Understanding Customer Value and Costs
1)Discuss how Robert should explicitly consider the customer value currently offered by Frank’s All-American BarBeQue. In your discussion, comment on the five value
benefits and the perceived costs.
2)Robert has several possible options for expanding his father’s business—find a larger location in Fairfield, add a takeout option, open more restaurants in surrounding
communities, incorporate web marketing concepts, and expand the sales of sauces. Review each in terms of value benefits.
3)In Chapter 2 "Your Business Idea: The Quest for Value", Robert Rainsford was introduced in the FRANK’S ALL-AMERICAN BARBEQUE case. He has returned to the family business and is very enthusiastic about expanding the business. He has identified four options:
(a) expanding the restaurant either at its current site or elsewhere in Fairfield;
(b) opening several similar-sized restaurants in nearby towns;
(c) using the Internet to expand
(d) expanding the sales of Frank’s sauces from a local store to a regional
supermarket chain. Any one of these ideas would represent a change from his father’s business model.
Given that he had not expressed any interest in the management of the
business, how should he go about approaching his father with these ideas? If the company expands, should Robert approach his sister and her husband about taking a more active role in the business? What should their roles be and explain why you have chosen these?
4)Frank Rainsford has been, in effect, the CEO of Frank’s All-American BarBeQue since its inception. His major role has been that of restaurant manager, receiving support from his assistant manager Ed Tobor for the last fourteen years. Frank has two children, a son and daughter, who both worked in the restaurant as teenagers. His daughter has worked periodically at the restaurant since she graduated from high school. Frank’s son, who recently lost his job, has returned to work for his father. The son produced several plans to expand the business, including the opening of a second restaurant and the extensive use of social media.
After careful consideration, Frank has decided to open a second restaurant, but this has presented him with a major problem—how to assign responsibilities to personnel. His son wants to be designated the restaurant manager of the second restaurant and made the vice president of marketing. Ed Tobor also wants to be the manager of the new restaurant. His daughter has expressed an interest in being the manager of either restaurant. How should Frank resolve this problem?
5)One night after the restaurant had closed, Frank Rainsford sat down with his son, Robert. Frank had finished reading his son’s business plan for a third time. Robert sensed that his father had some sort of reservations. “What’s the matter, Dad? Didn’t you like the plan?”
Frank paused and said, “Bobby, from a technical standpoint I think you have done a very, very credible job, but you are right. I do have some concerns.” Disappointed, Robert asked his father to lay out his concerns.
Frank told him that opening another restaurant was a huge and expensive undertaking.
He knew that Robert understood the financial risks, but he was not sure that his son understood
the problems associated with getting people to come to a new restaurant. Frank was straightforward and told his son, “I have been at this for thirty-plus years. It took me years to build up my client base. I really know my customers and what they like. Up until this year the only marketing I did was flyers and a few ads in the local paper and the church bulletin. How are we going to understand our customers at the new location? We are going to have to fill it up quickly if we are to pay the bills. I know I’ve had some good success with selling the sauces
during the last few years, but remember that I’m selling them from Harry’s grocery store. His customers already know me and my product. Your plans for ramping up sauce sales are great, but again, how are we going to get people to know who we are and interested enough to by a six dollar bottle of barbecue sauce?” Frank went on to tell his son that he knew that Robert was extremely knowledgeable about marketing and the use of the Internet. He reminded Robert that he had given him a greatly enlarged marketing budget in 2010.
If you were Robert, how would you go about alleviating your father’s concerns? (You may want to consult Chapter 16 "Appendix: A Sample Business Plan" and review Robert’s business plan for a new restaurant.) Answer the question from a marketing perspective.
6)Frank’s All-American BarBeQue is planning to significantly expand its takeout business. Currently, customers come into the restaurant and order from the menu. With the new Darien facility and website, customers will be able to order online or fax an order to the restaurant. Frank and Robert have been arguing over how to structure the takeout portion of their operations. Frank wants to maintain the approach where customers order items from the menu. Robert believes that in today’s world, it would be more convenient for customers to order complete prepackaged meals. Father and son have argued about the nature of these
meals. Frank has suggests a limited number of standard meals that could be prepared during the day and sold in the evening when commuters are returning home. However, this might mean that excess inventory would be built up on unwanted items. Robert wants to offer greater variety. These would include a main course, two side dishes, and a dessert. Because there could be a large number of combinations, most would have to be made after the receipt of an order. The “rush” to make these meals would drive up costs. How would you go about pricing these two types of meals?
