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.
Management:
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.
Marketing:
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.
Operations:
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!)

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