Chapter 7 Marketing

1. Chapter 7 Marketing

2. Marketing Overview A market is a group of people who desire the product or service provided by a business. Marketing is the process of communicating a business’s message to its market. • Marketing includes determining what products and services to offer, how to position them in the marketplace, how to promote them to potential buyers, how to price them so people will buy them, and how to get the goods to these buyers. 7.1 Chapter 7 | Marketing

3. Marketing Concept • In the current business environment, marketing drives the operation. • This means that an operation has to do the following: • Determine customer needs and wants before doing anything else. • Determine the costs, prices, and profitability of products and services before starting to produce them. • Organize all aspects of the operation to provide what the customers want and not other things. • This approach is called the marketing concept. 7.1 Chapter 7 | Marketing

4. Basic Marketing Concepts • The marketing mix is the combination of all the factors that go into creating, developing, and selling a product. • A new model is called the contemporary marketing mix, which consists of three primary elements: • The product-service mix consists of all of the food and services offered to customers. • The presentation mix consists of all the elements that make the operation look unique. • The communication mix includes all of the ways an operation actively tries to reach, or communicate, with its desired customers. • A successful operation needs to keep up with consumer, or market trends. 7.1 Chapter 7 | Marketing

5. Marketing Plan A marketing plan is a list of steps an operation must take to sell a product or service to a specific market. • Every marketing plan has five main components: • Research the market • Establish objectives • Develop a market strategy • Implement an action plan • Evaluate/modify the action plan as needed 7.1 Chapter 7 | Marketing

6. SWOT To do a SWOT analysis (also called a situation assessment), identify an operation’s Strengths, Weaknesses, Opportunities, and Threats. • Strengths: List all of the strengths of the operation; areas where it excels. • Weaknesses: Identify the operation’s shortcomings. • Opportunities: These are areas where the operation could either increase revenues or decrease costs. • Threats: These are the factors outside the operation that could decrease revenues or increase costs. 7.1 Chapter 7 | Marketing

7. Section 7.1 Summary • In order for a business to provide a product or a service profitably, its customers, or market, must desire the product or service that the business is trying to provide. • Marketing is the process of communicating a business’s message to its respective market. • The contemporary marketing mix model consists of: product-service mix, presentation mix, and communication mix. • A marketing plan is a list of the steps an operation must take to sell a product or service to a specific market. • In a SWOT analysis, you identify your restaurant’s Strengths, Weaknesses, Opportunities, and Threats. 7.1 Chapter 7 | Marketing

8. Market Research Methods • There are four basic methods marketers use to gather research: • In the experimental method, an operation might try out a product for a limited time or with a limited group of people. • The observational method involves observing how customers react in a natural setting toward a product. • With the survey method, a marketer gathers information using questionnaires. • Sampling involves testing a product with a specific, small group of people, sometimes called a focus group. 7.2 Chapter 7 | Marketing

9. Market Segmentation • The target market is comprised of the people an operation intends to pursue as customers. • Every operation should be customer driven by satisfying the wants and needs of the customer. • Mass marketing treats everyone in the market as having the same needs and wants, while target marketing treats people as different from each other and tries to make a focused appeal to a distinct group of customers. • Market segmentation is when marketers break down a large market into smaller groups of similar individuals that make up that market. 7.2 Chapter 7 | Marketing

10. Ways to Segment a Market • There are four basic ways to segment a market: • Demographic segmentation looks at the personal makeup of individuals in a given location. • Geographic segmentation includes such factors as where consumers live, where they work, and what kind of transportation they use to get around. • Segmenting a market by product usage can also shed light on how best to serve a community. • Lifestyle segmentation looks at the activities, hobbies, interests, and opinions of a given target market. • A value proposition is a statement of the value an operation’s target customers will experience when they purchase its products and services. 7.2 Chapter 7 | Marketing

11. Creating a Market Identity • Positioning is creating a clear, specific identity for both a product and the operation within the marketplace. In the restaurant and foodservice industry, it is all about standing out in a crowd. • Positioning consists of three steps: • Identify possible ways to differentiate the operation within the market and create a unique identity. • Select the right mix of differentiating aspects. • Communicate the chosen identity to a specific target market. 7.2 Chapter 7 | Marketing

12. Ways to Differentiatean Operation • To differentiate an operation from its competitors and create a unique identity, managers can look at the following: • Product: The first and most obvious way to position an operation in the market is through the product it offers. • Physical appearance/aesthetics: Use the actual physical space of an operation to create an image. • Location: Location can play a big part in creating an identity. • Image: Finally, image is yet another way to differentiate an operation. • Marketers and managers have to select the right mix to position an operation properly. • Managers and marketers must clearly communicate an operation’s chosen identity in the market. 7.2 Chapter 7 | Marketing

13. Market Communications • The ways an operation communicates with its market is called the promotional mix: • Advertising: Paying to present or promote an operation’s products, services, or identity. • Sales promotions: Limited, or short-term, incentives to entice customers to patronize an operation. • Personal selling: Always key to an operation’s financial success, but well-trained service staff can also go a long way in communicating an operation’s message. • Public relations (PR): The process by which an operation interacts with the community at large. • Direct marketing: Making a concerted effort to connect directly with a certain segment of the market. 7.2 Chapter 7 | Marketing

