Hey Everyone!

For this weeks discussion, I found the first option to be the best course of action. The option was to limit the advertising budget to $50,000 as opposed to firing an employee. While it results in a gross margin of 52.5 % as opposed to a 53.5% margin (by opting to let an employee go), I think the 1% difference is better held by retaining employees for better service than creating a poor workplace atmosphere due to layoffs from not reaching the forecasted margins. Limiting advertisement may result in a lower awareness of the brand, but customer service is a better investment long term. If a company causes stress on employees (through layoffs), we could see a decline in customer experience due to lower engagement by representatives. If we were to limit advertising and provide excellent customer service, we would likely still see a rise in sales due to positive customer experiences. Poor customer service is likely to be spread amongst peers far faster than excellent service (which cannot always be mitigated by increased advertising), so its best to retain employees and focus on training opportunities to assist with increasing customer satisfaction rather than cutting back on employment. Since this example was looking at a 1% difference it seems like the best course of action would be to retain employees and consider new advertising models at a lower cost. If the following net sales continue to drop, with the lower budget in advertising it would then be a good decision to look at restructuring the overall budget in every category to better ensure the ratio of selling salaries don't have a disproportionate impact on sales than other categories. I personally believe that businesses should provide a maximum amount of employment with excellent benefits within there business model, rather than look to maximize the amount of profits in single evaluation period. By retaining employees through excellent benefits and tenure, the business would be doing far greater than hosting a poor work environment and maximizing profits. This is all assuming that the business model is looking at a long term profit rather than short term profits.

If the percentage was greater than 1%, and was showing that the business had over hired to where they were in the negative, I think my answer could be re-evaluated. Since the company could choose either option to increase the gross profits, I would stick to option 1.

compare your chosen strategy. Is there another option that you as a manager could make that would effectively increase profits?