You, the City and the Gourmet Burger Business

 You live in Simile, a suburb of a large mid-western US city, San Chic. It is a 2-hour
drive to the downtown area of the city. It is an urban suburb that combines rural charm
in some areas of Simile with many businesses in other areas. Though it is too far to be
a bedroom community, many individuals from the city have their get-away homes in
Simile. It is touted as a representative city of the US. Many Market Research projects
are conducted here. It is considered an exemplary city of the United States. Its
population is about 200K.

 You were a part-time short-order cook for 6 years while going through college. Now you
work in a white-collar job in the warehousing business. Your friends consider you a
master griller and on many weekends you love to cook for them outdoors. You are
approaching 50 and are getting tired of working for someone else. Your salary is about
$100K ($135K if you include benefits) and you live comfortably in a family-friendly
neighborhood.

 You have been observing the rise of gourmet burger businesses from articles in food
magazines that you read because of your interest.

 A bug has gotten in your ear; “Why don’t I start a gourmet burger place?” You can’t
help it. You start dreaming of a restaurant and the burgers you will sell. You have
about $50K in savings that you can risk.

 The big decision that you have to make is, “Should I open a restaurant because of my
grilling passion and skills”? (That you will call it BurgerHut, if and when it was
launched, was set in your mind.)

 Common sense tells you that to run a successful business, more money should flow in
than out. This implies that the price at which you will sell a burger should be greater
than all the associated costs of a burger, that there will be a demand for the burger at
that price, and that the total sales will be more than the total costs.

 So to make the primary decision, you need to make several other decisions:

o In what type of area should I locate the restaurant?

o How much rent is affordable?

o How much should I charge for the burger?

o What type of customers should I try to attract as my base to generate

enough sales volume?

o What other products do I need to offer?

o What should be the ambiance of my restaurant?

To make all these decisions, you need to begin developing a Business Strategy.

 To ensure that your new business will be successful, two questions need to be
answered:
 o Will there be a demand for the burger that your new business will sell? This
implies that there will be enough customers willing to pay the chosen
price, that the targeted customers will prefer your burger over
competitors’ products, and that the broad environmental conditions will
support your business.

o Are you the right one to make and deliver the burgers to the marketplace?
In other words, do you have the resources/ strengths/ capabilities to make
and deliver the product at cost(s) that will be less than the price(s) your
target customers will bear?

 To answer the first question, an external analysis needs to be conducted. An external

analysis evaluates prospective customers, competition, and environmental threats and
opportunities. To answer the second question, an internal analysis needs to be
conducted. An internal analysis evaluates your capabilities – skills, knowledge, assets
(tangible or intangible) – in being able to deliver the product and beat the competition.

(Your gut, which nudged you to start a Gourmet Burger business essentially did an external and
internal analysis. The fact that gourmet burger businesses are growing was an element of external
analysis; that you had the extraordinary skills at grilling burgers and 50K saved for risk-taking were
elements of internal analysis.)

Here are some of the facts you have learned about the environment in which you will operate the
gourmet burger restaurant:

 In Simile, there is no gourmet burger place. The closest ones, just 3-4 of them, are in
the city, and they are chain restaurants.
 There are plenty of restaurants in Simile where regular burgers are available, and of
course, these restaurants are all across the spectrum.
 There is a significant rise in gourmet burger businesses, as shown by a simple Google
Search. While this might be an opportunity, it could also mean difficulty in beating the
competition.
 Gourmet burgers were generally priced at around $9.00 without fries in some
restaurants and with fries in others.

Types of Potential Customers in Simile

 You feel comfortable about the fact that there is not much direct competition in the
gourmet burger category in Simile and that the category is doing well nationally.

 You also feel good about your expertise in grilling, about your propensity to take risks
and being an entrepreneur, and about your belief in treating the customer right. You
do not know much about your management or leadership style and beliefs nor their
importance in running an organization, large or small. You have never been in a
manager's role to learn or receive feedback from subordinates and supervisors in this
regard. However, you don't think this is that important right now. And are convinced
 that if the positioning (pricing, ambiance, service …) is right, your business will be
successful.

 But you also know that different types of customers would expect different types of
service and ambiance and would, therefore, be willing to pay accordingly.

 So you now need to do some thinking about the target market you want to go after.

 Even though it would be fine if any and all types of customers come in, targeting a
particular group of “homogenous” customers allows you to focus on satisfying their
needs. A target market is defined as a particular group of consumers with similar
needs and wants with the ability and willingness to buy.

Click here to read more about Market Segmentation and Selection of Target Market.

 You can think of three types of customers:

1. Middle to Upper-Class Factory and Office Workers (You call them

Tummy Satiaters; weekday lunch ‘hour’ would be crunch time.)

2. Middle-Class Families (You call them Pragmatic Eaters; weekends

would be peak traffic.)

3. Upwardly Mobile College-Educated Younger Professionals (You call

them Experience Seekers; evenings would be their favored time.)

Beyond the Burger: Price, Location and Promotion

 You now need to start painting a richer picture of each of the possible 3 target
markets. Many of the variables discussed as the bases of segmentation can be used to
profile the segments. The more you know about your target segment, the better.

 In addition, it is now clear that the location you chose will attract one group more than
the other. The kind of products and servers/service you offer will also depend on the
target market, as will the pricing of your burgers and your promotion/advertising
tactics.

 A marketer satisfies its customers’ needs not only through the product the customer
buys but also through the place from where the customer buys, the price the customer
pays for it, and the perceptions the customer has of the product because of the way
the promotion of the product is executed. These 4Ps (product, place, price, and
promotion) are collectively called the Marketing Mix.

 You would need to start thinking on multiple dimensions simultaneously - profile of the
potential target market, price, location, ambiance, and so forth. This interactive non-
linear thinking, where a choice of one parameter influences another parameter, which
in-turn indirectly influences the original parameter, is the process of Positioning your
restaurant.

 Next, learn more about 1) Marketing Mix; and 2) Positioning.

Who Will Buy and Why?

 All the marketing mix elements – pricing, product quality, and product attributes
(including the intangibles of the “extended” product, e.g., service quality and
ambiance of the restaurant) should be consistent with the positioning. The positioning
also subtly assumes the customer segment to which the product is targeted. A
positioning statement may or may not be publicly proclaimed, but it is used for
external communication, e.g., the design of advertisements. It also, of course, helps
the organization make and deliver the product appropriately. A value proposition, on
the other hand, expressly states the target market the product/brand is meant for and
the benefit it provides to that segment (relative to the competition) in a succinct
manner.

 A value proposition is a marketing statement that summarizes why the consumer in

your target market should buy your product or use your service. This statement should
convince the potential consumer, by presenting a believable reason, that your product
or service will add more value or solve a problem more effectively than other similar
offerings.

 So far, what you have decided is that the quality of the burgers you will serve will be
excellent. Of course, you have to settle on a location, price, and the ambiance of the
service before you can articulate a Value Proposition. The shell of BurgerHut’s Value
Proposition could be:


o To (the Target Market) BurgerHut will Provide Burgers Perfected by Special
High-quality Beef and by High-class Art and Science of Grilling Mastered by
(Your Name) (at an Affordable Price or in a High-class Environment or …).
o You conduct Market Research on the web, and you find competition pricing
its burgers at around $8.99. The competition also provides fancy toppings
on their gourmet burgers.
o You are not very sure whether you want to go with the fancy product
variations right away because of the implications of carrying different
products in the kitchen.
o So your upper price point, as you surmise from the market research you
conducted on the internet, is $8.00.
o The lower limit of the price will, of course, be determined by the cost of
producing a burger. However, your gut tells you that if you went below
$5.00, the burger might not be perceived as high quality.

Research on Location

You have been able to identify 3 locations that would conceivably work with different
positioning strategies:
  A mid-town location that is quite trendy. Younger people from Simile flock to the bars
in mid-town in the evenings. Generally, the prices are high for the quantity of food, but
the food does look gourmet-ish – whether it actually is or not is hard to determine.
Lunch hour is slow, but mid-town is not far for downtown business executives or office-
goers from elsewhere to visit. If there is no traffic, one can reach mid-town from any
place in Simile in 15 minutes. The rent for a restaurant space of 1000 sq. ft. is $5,500.
Paid parking is conveniently available.