7)You will find the business plan for Frank’s All-American BarBeQue. This plan examined several possible locations for a second restaurant. Frank and Robert considered several factors when evaluating alternative towns as possible locations. Some of these included population size, average income, travel times, and percentage of population. Based on the data, they selected Darien, Connecticut. Do you agree with the decision? Why or why not? Do you think other
factors should have been considered? If yes, what would you recommend?
8)You will find the income statements and balance sheets for Frank’s All-American BarBeQue for the years 2008 to 2010. Compute some of the key financial ratios for this business and discuss the meanings of any trends.
9)Locate the average values of these values for the restaurant industry and comment on how well or poorly Frank’s All-American BarBeQue appears to be doing with respect to the industry.
10)Frank’s business plan provides projected income statements and balance sheets for a five-year forecast horizon. Compute the same ratios as in Exercise 8 and comment on your results.
1.Robert should start by deeply understanding why the firm has been successful in the area and having won various awards. The main thing that should be in his mind is that the how to make clients feel that they get value for the money they pay to buy food. He must be very cautious of the five values including total customer value against the perceived total consumer value (Beneke, Flynn, Greig and Mukaiwa 2013). The total customer value is that perceived monetary value of economic or bundle, functional as well as psychological benefits expected by a customer from a particular market offering. The total customer cost is bundle of cost expected to be incurred by a customer in his evaluation, obtaining, utilizing as well as disposing of a given market offering (Chiu, Wang, Fang and Huang 2014). Thus, Robert has to full describe his offer to meet the expectation of the customer who the best out of his cash via product or service value on perceived metrics. The customer must add up all the values from 4 sources including product, services, personnel as well as image in order to perceive Robert’s offer as delivering a greater customer value. This is because her decision to buy is hinged on the examination of total cost against other offerings that is more than the money. Customer uses the toil and trouble when acquiring an item as the real price. Thus, a customer total cost will be inclusive of his time, energy and psychic costs which Robert must all take into consideration. Because the customer will have to evaluate all these aspects alongside monetary cost to establish a total customer cost and then consider whether the cost is too high with respect to total customer value. Thus, a buyer has the option to buy from any source he thinks delivers highest perceived customer value.
2.Finding a larger location in Fairfield: This is a good option for expansion, however, it will require huge capital start and also it might not be the ideal place as customers have known one place for a long time. This new place might not be convenience for customer who factor in the energy, time and psychic cost to determine the real price. Indeed where the customer will trouble and toil to get the new place, then the benefits will be reduced and hence not a good move.
Adding a takeout option: Adding a takeout is a good idea and will add customer’s range of choices. This is a good idea because it will be adding value to the clients who might need to buy and go eat at up. However, Robert must ensure that the total customer cost from this idea doesn’t fall above its perceived total customer benefits.
Adding a Takeout Option
Open more restaurants in surrounding communities: Opening more restaurants in the community will help ease the packing space. This will mean that those clients that trouble to get into the single one restaurant will be excited as more spaces is created. This creates a value in their mind. Hence, Robert should move on with these idea to tap this untapped customer base. However, he should note that the services and prices should similar to the existing one.
Incorporate web marketing concepts: Incorporating web marketing concepts will be a marvellous idea. This is because, this is Robert’s area of specialization. If he does this properly, he will be able to reach a new niche and hence a benefit to not only the restaurant but also their new niche who will love their services.
And expand the sales of sauces: Expanding the sales is both beneficial to the firm and the clients. This is because the main goal of every business is to expand the sales’ volume. Thus sales expansion will be a plus to the firm. On the other hand, as the sale is being expanded, Robert must take not that the production quality is maintained despite the increase in output. Without which this won’t create benefit to the clients who prefer quality than quantity.
3.Before approaching his father, Robert must make his mind to show interest in management so as to convince his father. His father will only be convinced if he has shown this interest because the father has his own model he ran for decades and cannot accept to change it without Robert’s own management strategy. Thus with the interest of management, Robert will be in a better position to approach the father by pin pointing the areas of weaknesses and each benefit attached to the new idea he is putting forth. And because his father doesn’t think that Robert can agree to join the management, it will be an added advantage for Robert if he has interest as this alone will convince his father. In case the company expands, the sister and her husband should take a more active role in the business because of the increased volume of work needed and even the departments. However, caution must be taken not to have them work in one restaurant or department but both of them must be under Robert’s supervision. Each one should be given a deputy managers for each new restaurant but work under Ed Tobor as their General Manager. By doing this, everyone will feel included and appreciated in the business. And the net result will be a motivated team of workers who work for the better good of the business. This will lead to more profitability in the business as there will be increased production and quality of services.
