Developing practical strategies through analysis of a database of a new restaurant Essay Example

number of restaurant patrons, the total expenditure of $23,528 from March to May is relatively high.

This can be attributed to the high average spend, which may be due to upsurged prices. If stable demand and high spending per visit persist, the enterprise can swiftly reimburse the bank loan and incrementally elevate prices to the desired level. The statistics further indicate a profitable market segment that is willing to pay top dollar for high-grade products. These customers match the description given by Evans et al.

According to the article from 1995, customers who are highly loyal, spend a lot and are likely to recommend the organization to others are considered 'advocates'. It is advantageous for a restaurant to focus on targeting this segment as they are less likely to be affected by price increases and can potentially result in high profits. Egan (2001, page 53) identifies two key advantages to retaining loyal customers.

In summary, retaining existing customers is more cost-effective than acquiring new ones. Additionally, maintaining customer loyalty leads to higher profits compared to the expenses incurred in acquiring new customers. Sargeant and West (2001, page 181) support this idea by explaining that loyal customers tend to purchase more products and spend more money, making them valuable in market segmentation. The restaurant can focus their direct marketing efforts on these customers. Sargeant and West (2001, page 180) identify three options available to the restaurant to build a successful business.

The restaurant owner has two options to choose from in order to improve long-term profitability. The first option involves customer acquisition, but it may be too expensive. The second option is to build better relations with the

existing customer base, which could increase profits. The restaurant's figures between March and May are promising and provide encouragement for this objective. Sargeant and West (2001, page 180) suggest a third alternative that is often neglected by businesses: striving to retain customers. This should be the basis of the organization's long-term objective.

According to Feinberg and Eastlick (1997), direct marketing success relies on an organization's ability to concentrate promotional offers on the most profitable consumers. By adopting this approach, the restaurant can reduce expenses on irrelevant offers targeted at market segments that yield little profitability. In essence, the principle is akin to rewarding the top 20% of consumers who generate 80% of profits while the remaining 80% subsidize the remaining 20% by paying the full price.

By concentrating on the most profitable segment of the market, the restaurant can avoid the problem of 'poor targeting annoyance', as described by Evans et al. (2001). This issue might arise if the restaurant sends personalised offers to customers who have only visited once and have no intention of returning, resulting in a waste of the restaurant's budget.

(2001) According to Evans et al., successful targeting is key to achieving relevance in certain direct marketing campaigns. They identify four dimensions of relevance for offers: timeliness, interest, repetition, and information processing. To fully utilise a database, organisations must answer several crucial questions, such as identifying the spending patterns and buying behaviour of their most profitable customers over a long-term period. By doing so, restaurants can increase customer loyalty by providing targeted offerings. (Feinberg and Eastlick, 1997)

How can customer profiles be used to create targeted product offers, such as offering discount coupons for

dishes they enjoy? Additionally, Feinberg and Eastlick (1997) pose the question of how these profiles can help convert the next 20% of customers into the top 20%, providing a focus for the organization's long-term goals and creating a relationship ladder as described by Egan (2001, page 59). This ladder involves gradually moving repeat customers up a series of phases until they become advocates. Rowe (1989) suggests organizations should try to clone their most valuable customers by matching them with other customers who share similar psychographic and demographic characteristics, effectively moving them up the ladder of loyalty.

According to Feinberg and Eastlick (1997), the most pertinent question for the restaurant's situation is what actions can be taken to boost the top 20% of customers' spending after identification. Raising prices might be one solution, but that might push away customers who are less likely to remain loyal. To enhance the profitability of these top customers, it is crucial to comprehend their purchasing patterns and reward them suitably (Feinberg and Eastlick, 1997). The process of carrying out direct marketing initiatives comprises nine steps (Tapp, 2001, page 238, check appendix 1).

The initial phase of the implementation process consists of defining the company's objectives. As previously discussed, the restaurant's primary aims are to boost profitability for the top 20% of customers and transition the subsequent 20% up the relationship ladder to become advocates for the company (Feinberg and Eastlick, 1997) (Egan, 2001, page 59). Subsequent phases involve market analysis, including market segmentation and determination of target markets (Tapp, 2001, page 238). The restaurant's market segmentation is based on spending patterns.