 A strip-mall location at the south-side of Simile that is close to a few businesses with
warehouses, a mall, a 4-year college, and a mid-scale stable residential neighborhood.
There are several small businesses and stores (e.g., hair and nail salons, party rental,
restaurant, or two) in and around this strip mall, and all are doing well. You expect a
decent lunch crowd as most of the workers are higher-end blue-collar workers and
middle-of-the-road white-collar workers. The rent for this 1200 sq. ft. location is
$3,500. Parking can be tight. You can see business owners putting up signs reserving a
few spots for their own customers.

 A location near the north-end of the city that houses the largest mall in the city of
Simile and an 8-plex movie theatre. The rent for this 1,500 sq. ft. location is $4,500.
There is enough free parking all around. The space is owned by a large corporation
that owns hundreds of malls around the US and beyond.

Three Service Concepts

You can think of 3 styles of service – Fast and Furious, Polite and Attentive, and Robotic.

 Fast and Furious: Of course, you will be ultra nice to customers, but this style of
service wants to say to the customers:
In this service concept, one wants to provide the best food for the money. One could call this
method of doing business a “low margins and high volume” strategy. Servers wear normal clothes,
and they are crisp and efficient in their service. The same is true for all workers that are hired. No
whiners, no bad attitudes. You like to call this service concept, “Fast and Furious.”

 Polite and Attentive: You are also very familiar with fancier chef-owned restaurants
where servers are young, attractive, and articulate. They would demand at least 50%
more salary than servers in a hole-in-the-wall restaurant. The furniture and décor
would also need to be fancier. Prices can be high. Service has to be prompt. Customers
will not visit in very casual clothes. They would expect gourmet alcoholic drinks to go
with the gourmet burger. An alcohol license would be required, along with a bartender.
You like to call this service concept, “Polite and Attentive.”

 Robotic: While Service Option II can be called a “customized” service wherein the
service providers are given latitude, another service concept called “industrialized” is
also possible. This service concept, as you know, has been promulgated by chain
restaurants. Service providers are pretty much "paid workers" doing a job. Also, unlike
Service Option I, where the customers may be able to identify with service staff, in this
“industrialized” concept, there is no such social affinity between the servers and
customers. You like to call this concept, “Robotic.”

Selecting and Articulating a Value Proposition

  You are acutely aware that more small business start-ups fail than succeed. In the
restaurant business, there is an even higher rate of failure than other types of
businesses. So you want to engage in some serious thinking and planning.

 You have to choose between 4 different price points, for example – Low ($5.00),
Medium ($6.00), High ($7.00) or Very High ($8.00)

 You have 3 locations to choose from, 3 very different service concepts, and 3 possible
target markets.

 You theoretically have 108 options to choose from. Some options are internally
inconsistent. Others might appear to be inconsistent but might not be, and vice versa.

 You can think of selling $8.00 burgers in the cheapest location (strip-mall) and still
expect customers to come in – after all, your burgers are delicious. Similarly, you can
think of making your burgers a loss-leader, i.e., pricing it at $5.00, in the expensive
location but making money from drinks.

 You have to give this considerable thought, as you know enough about pricing to know
that you don’t know enough. The good thing is that you don’t have to make the
decision now as the location choice might influence the price point.

 Lastly, but most importantly, you know that you need to know how much your burger
will cost to produce so that you can sell it for a profit!

 Value propositions should be articulated only after the costs are well understood.

Estimating the Cost of Cheese Burger: Direct Material Costs

 The gourmet ground beef you plan to use will cost about $2.00 per ½ lb. patty. You
know this, as you have bought ground beef from this supplier many times for your
cookouts.

 A good quality hamburger bun is $0.50 each.

 Lettuce and tomatoes, you estimate, would be about $0.25/burger.

 If you decide to use recyclable paper plates for serving, each would be about $0.25.

 Fork, knife, spoon, napkin, and salt-pepper sets are about $0.25 each.

 Cheese slices are also about $0.25 each.

 These costs add up to $3.50.

 (P.S. In the fancier mid-town location, you cannot use paper products.)

 Based on the numbers provided, your direct material cost for each burger is $3.50. But
clearly, this is not your only cost. You will have to pay for utilities, operations, and
capital equipment such as refrigerators, broilers, etc. For every burger you make, you
 will incur a cost of $3.50. Such a cost is called a variable cost. However, the cost of a
refrigerator has to be incurred only once. Costs, like that of a refrigerator, are called
Fixed Costs.

 (Also, the paper product costs will go away if you go to the fancier location, but you will
have to buy china, cutlery, and so forth.)

Click here to read about Variable and Fixed Costs.

Fixed Costs

 You have been thinking of the costs associated with running your business, and this is
what you have come up with. You are not incorporating labor costs for now as you and
a significant other, Chris, will be the only ones involved.

o Even though you haven’t decided on a location yet, you can use the
average rent of $4,500/month for planning purposes.
o You have estimated that utilities (water, electricity, etc.) would cost about
$250/month. This is quite independent of how many burgers you sell -
because you think heating and cooling the restaurant is always necessary,
and the refrigerator needs to run. The extra cost of heating the grill for
more burgers would be quite negligible. Similarly, you estimate cooking oil
for french fries would cost about $10/day.
o Buying the following:

[Link] Refrigerator $7,000

[Link] Hi-Temp Griller $5,000

[Link] for Dining Room $2,000

[Link] (cash register, knives, garbage cans, etc.) $500

[Link] License and Mandatory Insurance for a Year $1,500

 Fixed Costs, as described, do not change with the Number of Burgers made. Fixed
Costs, calculated over a year for the cost scenario described earlier, are:

Rent (Tentative) $4,500 x 12 = $54,000

Utilities $250 x 12 = $3000

Capital Equipment $14,000/5 = $2,800

Paraphernalia $500

License $1,500

Cooking Oil $3,500

Total FC for a year $65,300

FC for a day (estimate) $187 (Rounded to the nearest

(350 working days/year) dollar.)

 The fixed costs associated with the capital equipment need to be spread over the life
of the equipment. The Internal Revenue Code (IRC) stipulates the life of capital
equipment. In the case of restaurant equipment, the IRS allows for 5 years. Furniture in
restaurants also has a life of 5 years per IRS guidelines.

How Many Need to be Sold to Make Profit

Breakeven Analysis & Spreadsheet Modeling

The Breakeven Point is the number of hamburgers you will need to produce and sell to recover all
your costs, i.e., 0 profit. Beyond this point, you will start making a profit.

 Let X be the number of Hamburgers you produce and sell. (Remember, X is a variable
that can have any value you choose while you play around with numbers.)

 VC is the Variable Cost for each burger, and the Fixed Costs are FC.

 The Total Cost (TC) of producing X burgers is X*VC + FC. The Total Revenue realized
from selling X burgers is X*SP, where SP is the Selling Price of each burger. The
Breakeven Point is where the Total Revenue equals Total Cost. The formula, therefore,
is X*VC + FC = X*SP. And the Breakeven Point X is X = FC/(SP-VC)

 When conducting a breakeven analysis, the incorporation of fixed costs can be tricky.
Generally, a period of a year is taken to calculate the breakeven quantities.

 Some capital equipment can last for 10 years and others less. So the fixed costs
associated with capital equipment need to be spread over the life of the equipment.
For Breakeven calculations, a simple division by the life of the equipment is sufficient.

 A spreadsheet has been inserted later. Insert different amounts for Fixed Cost and see
how much profit you will make at different sales levels (X) and Selling Prices.

 Spreadsheets allow you to plug in different numbers for different variables to see how
they work in the equation. For example, our breakeven equation spreadsheet will allow
 us to see how our TC, TR, and Profits change with different sales levels (X), SP, VC, and
FC.

 In the example shown next, the FC is assumed to be $1000, VC is $3.50, and SP is

$5.00

 Play around with the spreadsheet. Change the FC, VC, and SP and see the impact.

