1. Thinking back to our discussion in the chapter section, Caveat Emptor—Be An Informed Consumer, evaluate whether the replacement of highly paid workers with lower-paid workers did or did not cause Circuit City to perform so poorly. How confident are you in your evaluation? Why?
2. Do you believe that the compensation changes at Best Buy are a major reason for its current difficulties?
3. Why are Walmart, Sam’s Club, and Costco doing better than Best Buy (and Circuit City)? Do they have high pay?
4. Are there larger problems in the competitive landscape for Best Buy that cannot be solved by compensation strategy changes alone? When customers look to buy electronics, what options do they have other than Best Buy and why would they choose these options over Best Buy? Where do customers “test drive” the product and where do they buy it? Can compensation changes address these challenges? Explain.
5. In 2011, American Airlines had labor costs of $7,053,000,000 and ASM of 154,321,000,000. If they are successful in cutting $1.25 billion per year, what would their labor cost/ASM be and would that be competitive with USAir? If you are interested, you may wish to do more reading about American’s plan to cut labor costs to learn more about how they propose to do that.
6. What is your opinion on whether this change in compensation would significantly enhance American’s ability to compete in the airline industry? How does American’s position compare to that of Best Buy? Is having competitive labor costs of equal importance in the two industries? Explain.