Expanding into New Communities
4.Here, Frank needs to relinquish his position as the CEO and give it to Ed Tobor who has been his deputy and have a clear understanding of the operation of the restaurant. Once this is done, Robert should then take up the General Manager position of both restaurant and made the vice president of marketing because he is an expert here. The daughter should be given the deputy management position of the new restaurant. Frank should, however, make it the chain of command very clear that his son and daughter will be reported to the new CEO. This will work smoothly as it creates a balance and assign the most experienced person in an area he or she can do best. It will also reduce conflicts as each responsibility and limit is outlined. Frank should thus remain as someone to be consulted for any technical advice but should not take part in the daily management of the restaurant. This is because when one delegates the duty, or the work, it should be followed by corresponding authority in order that the incoming person feels powered to do the work. Thus by staying aside and letting his deputy, Ed Tobor to take over, the work will go well without hitches because Ed Tobor would have found difficulty working under his son who had just arrived yet he had been here and know everything about the restaurant. By making Ed Tobor the CEO, Frank would have prevented any fallout that would have appeared as if the business is only family affair whereby there is no promotion for non-family members.
5.If I were Robert, I would tell the father my experience with social media marketing, target market and niche and how to position products. I will start by giving my history of early projects and how they were successful due to the use of social media. I will tell my father that social media coverage is very big and large compared to the flyers and few add he has been using. From the marketing perspective, I will draw up a convincing marketing plan that captures everything right from the target market, niche, segment, marketing mix, budget and any other concern raised by the dad (Tuten and Solomon 2017). I will then review it first based on cost-benefit analysis to ensure that the outcome or the value created will surpass the cost. I will also explain to my dad the benefits of social media campaigns and how it draws traffic and creates sustained competitive advantage in the modern day restaurant marketing. Robert would then be able to explain to his father the anticipated cost and the benefits from the new marketing strategy in a manner that will help allay any fears that the dad has (Kim, Koh, Cha, and Lee 2015). In so doing, he will be able to get a go-ahead with his plan without the reservation from his father that would otherwise made him work under pressure of thinking that the father is only waiting to see him fail to justify his reservations. The support and the consent from his father meant a lot to his plans’ success and hence he must come up with a plan that will eventually persuade and motivate his father.
Incorporating Web Marketing Concepts
6.To effectively price the meals, I would start by listing all the ingredients of each dish and then calculating the cost of each meal ingredient in each dish. This will be followed by adding the total cost of ingredients to compute my food costs for that given dish excluding labour costs for serving or preparing the dish. I will then divide the menu price by food cost to determine percentage of price which comes. After this, I will calculate my overhead cost a meal served including all the non-food costs used in running the restaurant. Once this is done, I will determine my target food-cost percentage I want for my menu items by using my overhead costs. I will then examine my current menu prices to determine if they cover my overhead and food costs and remit a profit. Then I will determine if I need to compute different food cost percentage for different services or items. After this, I will analyse my sales by item to see whether my food-cost percentage is able to support my business. This process if followed effectively step by step, without anything left out, would work greatly towards helping the two to come to a common ground backed by evidence. By having the background of evidence, one will be persuade to buy in to the other’s idea without the need to have reservations. This is true because, when these two gentlemen argue without evidence, it would only be one’s word against the other and hence reaching a common ground would be impossible (De Visscher 2016).
7.Hinged on the data given in Appendix 16, I am in total agreement by Frank and Robert to settle on Darien, Connecticut as the location for second restaurant. This is because this location outperformed all other considered ones based on such metrics as population size, average income, travel times as well as percentage of population. For example, it had a higher income-population, and higher population density. Moreover, a larger percentage of its dwellers are member of the family households. Longer commuting times increased the potential need for prepared meal than any other locations. In essence, this means that the location will attract more clients than any other location because they have better average income and even the population is bigger. I agree with this decision because even if other factors had to be considered, they would actually not have changed the decision as the ones considered were the main ones. However, Robert and Frank need to consider other factors going forward to offer to the best niche rather than merely looking at the size of the population. When these people get down together to consider the specific niche they would want to serve, they will focus on solely on a narrow segment and this will be more efficient than when they wholesomely try to penetrate the market without exactly knowing who and where their client base is. Tailoring the services to a specific niche is effective since it will reduce the cost of marketing that would otherwise be used in unnecessary audience (Auchincloss, Leonberg, Glanz, K., Bellitz, Ricchezza and Jervis 2014). The saved cost and time can then be used in the production of quality foods.