 After the page following the first spreadsheet, another spreadsheet allows you to
calculate the breakeven point for various values of the selling price, fixed costs, and
variable costs.

 Spreadsheet Modeling the Relationship Between Cost, Revenue and Profit for

Burgers
 Modify the values for
 Price, # of Burgers, F/C, V/C Per Item
 Observe the impact of the modification in columns
 Total V/C, T/Rev, T/Cost, Profit

Graphical Representation of TC, VC,

FC and TR
The graph illustrates a scenario where the FC is $1000, VC
is $3.50, and the Selling Price is $5.00
Breakeven Analysis
Modify the values for
SP/Per item, VC/Item, FC/Per Day
Observe the impact of the modification in the column B/E Point

Strip-Mall Location
 You have readily negotiated with the strip-mall owner, a well-liked real
estate developer in Simile and its neighborhood. You signed a one-year
lease with the option of walking away with 2 months' notice. He also gave
you the right of first refusal in case a better renter came along.
  You paid $3,500 in advance and $3,500 as security.

 He gave you possession on January 15th, but your rent starts on February
1st. You have 2 weeks to prepare for the opening day slated to be
February 1st - that is a Friday.

 You bought the capital equipment and installed it. Put up a sign with
BurgerHut as the restaurant's name (no debating about the name here!)

 A restaurant supplier EUS (Everything Under the Sun), wants your

business. He was a supplier to the previous restaurant owner in this
location who moved on to a bigger, better location. He agrees to provide
you with a month’s supply of condiments, ketchup, mustard, pickles,
pickled jalapeno peppers, along with containers for serving at each table.
He has also agreed to supply napkin holders with napkins for a month.
Each napkin holder has an ad on it.

Pricing the Burger

 Having selected the strip-mall location, you now have to move on to
selecting a price point.

 Three important factors that you have to consider in making a pricing

decision are the cost of your product, the cost of the closest competitive
product, and the amount the target segment will be willing to pay.

Cost-plus Pricing
 Cost-plus Pricing, as the name suggests, is a strategy where the price is
selected based on the product's total cost. It is as simple as adding X% to
the cost of the product. X might be determined by the “Return on
Investment” the firm might be targeting or by some other benchmarks the
firm might use or some absolute profit amount.

 From the previous spreadsheet analysis pages, you have a good idea of
how much you need to sell and at what price to breakeven. If you wanted
to make a profit of $50K/year, add that to the numerator to calculate the
number of units you will have to sell. That is, if Y is the number of burgers
you have to sell/year to make a $50K profit, then Y is given by Y = (FC+
$50,000)/(SP-VC)

 The total investment in the restaurant will be known. Specifying the X%

ROI will determine how much profit you need to make. The above formula
can be used to calculate the number of burgers you need to sell.

Competitive Pricing
 Competitive Pricing of a product is based on the prices of the closest
competitive products. One can then price the product (marginally) higher
or lower than the price of the competitors. In the case of BurgerHut’s
 gourmet burgers, some of the factors that would be taken into
consideration are:


o How much do other competitive gourmet burgers in regular
decent full-menu restaurants cost?

o How much does a Gourmet Cheeseburger from McDonald's

cost?

o How much do other competitive gourmet burgers in chain

burger restaurants, e.g., Red Robin, SmashBurger, cost?

Value Pricing:
 Value pricing is based on the amount a consumer is willing to pay for the
product. Perhaps the best way to describe value pricing is through the
example of airline ticket pricing. It is possible to travel 2000 miles from
city A to city C (via city B) at a lesser price than traveling from city A to
city C, a distance of only 500 miles. Similarly, travel from A to C via B
could be less expensive than travel to B to C. The point is that passengers
are willing to pay more for direct flights than ones with stopovers.
Stopovers result in more time spent traveling and the inconvenience of
changing flights.

 Each of the pricing strategies might give a range of prices to choose from.
At the overlap between all three strategies, one might find the optimum
price.
Purchased MR Report
 The Market Research report you bought on margins and prices of burgers
was quite elaborate. It provided data on costs and prices of burgers of low,
medium, and gourmet quality. It also broke it down by individual mom &
pop stores and large chains; by region; by location, by special
characteristics, e.g., organic, toppings; and so forth. After pouring over the
report, you came to the following conclusion for your location and
characteristics. The market splits between low price and high price
"gourmet" burgers at around $6. The market is not sensitive to price
differences of about little less than a dollar. The demand is inelastic below
$6 for up to $5 and is inelastic above $7 for up to about $8.

* Such MR reports are generic reports about an industry or a product and its market.
Specific questions can only be asked with customized market research. This report's
provider said that they could shed more light on your specific questions, but that
would cost another $2,000. Being a small-time fledgling aspiring restaurateur, you
don’t want to spend this amount.
6 DMQ 2.1 - Opening Day Banner
Promotion Decision
 Even if you initially wanted Mid-town or North-end mall as the location,
you are now glad that you landed in the Strip. You recently read that the
founder of Panera Bread who was a Harvard Business School MBA could
not get a mall or downtown location for his first cookie store because he
did not have the right experience or the balance sheet. You also marveled
at the fact that how individuals could ignore their strengths and
weaknesses while making decisions, though they theoretically understood
the concept. Just looking at external opportunities without regard to
internal strengths could be a recipe for failure.
 Similarly, you now know that for the Strip location it is appropriate to
target the Middle-Upper class Factory and Office Workers with Fast &
Furious service. The target market would want ample food even with your
value proposition of good quality with fresh ingredients. Your breakeven
analysis, however, tells you that there are positive contribution margin at
all prices and, hence, you could have priced it at any of the 4 price-points.
You are also convinced that changing prices too early or frequently would
send a wrong signal to the market. So, you are ready to stick to the price
you have decided. Of course, you could engage in promotions to attract
price-sensitive customers.
 With this positioning (Middle-Upper class Factory and Office Workers, Fast
& Furious service, and ample, fresh and wholesome food), you are
convinced and excited to make it a go at the Strip. You rented a 1500 sq.
ft. restaurant space at $3500/month, paid one month rent in advance and
one month's rent as security. Your estimated utilities were $250/month to
be paid at the end of the month.
 After signing the lease at the strip-mall location, you informed your boss
and your colleagues of your decision to start this business. To your
surprise most had a very positive response. Some asked questions about
your business model and they were satisfied with your responses and the
research/due diligence you had engaged in. Others who knew about your
grilling mastery agreed that you had the capabilities, including business
acumen, to run a restaurant. They were in fact keen to visit your
restaurant and have your burgers whenever their hearts desired. Still,
others were just glad that you could be your own master. With your boss,
there was even a tinge of envy. She was all in all wishing you well.

 You sent emails to everyone in your contact list promoting your opening
day, and being marginally knowledgeable with Social Media, you created
enough buzz on Facebook.

 Opening Day Banners would cost about $400. You have to decide if you
want to spend this much money. For a fledgling small business, this is not
a trivial amount given the unknown benefits that might accrue. So, in this
 situation, the decision has to be based on your business acumen and
beliefs rather than data.

Actual Fixed Costs/Year

Rent 3,500 x 12 months 42,000.00

Utilities 250 x 12 months 3,000.00

Capital Equipment 14,750 / 5 years 2,960.00

Paraphemalia 500.00

License 1,500.00

Cooking Oil 3,500.00

Total FC for year 53,450.00

FC for a day(estimate) 153.00

(350 working days/year)

Final Breakeven Quantity

 Recall the break-even quantity, X, of Burgers is given by:

X = FC/(SP-VC)
 Recall the Fixed Cost/Day for your operation as it is now is $153.

 At Selling Price $5/Burger + $2.00 for Soda and Fries; Break-even is $153 /
($7 - $4.50) = 61 burgers.

 At Selling Price $6/Burger + $2.00 for Soda and Fries; Break-even is $153 /
($8 - $4.50) = 44 burgers.

 At Selling Price $7/Burger + $2.00 for Soda and Fries; Break-even is $153 /
($9 - $4.50) = 34 burgers.

