2014 Summer Institutes Level 3

1. 2014 Summer Institutes Level 3 FRMCA Level 2, Chapter 7 Marketing

2. 2014 Summer Institutes brought to you by:

3. Session Objectives • Explain the role that marketing plays in determining products and services. • Define target market, and explain why it is important to a business. • Identify the parts of a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. • List ways to attract and keep customers. • Identify the steps in developing a promotion mix and a promotion plan. • Explain the importance of the menu to a foodservice operation.

4. Session Objectives continued • Organize the information on a menu. • Explain principles of menu layout and design. • Identify ways to test new menu items. • Define profitability and target margin. • List and compare basic pricing methods. • Explain the purposes of a menu sales mix analysis.

5. Marketing Overview • Market: A group of people who desire the product or service provided by a business. • Marketing: The process of communicating a business’ message to its market • Marketing determines: • What products and services to offer, and how to position them in the marketplace • How to promote them to potential buyers • How to price them so that people will buy them • How to deliver the goods to buyers 7.1

6. Marketing Functions

7. Marketing Concept In the current business environment, marketing drives the operation. To successfully market: • 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. 7.1

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

9. SWOT SWOT analysis (also called a situation assessment) is used to identify an operation’s strengths, weaknesses, opportunities, and threats. • Strengths: All of the strengths of the operation; areas where it excels • Weaknesses: The operation’s shortcomings • Opportunities: Areas where the operation could either increase revenues or decrease costs • Threats: Factors outside the operation that could decrease revenues or increase costs 7.1

10. Market Segmentation • Target market: The group of people an operation intends to pursue as customers • Identifying a target market enables organizations to: • Provide the products and services needed • Avoid mass marketing, in which everyone in the market is treated as having the same needs and wants • Focus on target marketing, which treats people as different from each other and tries to make a focused appeal to a distinct group of customers 7.2

11. Creating a Market Identity Positioning creates a clear, specific identity for both a product and the operation within the marketplace. The goal is to stand out in the crowd. • Positioning consists of three steps: • Identify possible ways to differentiate the operation within the market, to create a unique identity. • Select the right mix of differentiating aspects. • Communicate the chosen identity to a specific target market. 7.2

12. Ways to Differentiate an 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: Another way to differentiate an operation is through its image. 7.2

13. Ways to Attract Customers • Merchandising techniques at the table, such as unique garnishing or flambé • Themes, both as operation-wide celebrations and special events • Frequent-shopper cards that offer discounts or other incentives • Signature items, such as special deserts or “secret” recipes • Specials, such as “buy one, get one free” nights • Educational promotions, such as wine tastings

14. Market Communications Promotional mix: The ways an operation communicates with its market • 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 7.2

15. Market Communications continued • 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 • Direct marketing: A concerted effort to connect directly with a certain segment of the market 7.2

16. Menu Overview There may be no stronger marketing tool for a restaurant than its menu. • It provides two functions: planning and communication. • It presents an opportunity to distinguish food items from those of the competition. • The menu may be an operation’s best sales tool, as it can greatly influence what customers decide to order. • It helps create the image or identity of an operation. 7.3

17. Types of Menus • Á la carte: Each item is priced separately. • Du jour: Items are available for that day. • Cyclical: Menu items change after a certain period of time. • Limited: Limited offerings are available. • Fixed: The same items are offered every day. • California: All the meals listed are available at any time of the day—common in diners that are open 24 hours a day. • Prix fixe: Multiple items are offered at one price. • Table d'hôte: Similar to the prix fixe, various elements are bundled together, with multiple choices available for each course.

18. 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. 7.3

19. Organizing a Menu continued • 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

20. 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. Things to consider when designing menus include: • 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. 7.3

21. Designing a Menu continued • 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.

22. Testing Menu Items Gather as much feedback as possible about the new menu. • Test new menu items using clip-on or table-tent points of sale. • New items should only be run for a limited amount of time. • Servers can suggest the items and take feedback from the customers. • Sales of new items can be compared to sales of established items. • Offer small tastings of new items for free and then solicit feedback. 7.3

23. Pricing the Menu • Pricing the menu is a critical process. • Menu pricing provides information to customers and determines profitability. • The price of items on a menu determine the restaurant's market category, indicating: • Quality of the food • Level of service • Atmosphere to expect 7.3

24. Pricing the Menu continued • Menu pricing should align with the goals of the operation and the skill level of the staff. • Price 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 • Profit 7.3

25. 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 7.3

26. Menu Pricing Methods continued • Straight markup pricing: With this method, managers mark up the costs according to a formula to obtain the selling price. • 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.

27. Menu Pricing Methods continued • 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

28. Menu Pricing Methods continued • Set percentage increase: With this method, managers calculate the total markup, based on a 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

29. Analyzing Menu Sales • Sales mix analysis measures the popularity and the profitability of a group of menu items. Conducting a sales mix analysis helps managers maximize profits. • Sales volume is the number of times a menu item is sold in a time period. • Menu engineering systematically breaks down a menu’s components to analyze which items are making money and which items are selling. 7.3