Study Case 2

Executive Summary This report will be only focusing on Mr. and Mrs. Herrera’s 30 year old Mexican restaurant in Houston. We will be covering on the importance of service characteristics in restaurant business, Mexicatessan’s product totality, the pricing concept and strategy the Herreras’ was facing during its 1980’s period and has brought them to almost bankruptcy until they done a market research to recover from it, and determine target market and brand positioning of Mexicatessan.

Service Characteristics The service highlights differences in the nature of services versus products which are believed to create special challenges for services marketers and consumers buying services. To be able to understand the differences, there are 4 characteristics of services to be concerned.

Intangibility in Services Regan (1963) mentioned the idea of services being “activities, benefits or satisfactions which are offered for sale, or are provided in connection with the sale of goods”. In restaurant business costumers do not know what he/she will experience until they taste the experience themselves. Measure of tangibility can be use as implication to ease the customers evaluating services and products, thus performance is the key, in the case of Mr. and Mrs. Herrera’s case is that they plastered their front entrance with business cards for over the last 30 years, placed a photograph of the owner from the World War II, wallpaper and ceiling filled with Mexican traditional motifs and last but not least since its opening in the 50s’ Mexicatessan has its stable customers who always crave for their Mexican delicacy. All these aspects have prevented Mexicatessan from being intangible against its customers.

Inseparability of Services Inseparability is taken to reflect the simultaneous delivery and consumption of services and it is believed to enable consumers and service provider to affect the performance and quality of the service.

Variability of Services This is a particular problem for services with high labor level, as the service performance is delivered by different people and the performance of people can vary from day to day. Onkvisit and Shaw (1991) consider heterogeneity to offer the opportunity to provide a degree of flexibility and customization of the service. Thus I assume that heterogeneity can be introduced as a benefit and point to differentiation as well. In spite of no indication whether Mexicatessan service quality is up to standard or no, there is part mentioning due to new high price charges to its customer, Herrera now is able to recruit more staff, hence I assume that at certain point of the service delivery process has occurred lack of communication, lack of experienced staff that led the Herreras to hire additional staff.

Perishability of Services In most cases services can not be stored or carried forward to future time of a period. Given that services are very dependable to time, producer of services hence is the main concern. When insufficient supply happens and customers have to wait for it and can walk away from it, then it becomes perish. In restaurants this occurs many times therefore a well planned marketing strategy required. At the Mexicatessan, through its experience of 30 years, the main ingredient is the location and excellent food that makes it survive from being perished. The Augmented Product

Back in the day most of restaurants were set quite ordinary without any special vibrant to it, however nowadays majority of restaurants are set with a theme that makes the atmosphere different from others and built that way so it impact such as the sensation and the memorable feeling to its customers while they are dining at that restaurant. According to Walker (2004) the theme employs color, sound, lighting, décor, texture, and visual preparation to create special effect for patrons. Figure 1.1 Service offering for memorable dining experience at the Mexicatessan Parking

F&B

Decor

Nature of

Scheduling Core

Process

Memorable

Location

dining Service experience Customer Level

Role

Reservation Service

Delivery Service

In figure 1.1 illustrates that in business such as Mr. and Mrs. Herrera the relaxing and memorable dining experience is the core product which consisting of scheduling that deals with

the matter of how long delivery lasts, nature of process is how each service is delivered to customer, customer role is about nature role of customer in those processes, lastly is the service level that is prescribed and style of service to be offered.

Pricing Concept Before we discuss about pricing concept, we need to know what is price to consumer. From consumer point of view price is the sum of all values that a consumer willing to pay in order to gain the benefit of having or using the service or the product. On the other hand, price to the producer is the sum of money charge which incurs cost of producing that unit and the profit margin. Price also included in the marketing mix that entrepreneurs use to develop a marketing plan. In determine price of a product or service there are 3 considerations which is competitors’ prices, external factors, and internal factors. Some of the internal factors affecting pricing decision are:

•

Brand equity growth – how strong the brand perception towards its consumer. In Mexicatessan case study shown that it have had been there for 30 years.

•

Cost – cost of product and service consist of fixed and variable cost which will result in total cost.