 At Selling Price $8/Burger + $2.00 for Soda and Fries; Break-even is $153 /
($10 - $4.50) = 28 burgers.
The First 30 Days
 Your restaurant has been doing well over the last 30 days. If there were
going to be difficulties in the marketplace they would have shown up by
now, you think. You’ve also taken care of all the teething problems with
help in cleaning, serving and cooking. Jimmy, the waiter, is working out
well. He is serving well, collecting good tips and getting free burgers
whenever he wants. Margie, the “manager” has taken charge; she is a
take-charge kind of person. Your partner, Chris, chips in as and when
required and sous chef Barry runs the kitchen very well. He can prepare
dishes accurately once he is “taught” but he is not an intuitive chef for
whom cooking comes naturally. Jimmy, Margie and Barry are just like
family.
 You now need to think about expanding your menu. There aren’t very
many restaurants that serve just one item, and you believe you are
missing out on all of the potential customers who don’t eat red meat
much.

Menu Expansion & Brand Image

 To decide on the menu and its quality, you also need to consider what
brand image you want to project for BurgerHut. That image will determine
the kind of new customers you will get. These customers, in turn, will
influence the image the restaurant projects. You know that you don’t want
to alienate your current customers while trying to attract and serve new
customers. You know quite a bit about your current customers; for
example, you know that many of them are repeat customers. But you
aren’t sure whether the repeat purchases are because they really like your
burgers or because yours is the best option around that area. You don’t
know if they would continue as customers if they found something
“better.” You don’t know how far they come from, how important
freshness or service is for them, and so forth. You would also like to know
who could come but isn’t, and what would make them come.
 In sum, you have the following questions:

o Why do my customers come to my restaurant? What do they

like/dislike about my food and restaurant? What are their
desires, lifestyles, and so forth?
o If there is a menu expansion, will the new products cannibalize
my existing burger sales?
o How do I get new customers for my original product - the
gourmet burger?
o How do I get new customers for my new expanded menu?
  These questions are appropriately displayed in the 2x2 table on the next
page. In this table, the rows consist of Old and New Customers, and the
columns represent Old and New Products.

2x2 Old and New, Customers and Products

 You think you need Market Research. You know you are not rich enough to
engage a marketing research company, so you will have to do any and all
research informally yourself. The list of questions you have is long, and
getting answers to them will be time-consuming. With this in mind, you
narrow down the questions to your immediate concern - what brand image
should the expanded menu convey.
 As you expand your menu, you figure you could build your brand as a
“low-carb/healthy” option, or you could stick to your “freshness” image,
which you have so far unwittingly conveyed through word-of-mouth.
(Customers have heard stories about you throwing meat away rather than
storing it.) You could also build the image as the Biggest Best Burger for
your Buck and play on the 4Bs for advertising purposes. Or you could keep
doing what you are doing without really knowing what aspects of branding
you’re performing well.

 Note that a part of the existing brand image was chosen by default when
choosing the value proposition in terms of the target market, location, and
price. Any further development of an image via menu items and the
ingredients has to be somewhat consistent with the original value
proposition, or you risk losing your current customers.

Talking with Some Customers

 For the ensuing week or so, you casually talk to your customers and
friends whenever convenient. Irrespective of which one of the three image
ideas that you present, you got a “sounds good” kind of reply, or a
 wrinkling of the nose, implying “that’s not why I come here.” You believe
some people really didn’t understand what Brand Image meant, didn’t
care about it or didn’t realize why it was important.
 Then one of your customers who also happened to be a friend suggested
that you should conduct some research.
 Given the vague type of feedback you got doing the “informal” research
project yourself, you now think that a more formal approach would be
better if it provided more and accurate data.

Market Research Options

 The frustrating part is that you still haven’t narrowed the list of questions
you want to ask to existing customers and potential new customers, or
decided on the method you’ll use to ask them. You have heard of focus
groups where individuals discuss in a group, you’ve heard of surveys
(phone, internet, personal - in the mall, for example) and you’ve heard, on
TV and radio news, of experiments being conducted with consumers with
their behaviors being observed.
 You don’t feel really comfortable asking customers on the phone what
brand image they would suggest, because some of them will not know
what brand image is. You are also concerned that if you asked them why
they come to BurgerHut they might give a “socially desirable answer”
such as good food but their definition of good may not be clear.
 So now not only do you have to narrow down what you are going to ask
and to whom but also how.

Narrowing Down the Research Options

 You could either deeply think through all the research methodologies, the
corresponding questions you could ask and the pros and cons of all the
methods or you could Click here to get an overview of Research
Methods.
 From your reading it is clear that defining the research problem is
extremely important. To arrive at the problem definition, you need to
answer WHY you need to conduct a research project in the first place. You
know the answer to the WHY question, “because you would like to
determine the best brand image which in turn would determine the menu
items and ingredients while not alienating your existing customers.” So
the first order of business would then be to understand why your
customers come to you. Or in other words, the Problem Definition for the
first research project is: To understand why BurgerHut customers dine at
BurgerHut. (After this research project to understand existing customers,
other research projects may be needed before the brand image and menu
decisions can be made.)
Final Selection of Qualitative Technique
 You can see the pros and cons of each of the 2 techniques, and you’re
having difficulty picking one. Luckily for you, there is a Business program
in the 4-year college in town. You figure you have nothing to lose by
talking to a professor. On browsing the website, you find a professor who
teaches a course in Market Research.
 You make a quick call to the professor. After explaining who you were,
your business, and the purpose of the call, the first question that you were
asked was, “why are you doing the research?” You promptly and proudly
said, “to understand why my customers come to me, what are their likes
and dislikes so that I can manage the brand image through the menu and
its ingredients.”
 She immediately recommended Focus Group over the other technique.
Being an intellectual, you gently asked for an explanation. Her answer
was, “respondents might be embarrassed when probing questions are
asked in a one-on-one in-depth interview. Focus groups would provide the
necessary security.” Plus, she added, “you could do some brainstorming
with the group on ideas related to brand image and its communication.”
 You were very pleased with the bright and brief conversation. You offered
her as many burgers she wanted before hanging up.

Focus Group Done

 You were glad you did a focus group. The merits of individuals feeling
secure with like-minded people were obvious. The group started with very
little talking, and participants were very careful about what they said. But
by the end of the focus group, not only were they saying what was on their
mind, but they were also coming up with out-of-the-box ideas.
 The net first-cut takeaways from the focus group were:
o Customers came to BurgerHut to fill their stomachs, although
they could have done that at the buffet across the street.
o The burgers were tasty.
o The operations were clean.
o The service was down-to-earth. Everybody was engaged with
“serving” the customer. They liked the fact that you and Barry
would walk up to the customers with the sandwiches if the
server was busy. You cleared the tables so that customers didn’t
have to look at dirty tables.
o Sustainability and healthy carbs were nowhere on their mind
when they decided to come to BurgerHut.
 The group was really loquacious toward the end when advertising of the
brand image was being discussed. Then one individual piped up. “Our food
is Fresh, Ample, Clean, and Tasty, and that’s a FACT. Everybody burst our
clapping. This slogan was also appropriate for the original target market –
the Tummy Satiaters.
  You were glad you did the focus group. All you had to do was give the
participants free burgers that evening at 5:15, when the focus group
ended. Not only did you understand why your customers came to
BurgerHut, but you also got a fantastic idea for brand identity.

Menu Items
 Armed with the findings from the focus group, you have decided 1) not to
skimp on portion sizes; the sizes of salmon steak and salmon burgers
would be in sync with the size of the hamburger, for example, 2) you
wouldn’t worry about deep frying, if you had to fry and 3) cleanliness was
as important as freshness to convey the reason for the wholesome taste.
 You expand your menu to include the following items, and you ensure that
each ingredient is sourced to guarantee freshness:

o Salmon Burgers
o Salmon Steak Burgers
o Garden Burgers
o Chicken Breast Burgers
o Ground Turkey Burgers
o Toppings – grilled onions, grilled mushrooms, bacon, avocado/guacamole,
different types of cheeses
o Potato Salad
o Coleslaw
o Grilled Veggies
o Onion Rings

2 – 6 Months after Opening

 A month after menu expansion, your business was roaring.

