Tuesday, June 12, 2012

Biz Cafe Period/Week 0, Starting decisions:

Period/Week 0, Starting decisions:
Before starting, You want to have decided if your going lower cost/ higher volume or higher cost/ greater margin. This will drive a lot of your decisions week to week. In either case, you want to buy the higher capacity espresso maker. This doubles the coffee you can make and each cup is made thirty percent quicker. With either business strategy this is essential, it increase your ability to serve more people and keeps your lines shorter(customers will complain if they are long). For starting furniture, used isn't really much cheaper than new, and with new you can win ambiance awards. We choose the Green Theme and we had best ambiance the whole game.
We had 9 servers and this was not enough. This hurt our initial customer satisfaction, so hire liberally. We wanted highly satisfied and productive employees and management so we raised their wages initially and continued to do so as the industry average went up. This helps you win the 'best staff award' and lowers turnover. Raise managers wages and keep them ahead of everyone else, the overall cost is low and it helps to increase productivity which fits both business strategies.
A note about setting your coffee price, customers are upset by raising it. This seems obvious but it is better to start a little high and adjust down, then to realize your profit margin is too low. Keep in mind your cost per cup and what your business model is. Buy cups in max bulk to help lower cost. In our simulation we had competition out sell us by a lot of cups, but we made so much more per cup we stayed ahead in cumulative revenue and dominated in retained earnings.
With our simulation, we set the price of a medium cup of coffee to 3.94 and sold 1134 that week.
As for marketing, we went with 5 radio spots per day. Now knowing how customer awareness works, I think we should have added general awareness newspaper ads sooner until awareness is maxed. Coupons do not generate enough sales in my opinion to justify the investment ever. Perhaps in mid weeks after awareness is maxed they could be worth it but try them at your own risk.
Max hours in both both business strategies. This way you may win 'best hours' and it only has a slight impact on how many employees you need and will increase volume sold. When considering what type of coffee to sell, each tier you increase your coffee increase your cost about six cents. If you have organic coffee you might win 'best quality'. As for how much to buy, if you buy too much, the coffee is thrown out and you loose the whole cost of the coffee per pound. If you buy to little, it only cost you and extra dollar per pound. So you want to order close to the right amount, but ordering too much is much more expensive then too little.
Special Decision: Insurance
The special decision for period one was if we would purchase insurance. We did buy it. In week 6 or 7 everyone had an electrical fire and if you had insurance this only cost you the deductible of $500 instead of the full cost of a new espresso machine. So this saved us $4,900.
How we did:
After advancing to the next period our balanced scorecard was 88.95 with a customer satisfaction of 37(needed more servers!) and a brand awareness of 5.4.(Highest brand awareness was 16.3, so SPEND IN ADVERTISING!)

Friday, June 8, 2012

BizCafe Simulation
As many college students, I am required to take a management class. Our class, 'Management Concepts, Theory and Practice', is using Biz Cafe(Business Essentials Simulation) by Interpretive Simulations as a major component in our grade(http://schools.interpretive.com). I had heard other students talk about it some, so I had some idea of what it was when our professor was describing it and how it would impact our grade. I instantly thought 'great I'll Google this and find some helpful tips', well i didn't find any. I did find some blogs, but they failed to convey much useful information  and there was no explanation of mechanics. I am not a business major this is my minor but, as a Computer Science student I didn't want to loose any kind of video game to some business majors. So my group and I just did what we thought was best to win.
Currently, it is week 7 and my group is in first place(have been since decision 1) with a balanced scorecard of 92, with the next group at 81. So, we might not be the best every at this simulation, but what we are doing has worked well for us.  So I'll start with a few tips that help you gather information about your competition and how you are doing.
A word about strategy, the two main approaches are, lower cost with higher volume and higher cost with greater product differentiation. Make this decision first as it is really not wise to change your approach later as the simulation is too short to make the switching cost work out. We went with higher price, high quality and maximize customer satisfaction. If you go with the lower cost approach, you will need to drastically outsell your competition as you make much less profit per cup.                                                                                           
 This is where you can get most of the information about your competition, what the avg worker is getting paid,what cafe won different awards and various levels of customer feedback depending what you pay for. It is important to know what the average wage is, if you pay above the average you will lose less people and they will work a bit harder, this has some impact on customer satisfaction levels. Pay is very important with managers and you only have 2 or 3 (depending on weekend hours or not) so paying them better will not cost you much. This is under the 'Labor tab', this also shows the number of employees per shop, combined with other information this is helpful.
When it is available, you may elect to pay $500 for 'customer survey', this will increase the level of detail available on that tab. Customer satisfaction is important to compare to the average. The 'awareness' is very important, this is what percentage of the population knows about your cafe. The maximum for awareness is 99.2 percent and radio spots and general awareness newspaper ads are the best for raising this quickly, which you want to do in either strategy. As you go higher, the return on ads doesn't diminish, if you 5 radio spot and general awareness newspaper ads you will get there quickly. Awareness does not degrade over time. Coupons are not worth it until this is very high, then the might be worth it to steal customers from other shops but I did not find them worth the investment.

Under the newsletter tab, you can view the other cafe's menu. Three important piece of information are here, what grade of coffee the sell, the price and their hours. Knowing what your competition is doing helps you to make adjustment to your strategy. I found it best to maximize hours, sell the best coffee and charge a higher price. Keep in mind each tier of quality you increase  your coffee only changes your cost by about six cents per medium cup. Charging a  higher price for a better product worked well for me, this helped win product awards and have higher margins. Maximizing hours will help you win 'best hours' and you will sell more coffee with only some increase in staffing cost.    

Before you 'launch the simulation', you can 'view the results. This is essential to keep track of. it shows you, how many cups your competition is selling, there overall revenue, what their customer satisfaction rating is along with their brand awareness. Most importantly, you see the balanced score card, this determines the winner. When you put this together with the other data, you know pretty much every important metric of your competition. For example, if you have a higher balanced score card, but are behind on revenue, you probably have more retained earnings.