EatWell Ltd was awarded the contract to operate the onsite caf and restaurant at GoGym one year ago. GoGym is a large recreational centre serving an urban population. The catering facility is substantial with the contract stipulating that the provider will offer a range of refreshments and meals for staff, centre users and visitors. The first year of the contract has not been successful for EatWell who have considered terminating the contract but have taken the view that the penalties for doing so would prove to be prohibitive. As an alternative, it has engaged marketing consultants who have provided them with useful information based upon surveys of staff, users and visitors as well as meetings with senior GoGym management.

The main conclusion of their report is that the refreshments side of the business is viable (making a contribution of 40,000 per annum), but that EatWell is not selling sufficient meals.

The two main concerns are:

1. EatWell is not perceived as providing healthy meals. The menus are such that they are not attractive to people using the facilities. The menus are also viewed as being too traditional and not adventurous enough, especially in terms of providing ethnic food. This is significant given the core market is staff, many of whom have a non-European background.
2. The meals are felt to be too expensive. The average price of a meal (based upon standardising menus over a period of one month) is 7.20. EatWells response to this was to propose new menus with a wider range of foods and a shift from traditional to ethnic dishes. EatWell has engaged consultants to carry out further market research on the likely responses to reduced pricing levels. The findings of the consultants are summarised below:

State	Probability	Estimated number of meals at 5.50 per meal	Estimated number of meals at 6.00 per meal	Estimated number of meals at 6.50 per meal
Low demand	0.3	21,000	18,000	15,000
Average demand	0.4	23,500	19,500	15,500
High demand	0.3	26,000	20,500	16,000

The average variable cost of a meal is 1.50 for ingredients, 2.00 for labour and 0.50 for overheads.

Question1:

Using the MAXIMAX method what price should EatWell charge for meals?

Question2:

Based on your answer to Q1 above what contribution will this result in?

Question3:

Using the MAXIMIN method what price should EatWell charge for meals?

Question4:

Based on your answer to Q3 above what contribution will this result in?

Question5:

Using the Expected Value approach what price should EatWell charge for meals?

Question6:

Based on your answer to Q5 above what contribution will this result in?