External factors affecting pricing decision are: •

Demand relationship

•

Price elasticity of demand

In this case Mr. and Mrs. Herrera’s restaurant is price perfectly inelastic as we portray it in graph below:

Figure 1.2 P

Qty The change in quantity demanded is proportionately smaller than the change in price. An increase in price would result in higher revenue, and a decrease in price would lead to decrease in revenue. Since Mexicatessan 3 year period from 1982 to 1985 the menu prices increased by 40 to 70 percent that resulted in increased in revenue despite of the long decade of recession at that time. The quantity demanded of a good usually is a strong function of its price. Shift in demand curve happens when there is a change in influencing factors other than price. Factors in shifting in demand curve: •

Customer preference

•

Numbers of potential buyers

•

Prices of related goods: substitute and complementary goods

Figure 1.3 demand curve P

P2

P1

Qt

Q2

Q1

As Mr. Herrera’s restaurant has transformed from low prices Mexican restaurant to higher prices restaurant, he should set a new pricing strategy such as Prestige Pricing. Because he had a good high quality product and just hired new staff therefore his restaurant’s service is getting better and he set up his restaurant with a prestigious Mexican theme. It will attract more to Houston’s rich and famous society and create an even more focused market with high price.

Price as a Competitive Advantage A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Mr. Herrera is unwilling to raise its restaurant price because he believe that he wanted to sell his product and services comes with good value for money but at the same time still in low prices in order to compete with the big chains restaurateurs and their big budget advertising plan. In Mexicatessan’s case, Mr. Herrera aim to drive his competitors out of business by sustaining artificially low prices, thus creating a monopoly market position. Moreover he assume low prices will generate sufficient sales to more than make up for smaller profits, what he lose in margins,

he will make up in volume, yet it is a very risky thing to do. Low prices mean narrow profit margins and narrow profit margin mean less cash.

Target market & Positioning

Market Segmentation Market segmentation is dividing a market into subgroups of consumers who are homogeneous in their response to a particular marketing mix. i. Segment Size and Growth Using basic demographic based characteristics of age, gender, income, location, food preferences, and ethnicity will get a restaurateur like Mr. and Mrs. Herrera an estimation of potential customers. Furthermore, generally, demographic variables (age, gender, income, family size or occuption) are the easiest to identify and consumer needs, wants and usage rates often vary closely with them. As for their restaurant, their main customer aims are the surrounding neighborhood and Houston’s rich and famous.

ii. Segment Structural Attractiveness Understanding of what the market needs. For instance that in the area where Mexicatessan there wasl no Mexican food that offers with such ambience and low price as what Mexicatessan has to offer back in the up until today.

Concentrated Marketing and Positioning It is essential to thoroughly understand the positioning of competitive products, since the objective of positioning is to find a way to differentiate the product form competition. Competitive Benefits since the target market strategy results in greater satisfaction and hence more loyal

customers, and competitors would have more difficulty in taking these customers away. In the maturity stage, it will be more appropriate in using differentiated marketing. Concentrated marketing involves higher than normal risk, because the company's sales depend on a single segment and if the segment's demand for the product declines then the company may suffer the financial problem. In selecting a segmentation base, the marketer should realize that there is no one best segmentation base that will result in effective segmentation in all cases. Positioning is a fundamental element of the marketing planning process, since any decision on positioning has direct and immediate implication for the whole of the marketing mix. Without knowing competitive characteristics, it is hard to find out what are the attributes of your products that are distinctive

and

superior

form

the

competitors'

Moreover,

understanding

competitive

characteristics can help in making position strategy decision. Thus, a thorough understanding of the attributes of the product that is essential for the company, especially those offer competitive superiority that is essential to positioning. Marketers frequently achieve competitive positioning through comparative advertising, which is, naming competitors in ads.

References: Onkvisit S. and Shaw J.J. (1991). “Is Service Marketing “Really” Different?”, Journal of Professional Service Marketing, 7, 2, 3 – 17. Regan W.J. (1963). “The Service Revolution”, Journal of Marketing, 47, 57 – 62. Walker J.R. (2004). “The Restaurant”, From Concept to Operation. John Wiley and Sons. Pg 122.