 Since adding new menu items, your traffic has significantly increased.
Even though customers are adjusting their visit times to beat the rush, you
are feeling the pinch in terms of space.

 An interesting development took place a few days ago. A bus full of tourist
stopped by on their way to a tourist location about 3-4 hours north of
Simile. The bus driver who was a fan of your burgers had recently started
working for this bus company as a driver. He had previously worked as a
truck driver for a local wholesale storage and transportation company.
Recall that the strip mall was located close to many warehouses and close
to the interstate. The bus driver asked the tourists if they would like to
have the best burgers they had ever had. Upon getting many yeses, he
brought the bus and its passengers to BurgerHut.
  Almost all the sandwiches sold were hamburgers even though other types
of sandwiches were on the menu.

 The restaurant got very crowded when the tourists arrived. Though the
locals had to wait, they weren’t unhappy. They were quite pleased and
perhaps proud about the fact that folks from out of town would stop by at
a restaurant the locals called their own.

 As if the stars were aligned for you, the store next to you soon went out of
business. You rented the space, made the restrooms bigger to
accommodate the rush of traffic when buses arrived and furnished it. (You
did not add a kitchen; the existing one was good enough to manage the
surge.)

 Through the first bus driver, you started getting in touch with other
drivers. You started giving incentives and commissions to drivers
immediately even though you knew you had to work on the incentive
schemes to make them fool-proof.

 You have flourished in the last quarter. More and more buses were
stopping by. The incentives you had put in place for drivers were such that
the greater the number of customers they brought in, the greater the
incentive/customer. This non-linear scale for incentives plus the fact that
you paid a fixed sum for each bus that stopped by regardless of how many
sandwiches were sold led to some solid sales. The local community was
also impressed by seeing buses. “The food must be good if people from all
over are stopping by,” was the impression locals got.

 Barry your sous chef has been noticing the flourishing business. He also
has noticed your maniacal passion for quality and for keeping things fresh.
He could see a number of places where costs could be cut. He was not
happy with the deal (taking half of what you took home) he shook hands
on because you haven’t taken home much. You are always investing and
making your business grow.

 On the 6-month anniversary of BurgerHut, Barry didn’t show-up. He just

quit and he took Margie along

Competition
 You scramble to hire both a manager and a sous chef. You tweet the bus
drivers to hold off bringing buses in.

 Before you knew it, Barry, your sous chef, opened a sandwich place not
too far from your restaurant.
  He has a much larger menu, has priced it aggressively, and has started
engaging in promotional campaigns.

 He used the local newspaper that is distributed free of cost to send

coupons to all.

 He has a person outside the store dressed up in a hot dog costume,

enticing customers to come in.

 He is providing free samples to individuals walking along the sidewalk.

 He has adopted many frozen alternatives instead of fresh to keep his cost
and, therefore, his prices low (Quite frankly, most people can’t tell the
difference if the meats were previously frozen or not).

 You definitely notice a dip in your sales.

Patenting
 You had a special way in which you hand patted the meat patty. Most
patties puff up or swell in the middle. If a thicker, juicier hamburger is
desired, one runs into the danger of the patty becoming a “golf ball.”
Patties also shrink in diameter after being cooked. To avoid these
problems, grillers press a “dent” in the center of the patty and size the
patty to make its diameter larger than the bun's diameter.

 Being an engineer at heart, you did not want the dent and size of the patty
left unstandardized, so you developed an aluminum patty maker, the
design of which is shown below. Using this patty maker, anybody (without
training) could make perfect patties that could be grilled to perfection – for
which you were so well known.
 Besides the dimensions and the overall design of the patty-maker, another
key patentable characteristic was the rounding of edges of the patty-
maker. This rounding of edges was a difficult fabrication process that
added significant costs in manufacturing. The main reason for curving the
edges was for ease of cleaning. With sharp corners, meat got stuck in the
corners and was hard to get out. With rounded edges, the patty makers
could be simply put in the dishwasher to come out clean inside and
outside.
 The fabrication process was sand casting.
 Upon seeing Barry leave, you rushed to an Intellectual Property lawyer
with your patty-maker design to apply for a patent. The IP lawyer said that
one of the most important steps in patenting is conducting research on
what has already been patented. After that, a case needs to be made as to
why the new idea is patentable. This making of the case required many
documents to be created. One could easily be looking at $10,000 for a
 patent application, and it could take up to 5 years for a patent to be
granted [Link]
 He also said that you could apply for a provisional
patent [Link]
overview#step2When asked if he thought this patty-maker was
patentable, he refused to give an opinion. He said without any research;
he couldn’t say anything. He asked you to get back to him if you wanted
to proceed. You said you would think about it and get back to him.

6 -12 Months After Opening

 The third quarter is turning out to be difficult.

 You could hire a professional manager by advertising the position and

interviewing about half a dozen candidates (recall Margie was an
acquaintance from your previous office). Hiring wasn’t that difficult
because your good reputation had spread (and none of the candidates
knew of the trouble Barry’s leaving had caused.)

 The servers and kitchen help you had hired remained with you. You don’t
know if Barry didn’t attempt to hire them away from you or if they said no
to him.

 However, getting a sous chef was getting to be difficult. You didn’t get
much response to the ad you placed on social media and local print media.
Through word-of-mouth you heard about Susie who was technically very
good. She left her previous job as a chef in a reasonably good restaurant
after complaining of sexual harassment. Of course, you couldn’t get an
 accurate picture of what went on there as people were tight-lipped. You
don’t know whether she should be rejected outright because of this
complaint from her. What if she is good person and was actually subjected
to a hostile environment? You decide to interview her, but you have some
doubts. What if she is a trouble-maker?

6 - 12 Months after Opening

 Susie joins you without much fuss. She is not the type to go out and
venture on her own. She had no problems signing off on restrictions
imposed by you on her future employment. Barry’s discounting started
having a negative effect on quality perception. He continued down that
path, cutting costs and prices till he started serving a totally different
segment – a segment that didn’t really care about quality.

 Your sales start rebounding and then some. You are quite pleased with
your come-back; it was almost with a vengeance. The kind of clientele you
had and the “situations” for which the clientele came in were such that
they preferred quality to corners being cut. Then one day the CEO from
your previous job came in for lunch. Recall he had offered to “invest” with
you in a restaurant. You hadn’t taken his money because the strip-mall
location didn’t require that much funding. The CEO was impressed with
your business sense, not getting tempted to take the easy route that
would have destroyed your brand, weathering the storm of significant
people leaving, and having accounting books professionally kept. He
hinted that he could bring in other investors, if you decided to “expand”.

 You are an ambitious businessperson. “Why not expand the restaurant?,”

you asked yourself.

 You have a good feeling that getting investors for another BurgerHut or
two would not be a problem. But your heart is not in doing another
BurgerHut. “Been there, done that,” is what you are saying to yourself.

Another Concept for a Restaurant

 One of your pet peeves with restaurants, in general, has been getting
prompt service. You have had difficulty getting attention from the
assigned server and you feel awkward asking for help from other servers.
You have found servers walking around, never making eye contact. It
would have been easier to ask for service if eye contact was made rather
than raising your hand to attract a server’s attention.
 You had always thought that if and when you opened a restaurant, you
would address this problem with service. How wonderful it would be if you
could “hear the diner” instantly and make a server available!

 You think now is the time to pitch the idea of prompt service to investors.
The idea you want to pitch consists of two components. 1) You would have
multiple servers serving each customer. In the event that the assigned
server was unavailable, whoever was closer to the customer would wait on
the customer. In addition, you would require servers to make eye contact
with as many customers as possible. 2) You would also use technology to
help provide prompt service. For example, you could install inexpensive
tablets from which customers could order as soon as they are ready. The
tablets would also allow customers to pay upon finishing their meals.

