“So you want Sam to lower his prices during his busiest serving period to increa

Question

“So you want Sam to lower his prices during
his busiest serving period to increase his
revenues?” asked Sofi a Davidson, the GM at
the Barcena Resort.
“That’s right,” replied Damario, the resort’s
revenue manager, “but I’m convinced it will
increase his profi ts as well.”
Sam was the Barcena Resort’s F&B director.
He reported directly to Sofi a. In his position,
Sam was responsible for several food outlets
inside the resort, including the poolside
restaurant/ snack bar that was so popular
with the resort’s guests during the lunch
period and early afternoon. It was that
facility’s pricing structure that was the topic
of Damario and Sofi a’s meeting.
“Damario, I have to tell you that when I
agreed you could take a look at our F&B
department’s pricing, I was really hoping that
with your revenue management background,
you could help us fi nd areas where prices
could be increased, not decreased,” said
Sofi a.
“Sofi a,” replied Damario, “what we all want is
to maximize revenue and profi ts. Listen . . . right
now, the pizzas at Sam’s pool-side operation
are the most popular item.”
“Right” replied Sofi a, “he does a great job
with them. That’s why they sell so well.”
“And that’s the problem,” said Damario. “The
pizzas take 20 minutes to bake. They can’t be
made ahead because the toppings vary. That
means guests ordering pizzas are occupying
the restaurant’s tables, but no food is being
served for at least 20 minutes. In fact, the
average sit-down, order, wait for the order to
be prepared, eat, and leave time for a family
buying pizzas is nearly one hour.”
“So?” replied Sofi a.
“So,” said Damario, “the number of table
turns we can make during the peak lunch
period is minimal. When people see the long
lines of guests waiting to be seated during the
busy times, they decide to skip lunch or go
outside the resort to eat.
“So because the pizza is popular you want to
lower the price of hot dogs?” asked Sofi a.
“That’s right. I’d like to offer a package
special of hot dogs and soft drinks only And only during our busiest times. I want
to price the package right. . . . and promote
it well. Our hot dogs are preprepared so
they can be served almost immediately. I’ve
checked and the average total table time
for hot dog buyers is less than 30 minutes,”
said Damario.
“Well if you want to reduce pizza sales, why
not just raise pizza prices. That would slow
their sales and increase their profi tability,”
said Sofi a.
“Our lunch time revenue issues at the pool
are not price based,” said Damario. “They are
item selection and capacity based. I want to
bundle hotdogs with drinks, offer them at a
great price, and move a reasonable number
of buyers away from pizza and to the special.
Under my plan, we can do that without raising
prices or making our menu prices appear
even higher. And we will be providing even
more value to budget-conscious families.
Simply raising our pizza prices doesn’t do
that. ”
“O.K. I understand your plan. And when you
informally discussed this idea with Sam, what
was his reaction?” asked Sofi a.
“He said reducing prices on the hot dogs
would decrease his margins and hurt his
profi ts . . . especially if the new package
became a good seller. I think he will be
hesitant to try the idea. And that’s why
I wanted this meeting with you before
the entire Strategic Pricing and Revenue
Management committee meets and I present
the idea to them,” said Damario.

Question:Assume you were Sofi a and that you
supported trying out Damario’s idea.
What would you say to Sam? What
specifi c measure(s) or operating
statistics would you want to see after
the plan’s implementation that would
help convince you (and Sam) of its
effectiveness?

Explanation / Answer

Q1) Below is what needs to be communicated and explained to Sam -

1. Explaining how the increase in table turns or quantity of sales would impact the overall revenues and prices positively over some time as opposed to lesser quantities of sales for high priced item like pizza.

2. Using queuing theory analysis to explain the loss of sales due to waiting or dissatisfied customers compared to the sales from the pizza customers.

Q2) Below are the specific measures or operatings statistics that can be seen after the plan's implementation -

1. Increase in revenues and overall profits on quantity based selling

2. Increase in repeat customers due to the lesser waiting costs and times

3. Statistics like Average Waiting Time in queue and system, Number of customers in queue and system etc.

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