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Fixed Costs in the Weekly Decision Period Biz Cafe

Fixed Costs in the Weekly Decision Period Biz Cafe. Ted Mitchell. Fixed Costs in Biz-Cafe. Rent is fixed for every decision period (month) and and is NOT a discretionary cost (it can NOT be changed) M anagers and Servers is defined as a Discretionary Fixed Cost (it can be changed)

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Fixed Costs in the Weekly Decision Period Biz Cafe

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  1. Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell

  2. Fixed Costs in Biz-Cafe • Rent is fixed for every decision period (month) and and is NOT a discretionary cost (it can NOT be changed) • Managers and Servers is defined as a Discretionary Fixed Cost (it can be changed) • Advertisingand Radio is defined as a Discretionary Fixed Cost (it can be changed at the beginning of each week)) • Discretionary Cost (you can change the cost by changing the number of servers or changing the wages) • It is a fixed cost for the decision period (does not change during the week and does not vary directly with changes in the sales volume, Q)

  3. Fixed Costs do NOT Changefor the time period Rent Advertising Salaries Number of ServersNumber of Radio Spots Dollars Quantity of Coffee Sold

  4. Variable Costs and Fixed Costs Total Variable Cost Dollars Fixed Cost Quantity of coffee sold

  5. You have to know the Difference • Between a • 1) Fixed Cost for the decision period • And a • 2) Variable Cost for the decision period • Cost of Goods Sold is the Total Variable Cost • Direct cost of making a single cup of coffee is the variable cost per cup, V

  6. Weekly Report on Marketing Performance Calculating the the direct cost for making a cup of coffee (aka variable cost per cup, V)

  7. Servers are • Part of the Product/Service mix • Once selected they are a fixed cost for week • Need to have sufficient numbers each working • Recommend wages for 10 hrs per week at $10 per hour = $100 a week per server • Recommend starting with 20 servers • And 3 managers at $250 a week

  8. You will choose something for • All Four P’s of the marketing mix • Recommend a Staring Price of $3.50 • Recommend the $6 coffee to start with for Product • And 20servers for Service Quality • Promotion • Hours of Operation (Place)

  9. How much to Spend on Advertising and Promotions? Ted Mitchell

  10. How much to spend on advertising? • The Affordable Method is the most you can afford to spend after you decide on how what a normal profit is • Assume you believe a normal net profit is $2,500 a week

  11. If we need profit = $2,523 then we can afford to spend $2,000 on advertising

  12. How much to spend on advertising? • The Objective-Task Method is spend enough to create an adequate awareness level • The goal of advertising is to create awareness of the cafe among potential customers • If you are zero awareness spend lots of $ • If you are 90% awareness then spend zero $

  13. To get the business up and running • You need to spend more than $4,523 in the first few weeks on advertising • And accept a weekly loss for the first few weeks

  14. You need to know Customer Awareness level • You have to Buy the Professional Market Studyto get the market’s awareness level • Be sure to buy it! • The awareness will grow without advertising but it grows very, very slowly!

  15. You will choose something for • All Four P’s of the marketing mix • Recommend a Staring Price of $3.50 • Recommend the $6 coffee and 20 servers to start with for Product/Service Quality • Recommend general awareness advertising and 10 radio spots in the first week for Promotion • Hours of Operation (Place)

  16. What Place Decisions? Ted Mitchell

  17. You have • Three strategic place decisions1) the location in the town • 2) The type of furnishings • 3) The weekly decision as to the number of days and hours to stay open • What does it cost to stay open an additional hour?

  18. You will choose something for • All Four P’s of the marketing mix • Recommend a Staring Price of $3.50 • Recommend the $6 coffee and 20 servers to start with for Product/Service Quality • Recommend general awareness advertising and 10 radio spots in the first week for Promotion • Recommend open on the weekends and start with 70 Store Hours of Operation (Place)

  19. This is NOT an optimal decision set for the first week • Price Tag: of $3.50 for medium cup • Product and Service $6 coffee and 20 servers • Promotion: general awareness advertising and 10 radio spots • Place and Time: 70 Store Hours of Operation • This a reasonable decision for the first week • It is NOT a good decision for week 4!

  20. Start Exploring the • Consequences of Changing ONE Marketing Input at a time. • Do NOT Try to change two or more things at a time. • When exploring the practice games be systematic. Deal with the most strategic elements of marketing activities first. • Remember the practice game is to help you prepare a strategy for playing the ‘Single-Shot’ game

  21. To earn the points in a Practice game • You must finish the game on the last decision period (week) specified for that particular game • Usually on 16th or 8th week of the simulated decisions • Keep making decision until the computer will not let you advance any further

  22. Any Questions? • about where to start with the 4P’s in week #0 of the simulation game.

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