 You dream of a nice trendy bar, with limited, high-quality menu choices
that serve the sophisticated market. This segment will be well-educated,
not price-sensitive, with disposable income and family/social structure to
support the eating-out lifestyle. This market segment generally treats
servers more favorably, and this fact, coupled with the ambiance of the
restaurant, will attract better servers. You don’t want to venture into many
popular and traditional lunch/dinner menu items (such as pasta) but stick
with sandwiches and salads with various types of grilled meats. You want
the same menu for the whole day (11 AM -10 PM during the week; 11 AM –
1 AM Fridays/Saturdays, with weekend brunch offered on Saturdays and
Sundays).

 You now know enough about Marketing to realize that the name,
ambiance, service, and food quality should all covey the same brand
image. Because you’ve been thinking strongly about such a
café/bar/restaurant, after some “keeping your eyes open” research you
come up with the name Haute Brasserie. A brasserie is a type of French
restaurant with a relaxed setting, offering a large drink selection. Haute
means “high” – generally associated with high as in high class. You expect
that the name will be mispronounced, and some people will make fun of it,
but you plan to leverage that into publicity. You also think that a classy
(mid-century modern) logo with the initials HB can be developed. For the
color scheme, you want a lot of brass in the restaurant to reinforce the
name, along with the strong use of the color green, which is the color of
money. The green color would be supplemented with green plants
(primarily herbs) to appeal to millennials and customers interested in
locally sourced food. The natural smells of herbs such as sage and
rosemary would fill the air in and around HB, and the herbs would be used
to make unique original cocktails. Wherever possible, organic ingredients
would be used in the restaurant.
Checking with the Professor
 You were quite impressed with the professor who had given you good
advice to conduct the focus group. She was also classy enough not to
come in for a free burger. Now, you invite her for an early dinner in your
restaurant for a consultation to determine what kind, if any, of research
projects should be conducted to test the impact of prompt service.
 She obliges. She says that the multiple servers concept may be hard to
implement. What would you do regarding tip sharing? What if a server
trips and then blames the restaurant because the eye contact policy made
her trip? She says that you should implement the multiple servers and eye
contact propositions only if there is a substantial improvement in
operations (as reflected by revenues, customer satisfaction, employee
morale, etc.) to take risks involved with these ideas. She also suggested
that, since Simile is a “small town,” you should also test out how people
generally felt about technology before pitching the idea of automating
ordering and payment through the tablet to investors.
 She gives you her notes on experiment and survey-based research for you
to understand the research technique(s) you would need to use to test the
above ideas.

Checking with the professor

 Before expending the effort to design the study and collect data, you want
to make sure that you have chosen the right method to test whether
multiple servers and making eye contact would help in customer
satisfaction. The professor immediately says that you should do an
experiment. She said that customers would say, “sure, if multiple servers
and eye contact will provide better service, I’m all for better service, why
not.” In other words, asking individuals if eye contact and multiple servers
was a good idea would be useless. They would say, “yeah, why not.” She
suggested you conduct a field experiment in the restaurant where one
group (control group) of customers receives traditional service by one
assigned server. The other experimental group receives service from
multiple servers, with eye contact being made.
 The idea of an experiment appeals to you, and that’s what you do.

An Experiment – to test the hypothesis

 You have just heard again, in the experimental and survey research
sections, that self-reported answers can be quite biased. To remove this
bias, you want to gather as much behavioral data as possible. For
example, instead of asking customers to rate their satisfaction with
service, you want to use the behavioral variable Tip Amount as the
variable to measure satisfaction with customer service.
  To avoid disrupting regular business as much as possible, you conduct the
experiment on a Tuesday and a Wednesday over lunch. You instruct your
wait staff about this experiment. They are told that on Tuesday, besides
the assigned primary server, all staff members are to help out each other.
For example, if one server notices a customer’s glass empty, s/he should
fill it up. Servers are also asked to make as much eye contact with
customers as possible. For example, instead of walking by a table looking
elsewhere, they are told to make eye contact to see if the customer
needed something, even if the table was not assigned to them. On
Wednesday, it was back to normal – each server was responsible for
her/his table. Data were collected from 30 customers on Tuesday and 30
on Wednesday. The data you collected were:

Data from Experiment

 TIPAMT – Tip Amount (coded as 1, 2, 3, 4, or 5) where 1 = <10%; 2 = 10-
12%; 3 = 12-14%; 4 = 15-16%; 5 = >18%.
(TIPAMT was directly measured from customers’ payments for the checks).
 MLTSRV – Multiple Servers in Attendance (0=No; 1=Yes).
(For customers on Tuesday, this variable was coded as 1. For customers
on Wednesday, this variable was coded as 0).
 #PRTY - # of Individuals in the Party.
(The primary server noted the number of individuals on the meal check).
 #EYECNT - # of Eye Contacts made with any one individual in the party.

(This variable was harder to measure because, on Tuesday, multiple servers could
have made eye-contact. It was the primary server's responsibility to check with the
other servers how many times they looked into any one customer’s eyes in the
party. The primary server then noted that the number on the meal check).

 MFPAY – Male or Female Making the Payment (1 = Male; 2 = Female).

(Again, it was the primary server’s responsibility to note the gender of the
individual making the payment).
 #TRPS - # of Trips in the last Month to BurgerHut by the person making
the payment.

(This was the only question that the customer was asked to answer. Each check was
accompanied by a little card with the question, “How many times in the last month
have you visited BurgerHut for lunch or dinner?” The server bringing the check
requested that this question be answered by the individual paying the check).

If the table asked for the check to be split up, each person paying was considered a
respondent. The variables MLTSRV, #PRTY, #EYECNT were the same for all
respondents on that one table.
Data from Experiment
Motivating learning for Data analytics
 Analyzing the data from the focus group was not too difficult. All you had
to do was to get the taped conversation transcribed. But in the case of this
experimental study, you have quantitative data.
 You know that one of the questions you seek to answer is, “Does having
Multiple Servers attending tables increase the tip amount?” From your
high school math, you know how to calculate means/ averages. So you
figure that if you took all the 30 cases on Wednesday that did not have
 service from multiple servers (MLTSRV = 0) and averaged the TIPAMT and
compared this to the average TIPAMT for all the 30 cases on Tuesday that
received service from multiple servers (MLTSRV = 1), you could possibly
get a sense of whether having Multiple Servers was effective in providing
prompter and therefore more satisfying, service.
 Consider the following scenario: what if the average TIPAMT for the group
(MLTSRV = 0) was 3.1 and for the other group (MLTSRV = 1) was 3.3.
Would this difference be enough for you to implement the multiple servers
concept?
 It also makes sense to you that any difference you see could result from a
random chance. If you conducted the same experiment for two more days,
you would not get the same averages as before and, hence, the same
difference. In other words, the average amount of tip left by customers on
any one day is a random variable that can change from day to day.
 So the question that comes to your mind is, given the random nature of
TIPAMT for both groups, what amount of difference would you need to see
for you to feel comfortable saying that Multiple Servers do result in higher
tip amounts? To answer this question, you need to understand the nature
of random variables and the discipline of statistics, i.e., you need to
understand Data Analytics.


Insights from the Experiment

 Though a number of statistical problems were solved (primarily to sharpen
your data analytics skills), the running of multiple regression with TIPAMT
as the dependent variable and MLTSRV, #PRTY, #EYECNT, MFPAY, and
#TRPS as the independent variables was the most potent. The multiple
regression used all the variables that could potentially influence TIPAMT
together, and we still found #EYECNT and MLTSRV to be significant.
Therefore we can say that having multiple servers and making eye contact
results in significantly higher tips.
 You now feel that these two concepts can be used to “differentiate” the
new restaurant that you may open. You are armed with data for the
investors!
Choosing a research method for assessing
attitudes toward Social Media and
Technology
 Your next research project is to learn if Simile residents are comfortable
enough with technology for you to use tablets in your new restaurant and
use social media to promote it.
 You have decided to collect data on Familiarity with and Usage of Social
Media, Attitude toward Online Reviews and toward Technology Replacing
Humans, and Usage of the Internet for Shopping and Banking. You have
separated shopping and banking because you think that risk-averse
individuals may shop on the internet more readily than bank on the
internet.
 There is no other way to measure attitudes except by surveys. You also
know that you can’t get a random sample as that would be too much work
and expense, so it has to be a convenience sample. The choice is whether
you conduct the survey in BurgerHut itself or use a phone or mail survey.
Given the low response rate with the latter techniques, you decide to
distribute a question card to every 5th customer check served, for a total
of 30 responses.