14. Types of Sales Promotions • Types of Sales Promotions: • Special pricing • Frequent shopper program • Premiums • Special events • Samples • Contests and sweepstakes • Typical promotional materials: • Signage • Flyers • Premiums • Carryout and door hanger menus • Apparel and branded merchandise • Point-of-purchase (POP) materials • Merchandising materials • Direct mail • Email 7.2 Chapter 7 | Marketing

15. Public Relations:Engaging the Community • Publicity is the attention an operation receives. • One way to get good publicity is by engaging in the affairs of the community. • Community relations involve interacting with the people in the local area to create awareness of and trust for an operation. • Once marketers have identified community relations opportunities that align with their marketing plans, they can think about how to become involved in a way that generates good publicity. • Media relations are the relationships that marketers maintain with media outlets. 7.2 Chapter 7 | Marketing

16. Section 7.2 Summary • The four basic methods used to gather research are the experimental, observational, survey, and sampling method. • Market segmentation is breaking down a larger market into smaller groups of similar individuals to help identify target demographics in any given location. • Positioning means creating within the marketplace a clear, specific identity for both a product and the operation that offers that product. • There are many ways for marketers and managers to communicate with their market. • Sales promotions provide special incentives for customers to patronize an operation. • The purpose of public relations is to generate positive publicity. 7.2 Chapter 7 | Marketing

17. Menu Overview • There may be no stronger marketing tool for a restaurant than its menu. • The menu functions in two ways: planning and communication purposes. • The basic function of the menu is to tell customers what the operation has to offer. The menu also presents an opportunity to distinguish its items from those of the competition. • The menu may be an operation’s best sales tool. It can greatly influence what customers decide to order. • The menu also helps create the image or identity of an operation. The items listed on a menu say a lot about an operation, but so does the way the menu is laid out. 7.3 Chapter 7 | Marketing

18. Types of Menus Understanding the different types is a good first step in determining or identifying an operation’s goals and function in the marketplace. • À la carte menu: This menu prices each item separately. • Du jour menu:Du jour is a French term that means “of the day,” so it simply lists the menu items that are available on a particular day. • Cyclical menu: With this type of menu, chefs or managers change menu items after a certain period of time. • Limited menu: There are typically only a few items offered on a limited menu. 7.3 Chapter 7 | Marketing

19. More Menus • Fixed menu: This menu offers the same items every day. • California menu: This menu lists all meals available at any time of day. • Prix fixe menu: This is the opposite of an à la carte menu in that it offers multiple menu items at one price. • Table d’hôte menu: This menu is similar to a prix fixe menu in that it bundles various elements of the menu into one package. 7.3 Chapter 7 | Marketing

20. Organizing a Menu • Most menus organize foods according to the order in which they are usually eaten. • Variations in these categories depend on what an operation offers and the image management wants to promote. • Prepare foods within a major classification using a variety of cooking methods. • Chefs or managers can divide entrées by categories. • Maintain balance in the choice of vegetables, sauces, and potatoes used to complement entrées. • The number of desserts on the menu depends on customers’ tastes and past sales. 7.3 Chapter 7 | Marketing

21. Creating the Menu • Managers and chefs must take into account these elements in the planning phase of menus: • Physical layout: Planners must take the physical layout, or space, of the operation into account when they design a menu. • Personnel: Planners must consider the qualifications of the staff of an operation. • Ingredients: Managers and chefs want to create a menu that best reflects fresh, seasonal ingredients. • Wants and needs of target market: Managers must address the wants and needs of the market, not their personal preferences. • Expectations of target market: These must be met once the operation is established and continues over time. • Profit margin: Planners must create the menu with profitability in mind throughout the entire process. 7.3 Chapter 7 | Marketing

22. Designing a Menu • Well-designed menus are pleasing to read, easy to understand, and clearly express the identity and character of the operation as a whole: • Medium: Managers must take into account the material on which the operation’s menu is printed or displayed. • Layout: How the menu is categorized and sequenced also adds to the identity of an operation. • Color: The colors chosen by an operation help create its identity. • Font: A font can highlight certain elements on the menu, drawing customers’ attention. • Art: The art selected for a menu can say a lot about an operation. 7.3 Chapter 7 | Marketing

23. Pricing the Menu • Pricing the menu is a critical process: it provides information to customers and it determines profitability. • The price of items on a menu also points to the market category of the restaurant, indicating quality of the food, level of service, atmosphere to expect, and so on. • Management needs to make sure that pricing aligns with the goals of the operation and the skill level of the staff. • Price also determines profitability, which is the amount of money remaining for an operation after expenses, or costs, are paid. This difference is also called the margin. • The price of a menu item must account for all of the costs involved in producing that item for the customer. Then, management must build in profit. 7.3 Chapter 7 | Marketing

