could work on innovation and services of the products, which can help attract new customers. In this way, the brand has the possibility to maintain the total net sales. However, if half of the employees are fired, the services support, product innovation and other development of the brand will all slow down. Also, the remaining employees might face unemployment stress. Firing half of the company is a big move. The one exception could be that the company is switching the industry focus from manual labors to technology. Then, technology could replace most of the labor, and in this case, firing half of the employees could be a solution, and the price increase could even happen at the same time. Because technology could improve productivity and reduce mistakes.
Knowing that firing employee in the US needs to pay no compensation, I still resist that fire one-half of the team is not a sensible choice. Like in McDonald’s, increasing the prices of Big Mac for about 4% won’t lose most of the customers. Because the original price is affordable and increasing for only 4 percent is kind of reasonable because of the global inflation. However, firing a great amount of employees will cause bad problems. Like the professor talked in class, customer service broke down and employees quitted. Employees have no energy to work which cause low efficiency. The company wants to cut the numbers of useless employees, however, the company fell into disorganization in the end.
I believe I would raise the price only by 2-3% and offset the cost of the rest by firing employees and/or requesting a pay cut for senior management if the situation arises. Realistically speaking, expecting a company to fire 50% of its employees and still function efficiently is unrealistic
I think it is not advisable to reduce the cost by suddenly reducing half of the staff, which will also make the company’s internal fear and affect the efficiency of work, and even cause a corporate trust crisis. If the company plans to change from labor-intensive to technology-intensive in the future, and gradually adopt technology automation, it is OK to reduce the staff appropriately, but not to do so drastically. At the same time, raising product prices by 4% I think the public is acceptable, in the case of inflation being so serious, the 4% increase will not be so obvious, and the company can still maintain customers.
For me, there is no doubt that I would choose to increase the price by 4%. There are 2 reasons. The first is that as a global multinational company, it is essential to have a reasonable number of employees, and laying off half of the employees means that the company will provide poorer customer service and work efficiency. Secondly, a national multinational company must have brand influence and customer loyalty. In the face of an annual inflation rate of 8%, a price increase of 4% is acceptable for customers.
I will choose to increase the price 4% rather than fire one-half of the team. First, firing half of the team will be a great human resources loss for the company. Some employees might worked for many years and contributes a lot, it is not rational to fire someone would bring profits to the company. Second, if the company explain why there is a 4% increase in price very well, most of the customers will accept that. Moreover, a total 4% increase in price means increase in some products, and it could lead to slight price decrease in other products. Therefore, if company could give related statistical prove, like raw material/transportation is more expensive, this kind of increase is acceptable.
Even though it is an interesting assumption that says the “financial impact is the same”, I do not see any positive results from laying off half of the employees.
Regardless of the scale of the business, there is no doubt that cutting half of the team would not only drop the efficiency of the business function but also hit the cooperate image with some negative comments. From here, we can see that the financial impact will not be the same in the long run and it won’t be a healthy choice for the corporate.
However, there is always a better way for the business to explain WHY they are increasing the price by 4%. It might affect the company in a short term, but as long as they could add value to the particular product or service and convince the target audiences, eventually, it sure will bring some positive results to the business.
That being said, I would prefer to increase profitability by 4% for the business.
I think that it’s better to increase price rather than fire 50% of the people, cause If the customers are satisfied with the product or service, they may be willing to pay a bit more rather than see a decline in quality due to reduced of staffing.
I believe that increasing price is better because if the consumers clients are happy/satisfied with the company’s products, they could be prepared to pay a little bit extra rather than suffer from a drop in quality as a result of staffing firing.
I would say increase the price because then we would not be jeopardizing the livelihoods of that many people. Also it could adversely affect functionality and morale to mass fire so abruptly. Which could then create mismanagement in the service or product being sold. Therefore firing had more risks.