Data from Survey

The following data were collected by the survey

 Gender (1 = Male; 2 = Female)

 FSM - Familiarity with Social Media (1 = very unfamiliar to 7 = very
familiar)
 SMU - Social Media Usage (Hours/week)
 AOR – Attitude toward Online Reviews ((1 = very unfavorable to 7 = very
favorable)
 ATRH - Attitude toward Technology Replacing Humans (1 = very
unfavorable to 7 = very favorable)
 UIS - Usage of Internet for Shopping (1 = yes; 2 = no)
 UIB - Usage of Internet for Banking (1 = yes; 2 = no)
Data from Survey

Insights from the Survey

 Your reason for conducting this research project (WHY) was to see if you
could use social media to promote the restaurant and if you could use
“tablets” to take orders and payment from customers. To answer this
question, one can see that the average for the variable (FSM) Familiarity
with Social Media is 5.9 for males and 3.8 for females. The average for
males is very high on the 7 point scale. Given that BurgerHut is primarily
targeted at males, one can conclude that using social media is
appropriate.
 As far as using technology for ordering and payment, the results aren’t as
clear. The average for the variable ATRH (Attitude toward Technology
Replacing Humans) is only 4.1. However, the question was phrased in a
manner that would imply insensitivity on the part of the respondents who
were favorably inclined. This is a clear example of social desirability bias.
Had the question been “Attitude toward Technology Helping Humans” or
“Attitude toward Technology Helping Service Provision,” different results
might have been obtained. Or perhaps a more direct question, “Would you
like to order food and receive your check on a computer on the table
rather than a server?” could have been asked.
 Other lesser but relevant insights that can be used for fine-tuning
strategies are:
 o Compared to females, males are more familiar with social
media, use social media more, have a more positive attitude
toward online reviews and toward technology replacing humans,
and use the internet for banking more.
o Those who use the internet for shopping, as compared to those
who don’t, use social media more and have better attitudes
toward online reviews and toward technology replacing humans.
o Those who use the internet for banking, as compared to those
who don’t, are more familiar with social media, use social media
more and have better attitudes toward online reviews and
toward technology replacing humans.
o However, there is no relationship between Usage of the Internet
for Banking and Shopping. People who shop on the internet are
as likely to bank online as people who don’t shop on the
internet.
o People have more positive attitudes toward online reviews than
towards technology replacing humans. The averages are 5.16
and 4.1, respectively.

New Restaurant
 With your concept of differentiation for a new restaurant validated by the
research, you start thinking about what you want. You’re dreaming of
serving a sophisticated market with a nice trendy bar featuring many
unique beverages and a high-quality limited menu. You believe this
market segment will be well-educated, not price-sensitive, and will have
both the disposable income and the family/social structure to support the
eating-out lifestyle. Such a segment will also be nicer to the servers. A
courteous customer base and polished ambiance will have the potential to
attract better servers. You think you don’t want to venture into many
popular and traditional lunch/dinner menu items (such as pasta), planning
instead to stick to sandwiches and salads with various types of grilled
meats. You want the same menu for the whole day except for weekend
brunch.
 Though the original mid-town location was taken, a couple of new options
have come up because of the rejuvenation of the mid-town area.

Marketing to Desired Clientele – Digital

Marketing
 Recently you, as the CEO, have been so busy with other matters in the
many HBs that you have opened that you’ve lost touch with the
atmosphere in your restaurants. You decide to visit a nearby HB and you
immediately notice something disconcerting about the atmosphere. Your
goal was to have HBs be trendy neighborhood venues where customers
 could get modern food and fancy drinks. You expected a millennial client
base, but it looked like the diners in the restaurant you visited were a
combination of different customer types—some families with small
children and some who looked more like they belonged in a Cracker
Barrel. You ask your staff why they think the customers are so varied, and
they think it might be because people have been hearing a lot about HB
and they want to try it. The staff hoped that the fringe customers who
didn't fit the target market would stop coming soon, because of the prices
and the type of food served. But you’re concerned that the millennials you
want to attract might get turned off before these other customers do.
Since HB is a new operation, you need to establish the atmosphere to
attract your desired customers as quickly as possible. Otherwise, HB
restaurants may end up appealing to no specific customer segment. You
see this as an immediate priority for you.
 You want to start promoting HB as a high-energy restaurant that serves
primarily affluent millennials. Marketing through advertising on T.V. can be
very expensive, and there’s a lot of money wasted because it’s difficult to
target the right audience. Additionally, you know that more and more
millennials are choosing to stream TV shows on their computers. Given
this, you decide to consider online advertising.
 At present, you know very little about digital marketing, but you know
some digital marketing terminology. For instance, you know that your ads
are successful if you have a high “click through rate” (% of ad viewers who
actually click on the ad). You hope the click through viewers will result in a
high conversion rate (when a viewer either purchases something online,
signs up for an email list, or creates an account on your website).
 You also know about “bounce rate”, which is the % of visitors who land on
your website after clicking on your electronic ad somewhere else but then
leave your page without further exploration. You also know that “banner
ads” are embedded within a website, while “popup ads” pop-up in a
separate web browser. You assume there are positives and negatives with
each of these two types of ads, although you're not sure what they are.
You’ve also seen search results where websites are listed one after the
other and other websites appear on the side as advertisements. While
search results are free, you know the advertisements on the side cost
money. Are paid advertisements worth the cost? Free sounds good to you,
but there must be a reason why Google makes a fortune from paid
advertisements.

Narrowing Down the Search – Digital

Marketing
 Being the methodical person that you are, you start by learning the basics
—the vocabulary used by digital professionals.
  With this newfound knowledge, you want to start researching other digital
advertising methods. You’re familiar with advertisements on Facebook,
Instagram and other social media sites, and you’ve also noticed that you
get advertisements on your phone browser from sites you’re previously
visited or searched for. These kinds of advertisements seem to be
targeted to people who already know the advertiser’s brand. Are Haute
Brasseries located where they need to build awareness among potential
customers, or should they be advertising to customers who already know
the brand? Which tools carry out either or both of these strategies best?
You want to research the most popular digital marketing tools and forums
to understand their pros and cons. Each tool would have its unique
strengths in terms of either reaching new customers or re-connecting with
previous customers, based on the demographics of the customers and
their social media searching habits.
 You’re amazed at the capabilities of digital marketing campaigns and the
information they can generate. You want to learn more about remarketing
or retargeting to reach customers who’ve shown some interest in HB or
modern gourmet tapas in general; you also want to learn more about paid
advertising on search results and creating brand awareness among
targeted groups. With these goals in mind, you decide to explore AdRoll,
AdWords, and Facebook. You think these would be the most suitable
methods to help you target your ideal audiences.
 AdRoll specializes in re-targeting customers that have previously shown
interest in your product or similar products. It also tracks users who’ve
visited your website and redirects them back to it when they visit other
websites. It can also use emails and personalized pop-up messages to
redirect customers to your website. You notice that its sales conversion
rates are much higher than average and the type of data it yields help you
identify the “it” factor that keeps customers dining at HB. This feature will
help you build a more loyal customer base, while also identifying
customers that already have an interest in establishments similar to HB.
However, you dislike the fact that it won’t target customers who haven’t
interacted in the past with HB or similar restaurants. It can also irritate
users by continually showing the same advertisements on a regular basis
and by targeting users with no interest in the product being advertised.
 Next, learn more about 1) Common Digital Marketing Terms; 2) Digital
Marketing Tools and their Assessment; 3) Adroll.

