Page 2 - CIMA MCS Workbook August 2018 - Day 2 Suggested Solution

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY

2. Proposed new system of setting fees

Advantages

Under the proposal there will be standardisation of fees across the country, helping budgeting,
performance appraisal and reinforcing brand consistency.

The system still allows some flexibility for regional and local price variations at the discretion of
the managers concerned.

Disadvantages

The proposed variation of 5% is much lower than the current spread of fees.
For example the average fee for full-fee members is C$15 per month but this typically 46% higher
at C$21.96 in cities and 19% lower at C$12.14 in towns.

The system could thus result in fees that are too low, thus losing potential revenue, or too high, in
which case members will be lost to rivals.

In essence the proposed system is too inflexible to match market conditions. Local managers
understand local market conditions better and can set prices accordingly.

The managers will feel that their freedom and authority have been reduced significantly. This may
prompt some to leave but even if managers stay, then it may result in demotivation and
dissatisfaction.

Managers will also feel that the performance appraisal system, whether the existing one or the
proposed one, is more difficult to influence and, therefore, will have less impact on their
behaviour.

58 KAPLAN PUBLISHING