24. Menu Pricing Methods • Food percentage method: Set the percentage of menu price that the food cost must be, and then calculate the price that will provide this percentage: Item food cost ÷ Food cost percentage = Menu price • Contribution margin method: This method works for à la carte menu items and menu items that comprise a meal. There are two steps to the formula: (Total nonfood cost + Target profit) ÷ Number of customers = Contribution margin Contribution margin + Food cost = Menu price • Straight markup pricing: With this method, managers mark up the costs according to a formula to obtain the selling price. 7.3 Chapter 7 | Marketing

25. More Menu Pricing Methods • Average check method:With this method, managers divide the total revenue by the number of seats, average seat turnover, and days open in one year. The result is an average check amount, which gives managers an idea of the price range of items on the menu. • Set dollar amount markup:This method adds a fixed dollar amount to the food cost of an item. The food cost and the dollar amount of the markup must be known: Food cost + Markup = Menu price • The markup is calculated based on the following: Profit per menu item + Labor cost per menu item + Operating cost per menu item = Markup 7.3 Chapter 7 | Marketing

26. Menu Pricing Methods (Cont.) • Set percentage increase method:With this method, managers calculate the markup for the set dollar amount markup for one or several menu items. Then, they determine what the percentage markup is in comparison to the items’ food costs: Food cost × Percentage = Markup Markup ÷ Food cost = Percentage 7.3 Chapter 7 | Marketing

27. Analyzing Menu Sales • It is crucial to the success of an operation that managers analyze how well items on the menu are performing. • The sales volume of a menu item is the number of times the item is sold in a time period. • Conducting a sales mix analysis helps managers maximize profits. A sales mix analysis is an analysis of the popularity and the profitability of a group of menu items. • Menu engineering is systematically breaking down a menu’s components to analyze which items are making money and which items are selling. 7.3 Chapter 7 | Marketing

28. Menu Engineering • First, list all of the menu entrées in column A. • List the total number of purchases for each item in column B. 7.3 Chapter 7 | Marketing

29. Menu Engineering (Cont.) • Divide each item’s sales by the total number of purchases (covers) to determine each item’s menu mix percentage: Item number sold / total number of purchases = menu mix percentage • In column K, categorize each item’s menu mix percentage as either high or low. To determine menu mix percentage, take 100 percent (1.00) and divide by the number of items listed in the test. • List each item’s selling price in column D. • List each item’s standard food cost in column E. 7.3 Chapter 7 | Marketing

30. Menu Engineering (Cont.) • List the contribution margin for each item in column F. Determine the contribution margin by subtracting the item’s standard food cost (column E) from its selling price (column D): Selling price – Item food cost = Contribution margin • In column G, record the total revenue. Determine total menu revenue by multiplying the number sold of each item (column B) by its selling price (column D): Number sold × Selling price = Total revenue Total this column at the bottom of the column. 7.3 Chapter 7 | Marketing

31. Menu Engineering (Cont.) • In column H, list the total item food cost. To obtain this figure, multiply each item’s food cost (column E) by the number sold (column B) to obtain total food cost (column H): Item food cost × Number sold = Total food cost Total this column at the bottom of the column. • List the total item contribution margin in column I. Determine this value by multiplying each item’s contribution margin (column F) times the number sold of each item (column B): Item contribution margin × Number sold = Total item contribution margin 7.3 Chapter 7 | Marketing

32. Menu Engineering (Cont.) • Categorize each item’s contribution margin as either high or low in column J, depending on whether or not the item exceeds the menu’s average contribution margin. Determine the menu’s average contribution margin by dividing the total contribution margin in column I by the total number of items sold in column B: Total contribution margin of all menu items / Total number sold = Average contribution margin • Use all the data gathered to classify each item into categories in column L. Classify each menu item as a star, plow horse, puzzle, or dog. 7.3 Chapter 7 | Marketing

33. Using Menu Item Classifications • Stars: These items are both popular and profitable. For the most part, stars should be left alone. • Plow Horses: These items are popular but less profitable. These items are often an important reason for a restaurant’s popularity. Because they are less profitable, one solution may be to increase their price. • Puzzles: These items are unpopular but very profitable. One of the best solutions to helping out a puzzle is to decrease its price. • Dogs: These items are unpopular and unprofitable. Eliminate all dog items if possible. Replace them with more popular items. 7.3 Chapter 7 | Marketing

34. Section 7.3 Summary • The menu may be an operation’s best sales tool. It can greatly influence what customers decide to order. • Understanding the different types of menus is a good first step in determining or identifying an operation’s goals and function in the marketplace. • Most menus organize foods according to the order in which they are usually eaten. • Managers and chefs must take into account several elements in the planning phase of menus. • Well-designed menus are pleasing to read, easy to understand, and clearly express the identity and character of the operation as a whole. 7.3 Chapter 7 | Marketing

35. Section 7.3 Summary (Cont.) • Pricing the menu is a critical process: it provides information to customers and it determines profitability. • Profitability is the amount of money remaining for an operation after expenses, or costs, are paid. This difference is also called the margin. • There are many methods of pricing menu items. • It is crucial to the success of an operation that managers analyze how well items on the menu are performing. • Menu engineering is systematically breaking down a menu’s components to analyze which items are making money and which items are selling. 7.3 Chapter 7 | Marketing