The desired customer demographic consists of individuals who rank in the top

20% based on their spending habits. To execute the plan, steps four and five require outlining a product/price deal and an incentive method (Tapp, 2001, pg. 238). To create a desirable product deal, the eatery should offer a vast assortment of top-quality Vietnamese cuisine. The pricing strategy must prioritize long-term organization profitability and reflect the exceptional and opulent quality of the product served. Sargeant and West (2001, pg. 198) identify numerous traits essential to a successful direct marketing incentive.

To optimize customer engagement, it is suggested that restaurants offer intrinsic rewards that are linked to their product offering. Such rewards might include a free starter or dessert when a certain amount has been spent by the customer. Additionally, rewards should require perceived effort and time investment by the consumer. Personalization of incentives is also recommended, using customer data to send personalized invitations to unique events at the restaurant (such as Christmas parties or national Vietnamese days). This strategy may also correspond to seasonal demand and attract more customers during the summer months.

To boost sales during slow business months, the restaurant can ramp up direct marketing efforts. However, any promotions or incentives should be carefully evaluated to ensure they don't negatively impact profits or the timeline for repaying a bank loan (Sargeant and West, 2001). Ultimately, the restaurant must create a communication plan that includes Tapp's four-phase breakdown (2001, p.238). First, it's necessary to determine the appropriate media channels and subsequent contact periods. In this case, the restaurant plans to send direct mail to its target audience and focus on the top 20% of customers.

According to Taylor (1995), direct mail is a versatile

tool for achieving various objectives, including enhancing brand identity, boosting profits, increasing customer loyalty, and cross- and up-selling (cited in O'Malley et al, 2001, p.304). An important aspect of direct mail campaigns is timing, as the right timing and frequency of mailings can increase the lifetime value of customers. To this end, restaurants can collect information about customers' special occasions, such as birthdays, weddings, and staff parties, to include in their database.

The storing of dates for special occasions is an opportunity to increase customer loyalty by promoting offers beforehand (Feinberg and Eastlick, 1997). Creativity plays an important role in the third stage of the communication process, which involves developing platforms. A direct mail campaign should possess certain creative elements such as focus, sustainability, measurability and the ability to inspire the recipient for it to be successful (Sargeant and West, 2001, p. 302). Without the use of offensively bright colours, the mail-shot should be tasteful, vibrant and representative of the restaurant's quality.

The restaurant must address the letter personally to the recipient, who will need to present the letter when visiting the restaurant to claim their complimentary starter or dessert. Additionally, the restaurant must maintain regular communication with their top twenty percent of profitable clients. Developing a test programme is the final step in the direct marketing campaign process (Tapp, 2001, page 238). This stage is crucial as it provides insight into consumer responsiveness and can indicate potential successes and limitations of the campaign. Furthermore, the evaluation process may help mitigate risks of future campaign failures.

According to Tapp (1998, page 313), the control and testing of direct marketing campaigns is crucial and involves four essential

variables: target audience, timing, media used, and offer. To effectively test and control the restaurant's campaigns, two separate ones are recommended. The first will serve as the control and will keep the target audience, timing, and media channel variables the same, possibly sending it to the top twenty per cent of the most profitable customers. The second campaign will serve as the test, with a different offer from the control, possibly sent to the next twenty per cent. This approach allows for proper determination of any variances in response levels, traceable to differentiation in test campaigns (Tapp, 1998). However, there is a potential risk related to competition's response to the restaurant's activities. Rival restaurants may opt for 'copy-cat' campaigns to lure customers with increased profitability levels.

One possible weakness is the expense associated with both the direct mail campaign and the distribution of complimentary food. If the response rate is subpar, this will lengthen the repayment period for the bank loan. Ultimately, data from the restaurant's database reveals a subset of patrons who exhibit noteworthy average spending levels. Furthermore, this group is inclined to stay loyal to the establishment and promote it to other prospects (Evans et al., 1995). Consequently, spending habits serve as a foundation for market segmentation, with the intended audience consisting of those individuals who generate the most profit for the organization.

One strategy for repaying the bank loan in a shorter time frame is implementing gradual price increases, which may not deter the top 20% most profitable customers, according to Sargeant and West (2001). The organization aims to enhance the loyalty, lifetime value, and overall profitability of these advocates, as well as

move the following 20% up the loyalty ladder. This will be executed through a targeted direct mail campaign. Feinberg and Eastlick (1997) suggest that the top 20% of customers generate 80% of profits, while the remaining 80% subsidizes through paying full price.