Explain your plan for dealing with risk by developing a contingency plan
The risk embedded within the overall market is that of uncertain macroeconomic factors and their overall implications on consumer confidence. Unemployment remains stubbornly high at 7.7%. Unemployment has never seen these levels since the great depression (Beaudreau, 1996). Median incomes in the United States have fallen from $51,000 prior to 2008 to a now more modest $48,000 (DeNavas, 2012). During this period however, commodity prices have increased. The prices of gas, food, utilities, and rent have all increased over the past 5 years. This puts a strain on consumer confidence and consumer spending. This affects Treme as the restaurant relies on the discretionary income of individual customers to generate profit. As such a contingency plan is warranted in the event of adverse economic circumstances. The main sources of risk for the company will be changing consumer sentiments, and adverse financial conditions that will affect the company's ability to compete and operate. The contingency plan for the company will therefore be financial in nature. The company will be not take heavy debt burdens that could jeopardize the future operations of the firm. Treme will also establish lines of credit in the event of unforeseen circumstances in regards to changing macroeconomic factors or consumer sentiments. This line of credit will only be used in emergency situations to provide liquidity and funding to overall operations. In addition, extensive cost control will be in place to ensure conservative use of capital. Any investment must clear a hurdle rate of at least 10%. The IRR of any investment will also be 10%. Any capital project without a positive Net Present Value (NPV) will not be undertaken by the firm. In the event of multiple projects and limited cash flow, the project with the highest NPV will be selected for the company to undertake. Cash reserves for the company will also be extensive. Cash within the company should amount to at least 6 months of business funding, including wages, rent, utilities, inventory, products, and other necessities for operation. Through these conservative measures, Treme can navigate through volatile macroeconomic circumstances that may harm competitors. It is through this turbulent periods that Treme, through conservative financial planning, can gain market share and customer growth.
Describe and justify your penetration strategy or explain why you do not have one.
Treme will penetrate the market through promotions geared towards two markets. The first market will be those who are unfamiliar with creole or southern cooking, but would be interested in trying it. The second market is those individuals who are familiar with southern cooking but have yet to have their needs satisfied. The penetration strategy will focus on promotions to these two markets. The promotions will be used to generate customer traffic into the stores. This will ultimately allow the restaurants products to reach the consumer in a profitable manner. Through our value proposition, this promotion strategy will generate a loyal following of customers who will ultimately become repeat purchasers of our product.
Describe and justify your market development strategy or explain why you do not have one
The market development strategy will be much like the product development strategy mentioned below. The overall strategy will be composed of two segments. The first market will be those who are unfamiliar with southern cooking and it value. The second market will be those individuals who are familiar with saunter cooking but have yet to have their product needs satisfied. To develop this market, Treme will position its product offering as a unique alternative to conventional dinning options. This niche market will be formed as consumers, looking for a unique experience, come to Treme.
Describe your product or service development strategy or explain why you do not have one. Describe and justify your diversification strategy or explain why you do not have one.
The product development strategy will be very important to the overall success of Treme. New product development is an important way for Treme to stay ahead of the competition and continue to appeal to changing consumer sentiments regarding product offerings. In addition, new product development can open up new marketing channels and help to increase market share. Market share growth is critical as the market for Treme's products is limited. In many instances, individuals may not be aware of the restaurants product offerings. The product development strategy will therefore focus on customer needs, brand extension and technology.
Customer needs will focus on the underlying demands of the target market. Needs identification will provide the basis for this strategy. As consumers demand creole and southern cooking, Treme will be there to satisfy the demand. According to recent census data, Brandywine is composed of 34% African-American and "other" nationalities. This presents interesting opportunities in regards to the Treme's product development. For one, the company can focus on those 66% of individuals who may not have been exposed to southern cooking. These individuals will prove invaluable in regards to product development as their insights can help fuel future market gains. Dishes and product offering that are unique to the 66% of the population will help fuel market share gains and growth. In addition, the potential 34% who may be familiar with southern cooking will help provide insights in regards to product offerings as well.
The second aspect of the strategy pertains to brand extension. Drawing from the earlier needs assessment, Treme, can then extend product offerings that cater to both segments of the market. This strategy will ultimately enhance the overall brand and the value attributed to it (Tauber, 1988). The first segment being those who are unfamiliar with southern cooking and would like to try it, and those that are familiar with it, but have not had their needs satisfied in an appropriate manner. The product extensions will be different as they cater to two distinct markets. The product extensions will therefore establish an inclusive brand predicated on satisfying customer needs regarding product offerings. Finally, consumers are now very technologically savvy. As such, Treme must leverage technology to better facilitate the exchange of information regarding its product offerings, its brand extension, and overall needs assessment. Technology will allow Treme to better understand the underlying sentiments regarding its business. Services such as Twitter, Facebook, Instagram and more will prove invaluable in determining what products work well and which products should be created.
Evaluate and justify which (if any) of the three (3) main growth strategies makes the most sense for your business: franchising, joint venture, and acquisition. If another strategy makes more sense, propose and justify it.
Organic growth would be the most compelling growth strategy for the company for a litany of reasons. For one, organic growth allows the restaurant to establish a loyal customer base that will endure for years. Joint ventures accomplish this task. However in many instances conflicts regarding future growth strategies, customer demographics, and over operations, conflict with the underlying business operations of the firm. Under a joint venture, conflict will undoubtedly arise between two disparate viewpoints regarding the future of the business. Through organic growth, the vision and mission of the company will remain in tack as the owners are not subject to another parties controlling viewpoint. This allows management to focus on the areas that it deems necessary without the influence of a partner with differing aspirations.
In addition, organic growth allows for consistency regarding the operations of the firm. Acquisitions, primarily those that are not conducted in a through manner, often provide less value than first thought. 70% of mergers and acquisitions fail to result in their intended profit and cash flow forecasts. In addition, many mergers are done to achieve vertical integration that will ultimately provide value for both firms (Maddigan, 1985). Treme however, is not established enough to warrant such synergies. This is due primarily to the overall misinformation regarding a potential acquisition target. Aspects such incorrect profit forecasts, incorrect synergy forecasts, and management hubris. Hubris of particular importance as to much of it can create an atmosphere of acquisitions simply for the sake of acquiring the firm. This is usually at the expense of shareholders who often are entrusting their future cash flow to the CEO. As such an acquisition strategy would not be in the best interests of the future growth strategy of the firm.
The last growth strategy is that of franchising. This I believe is the best alternative in regards to simply organic growth through customer acquisition and demand. Although a viable option, franchising relies heavily on the strength of the company's respective brand. McDonalds, Subway, Burger King and Wendy's all have powerful brands that are easily recognizable. This brand strength allows it to command investors who can leverage this strength with their own communities. This brand drives customer traffic and growth as consumers are familiar with the value proposition each firm provides. McDonalds is expected to provide a certain service and value that is completely different then that of Red Lobster. As such consumers,…