Narrowing Down the Search – Google and

Facebook
 AdWords is Google’s paid search service, which allows you to position your
website on a search engine result page simply by paying for it. You set a
predetermined budget for your advertising, and the advertiser only pays
when users click on the ad. The more you’re willing to pay, the more likely
 your website will appear at the top of the search engine result. This
interests you because it has the largest customer reach of all paid search
tools, with 64% of search engine traffic coming through Google Search. If
you want to start a small scale campaign to test its effectiveness, you can
do so inexpensively. However, since you’re charged on a per-click basis
whether or not a conversion occurs, you could be paying for unsatisfactory
results. Through the Google Display Network feature of AdWords, you can
place your ads on websites that you believe are the best gateway for
potential HB customers. This will help you target the specific customer
demographic you want to attract to HB. However, you see a potential
bidding war with competitors, which could dramatically drive up long-term
advertising costs.
 Facebook’s advertising model is quite different from AdWord and AdRoll’s.
Facebook’s ads are display ads, as opposed to AdWord and AdRoll’s
search ads. Advertising on Facebook is used to create demand, not to
satisfy existing demand. Facebook is the marketing tool that you’re most
comfortable with since you’re familiar with the platform. Users provide
detailed information about themselves, which makes it much easier to
identify potential customers. Users can also share advertisements with
their friends easily, an added no-cost benefit to you. Facebook has a
relatively low minimum ad campaign budget, so you can start slowly and
learn how to use the tool effectively without investing too much in the first
place. You do notice that the click-through and conversion rates on
Facebook are much lower than the other comparable marketing tools.
From your own experience, you know users often ignore Facebook ads.
Your own Facebook news feed is full of advertisements that you largely
ignore.
 Next, learn more about 1) AdWords; 2) Facebook.

Digital Marketing: Do’s and Don’ts

After reading all the LCs in Digital Marketing you conclude the following Do's and
Don'ts.

Do's
 Do Invest in A Business Blog:
o A blog dedicated to sharing your business progress and ideals is
a great thing for digital marketing.
 Do Optimize for Mobile:
o More and more people are searching from their phones every
day, so having a mobile friendly website is important going
forward.
 Do Integrate Personalization with Customers:
o Personalization with marketing to customers, helps build
connections and generate sales.
  Do Invest in Paid Traffic:
o Organic traffic is the goal but generating a little traffic on your
own isn’t a bad thing, when starting out.
 Do Optimize for Local and Voice Search:
o Many devices, such as Alexa, are making voice searching the
norm. People who search for specific products and services are
usually looking for local option.

Dont's
 Don’t Sacrifice Quality for Volume:
o Never feel like you have to put out numerous blogs, posts, and
emails about absolutely nothing. It will only turn off the
customer.
 Don’t Forget Great Customer Experience:
o Remember that even in marketing, you are serving the
customer. Strive to create marketing content that answers the
questions that customers may have.
 Don’t Ignore Email:
o Email marketing may be seen as “old school” at times, but it’s
still the most effective tool that marketers use to this day.
 Don’t Be Afraid to Ask for Professional Help:
o Digital marketing can be intimidating to those who are just
getting into it. Never shy away from asking for help from
professional.

Digital Analytics
 After every board meeting ends, you always feel undervalued. You had a
vision about what running a restaurant would be like, but the reality is
very different. You have the urge to refocus on the core business rather
than board room power struggles.
 You knew that one board member, called B, was extremely impressed with
your drive to use digital marketing techniques, and you think you might
like to do something in that area. You decide to have a private
conversation with B about taking the next step in the process of analyzing
the data provided by your newly implemented digital marketing
campaigns. A large amount of data has been collected via HB’s ad
campaigns, but nothing’s been done with it.
 B’s eyes light up at the idea of making HB more tech savvy. He invites you
to join him for dinner at his estate for the night, suggesting it would be a
good place to talk shop, and you accept the invitation eagerly.
 You drive far out of the city to meet B at his luxurious estate. When you
arrive you are awestruck with the sheer size of his mansion; it makes you
feel successful that such an affluent individual is involved in a business
you began.
  B welcomes you into his home and you start discussing plans immediately.
He says he’s glad you came to him, because using data to benefit a
business is his specialty. He can tell from the early stages of your
conversation that you don’t know much about this area, so he slows down
and explains some key concepts before you take a deep dive into the
subject.

B’s World
 “Digital Analytics can be used to optimize advertising expenditures and
improve the customer’s online experience through the analysis of
qualitative and quantitative data that are collected,” B started. You
summarize his “lecture” over dinner as follows:
o Conversion Rate is the number of visitors to your website who
engage in the desired action (purchasing, registering an
account, etc.) on the site. For example, if your website's goal is
to make visitors purchase, then the conversion rate will be
calculated by the number of visitors who make a purchase
divided by the total number of visitors. If the goal is for visitors
to sign up for a newsletter, then the conversion rate would be
the percent who sign up divided by the total number of visitors.
In HB’s case, a higher conversion rate simply means that a
larger number of visitors who visit HB’s website are being
“converted” into paying users, i.e., ordering food or gift cards
through the website. These visitors might come from any one of
the many webpages on which you are advertising. Digital
marketing has the advantage of allowing advertisers to identify
the webpage where the visitors to your site originated, along
with tracking their behavior on your website. If an ad campaign
on a particular page or set of pages has a low conversion rate,
you can conclude that there is not much point in advertising on
those pages. Conversion rate is the most important KPI (Key
Performance Indicator) to be tracked when managing digital
advertising.
o Beyond Conversion Rate, B went on to explain, the cost of
acquiring the visitor and the cost of acquiring a visitor who
makes a purchase are very important. Needless to say, if the
Cost Per Click (CPC) and Cost Per Acquisition (CPA) are
exceedingly high/above the industry standard for a digital
medium in which you are advertising, a decision can be made to
either suspend the ad campaign(s) or to re-adjust advertising
strategy. Both conversion rate and costs should be considered
in evaluating a digital marketing campaign. Managing
diminishing returns in advertising is extremely important; in
general, it’s more effective to diversify advertising instead of
focusing the entire budget on one medium. One of the most
 attractive features of digital marketing is that all this data is
readily and continuously available in its raw form, or in some
cases, the platform’s digital analytics capabilities may analyze
it.
o The third takeaway from B’s discourse was about Bounce Rate,
which is the rate at which users exit the site after viewing only
the home page or the landing page. Even if the click-through
rate for specific advertising mediums is high, if HB’s home-page
has a high bounce rate, it indicates an issue with the website.
This issue could lie in the underlying functionality, user-
friendliness, or overall website design. The advantage of digital
analytics tools in this scenario is that a low conversion rate can
be attributed to a high bounce rate, which allows the root of the
problem to be identified and resolved much more quickly.
Digital Analytics can also uncover subtle flaws that exist on the
HB website, which could result in the loss of potential
conversion.

B’s World
 “One of the most useful areas that Digital Analytics can be applied to is
using data to adjust the pricing and promotions of HB menu items,” B
continued. By measuring how customers respond to price changes, it can
prevent revenue losses in the future due to poor pricing decisions. Pricing
is one of the most sensitive areas in the restaurant business, as
consumers can punish HB heavily for incorrect pricing. Additionally, by
collecting data about how users respond to promotions, HB will be able to
tailor marketing messages to consumers, which will Increase marketing
effectiveness drastically. “You can conduct experiments in your
restaurants,” B said excitedly.
 He leaves his coffee and dessert half-eaten and heads out of the dining
room, returning with a jump drive. “Here. Take a look at this. It’s a very
comprehensive and easy-to-understand description of what an average
business owner needs to know about Digital Analytics. Beyond this
understanding, if you need more, call a consultant.” He chuckled, “Just like
they say in commercials for medicine on TV, ‘call your physician.’”

Click here to read about Digital Analytics.

 You’re astounded by the potential benefits that your consumer data can
bring to HB to improve both ad campaigns and day to day operations. You
make creating and tracking useful metrics, based on the ad campaign
data collected so far, your new mission. You want to do a good job for the
welfare of HB.
 You’re flying high, feeling that you’re emerging as a visionary leader for
Haute Brasserie. You can’t help but feel proud of yourself. You want to tell
everyone about your push to Digital Analytics and increased optimum
digital marketing.