He made assumptions for the price per meal in the break-even analysis but doesn’t have any data to support them.
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The research company told Michael, “If we can collect valid and reliable information on likelihood to patronize your restaurant, average amount spent in restaurants per month, and the average price to be paid per entrée, we can create a much more accurate break-even analysis and compare that with the number of patrons you can expect. This is the information we need in order to determine if you will have adequate demand for restaurant.”
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In fact, the research company had already made some estimates of demand using a forecasting model. They told Michael that as long as potential patrons earned a salary of at least $70,000 per year so that they had sufficient disposable income to eat at a high-class restaurant and if these same people spent an average of $200 per month in restaurants and were willing to pay an average of $19 for an à la carte entrée, then the model predicted a very successful restaurant operation.
What about Design and Operating Characteristics?
How elegant should the décor be? Should there be live entertainment such as a jazz combo? Should the restaurant have a water view? Should the wait staff be formally dressed in tuxedos?
Should the menu include a variety of choices including exotic entrées not found in other restaurants such as truffles? Would traditional desserts be desirable or should they offer unusual desserts served with fanfare such as flaming Bananas Foster? And what about driving time? Michael thought if he located in a central section of the city, people from all over the metro area would come if they didn’t mind the driving time.
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Where to Locate the Restaurant?
Michael is well aware of the old saying in retail business: The most important three factors for success in retailing are location, location, and location! Even though he knows his restaurant will be unique in the market, the location has to be considered convenient to his patrons.
The research company had acquired demographic information on each post code in the metropolitan area and categorized them into four groups based on their commonalities. The summarized information on the post codes is as follows:
Location A: Post Codes 1, 2. Low-income, older population located in the south-southeastern part of the city.
Location B: Post Codes 3, 4, and 5. Middle-class neighborhoods many of whom have young families and enjoy socialising.
Location C: Post Codes 6, 7, 8, and 9. Almost double the population of areas 3, 4, and 5 who live in the eastern part of the city along the shoreline. These are young, upwardly mobile and older, upper-middle-class households with occupations in management, government, and young entrepreneurs. Although the incomes are not as high as in post codes 3, 4, and 5, there are almost twice as many people and they have above-average incomes.
Location D: Post Codes 10, 11, and 12. Located in the northwestern part of the city with high-income, older population of retirees and established professionals. Essentially, these are families with inherited wealth, professionals, and entrepreneurs.
Michael notes that the demographic information available suggests either a location somewhere within post codes 6, 7, 8, and 9 or within post codes 10, 11 and 12. Michael seeks to determine which location is superior. It is also important for Michael to be aware of any relationships between likelihood of patronizing the restaurant and income.
How to Promote the Restaurant?
Which media should be used to promote the restaurant - radio, television, newspaper, local magazine?
The questionnaire that the research company has been working on contains the questions needed to measure likelihood of patronizing the restaurant and the other issues that need addressing. For radio, there are many stations from which to choose and each provides a listenership study that gives some demographics on the audience of each station. The stations are broken down into formats: country and western, jazz, easy listening, rock, and talk radio. Each station provides demographic information on its listeners by income. So, Michael knows what type of programming to select, he will then need to know which specific stations to select which offer the desired type of programming. By knowing if there are differences in income between customers with different intentions to patronize the restaurant; Michael will be able to select the appropriate radio stations.
As for the newspaper, which section did most members of the target market read? Editorial? Business? Local? Sports? Health, Living and Entertainment? Classifieds?
Finally, the research company put together some standard demographic questions to be asked in the survey. These demographics will help to do a number of things. First, they can provide information about the sample that was selected. A demographic profile of the sample can be prepared. Michael needs to know on which group of people he will be basing his decisions.
Second, the information will help to profile the likely patrons of the restaurant. This will help to clearly understand the target market and will be useful for making future decisions.
The data collected from the survey has been provided to you. You will need to analyze the data and prepare a report that details the results of your analysis and provide recommendations for Michael so he can make decisions regarding his restaurant.