Expanding the Sales of Sauces
8.The key financial ratios for this business are computed and briefly discussed below based on the meanings of any trends.
Current Ratio=Current Asset/Current Liabilities
Quick Ratio= (Current Asset-Inventories)/Current Liabilities
Operating Cash Flow Ration=Operating Cash Flow/Total Debt
There was a decreasing trend in the ratios between 2008 and 2010.
Gross Profit Ratio=(Gross Profit/Sales)X100
The gross profit ratio was moved from 52.0% to 53.6% and to 52.6% between 2008 and 2010. There was a decreasing trend between 2009 and 2010.
9.In this section, the average key financial ratio for restaurant industry is obtained and compared with the Frank’s All-American BarBeQue restaurant in terms of average values. A comment on how well or poorly Frank’s All-American BarBeQue seems to be doing with relative to industry is presented. The financial ratios are helpful in the illustration of the weaknesses and strengths of a business. Such ratios computation are able to showcase any strange fluctuations or patterns or trends in the restaurant industry in their financial trends. Thus, by computing the financial ratios of the Frank’s All-Americans BarBeQue restaurant and comparing it with the industry averages, I will be able to showcase how such ratios are valuable tools in financial examination or analysis as well as forecasting. Moreover, these ratios will allow Frank as an entrepreneur to set particular goals and to effortlessly track progress towards these goals already set by Robert in this present case. I will thus select in my analysis, solely significant ratios that are applicable to Frank’s business as provided in the Balance Sheet and Income Statement and those which are restaurant industry-specific.
As has been observed in the calcualtion, the the restuarnt has performed avaragely in the indusry when compared to the above indusrtry averages. For exampe, it has Gross Magin of 52.6% which is above the avarge of 40% seen above. Based on the analysis, and comparison, it is apparently clear that Frank’s All-American BerBarQue has been well-managed and competes relatively well in the industry.
10.Here, the provided data in Appendix 16 on projected income statements and balance sheets for a 5-year forecast horizon is used to calculate same ratios as done in question eight and a comment is presented on the outcomes as done below:
Current Ratio=Current Asset/Current Liabilities
Quick Ratio= (Current Asset-Inventories)/Current Liabilities
Operating Cash Flow Ration=Operating Cash Flow/Total Debt
There was a decreasing trend in the ratios between 2008 and 2010.
Gross Profit Ratio= (Gross Profit/Sales) X100
The gross profit ratio was moved from 52.0% to 53.6% and to 52.6% between 2008 and 2010. There was a decreasing trend between 2009 and 2010. The restaurant is doing averagely well when compared to the industry averages. The firm is able to pay out its current labilities as seen in the current asset: current liability ratio above. This makes the firm being able to expand and meet its expenses without challenges.
Auchincloss, A.H., Leonberg, B.L., Glanz, K., Bellitz, S., Ricchezza, A. and Jervis, A., 2014. Nutritional value of meals at full-service restaurant chains. Journal of nutrition education and behavior, 46(1), pp.75-81.
Beneke, J., Flynn, R., Greig, T. and Mukaiwa, M., 2013. The influence of perceived product quality, relative price and risk on customer value and willingness to buy: a study of private label merchandise. Journal of Product & Brand Management, 22(3), pp.218-228.
Chiu, C.M., Wang, E.T., Fang, Y.H. and Huang, H.Y., 2014. Understanding customers' repeat purchase intentions in B2C eÃ¢â¬Âcommerce: the roles of utilitarian value, hedonic value and perceived risk. Information Systems Journal, 24(1), pp.85-114.
De Visscher, F.M., 2016. Financing transitions: Managing capital and liquidity in the family business. Springer.
Kim, S., Koh, Y., Cha, J. and Lee, S., 2015. Effects of social media on firm value for US restaurant companies. International Journal of Hospitality Management, 49, pp.40-46.
Tuten, T.L. and Solomon, M.R., 2017. Social media marketing. Sage
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