UF is a public limited company selling to an industrial market. It manufactures air conditioning units. UF produces two sizes of air conditioning units, medium and large. Most of its air conditioning units are sold for use in warehouses and computer server rooms. The units are expensive compared to competitors but UF believes its units are of a higher quality. Market research suggests that there is a growing demand for small air conditioning units to be placed in offices. To produce a new size of unit would require spending $180000 to purchase new machinery. UF relies on customer recommendations for new orders. However, some customers have been dissatisfied with the service received. UF has received several complaints, including: • engineers turning up late or not at all • poor communication from UF • little choice in the size of units supplied • appointment times are not always convenient and can be difficult to change. Sylvie, the Marketing Director of UF, is concerned about the sales data (Table 1.1) as sales have fallen 10% on the previous year. Table 1.1: Selected sales data for UF, 2019 Unit size | Price ($) | Unit sales ---|---|--- Medium | 900 | 3500 Large | 2000 | 800 Sylvie is considering two options to increase sales (see Table 1.2). Table 1.2: Options to increase sales Option 1 Reduce the price of the units by 10% | • Competitors' prices are 8% lower on average. • The estimated price elasticity of demand is -0.8. Option 2 Implement a performance related pay scheme (PRP) | • Sales staff are currently paid a monthly salary. • To introduce a PRP scheme the monthly salary would be reduced by 10%. • Targets would be set and if sales staff met the targets then they would receive PRP increasing their monthly salary by 15%.