1. Fixed Costs in the Weekly Decision Period Biz Cafe
Ted Mitchell

2. Fixed Costs in Biz-Cafe
Rent is fixed for every decision period (month) and and is NOT a discretionary cost (it can NOT be changed)
Managers and Servers is defined as a Discretionary Fixed Cost (it can be changed)
Advertising and Radio is defined as a Discretionary Fixed Cost (it can be changed at the beginning of each week))
Discretionary Cost (you can change the cost by changing the number of servers or changing the wages)
It is a fixed cost for the decision period (does not change during the week and does not vary directly with changes in the sales volume, Q)

3. Fixed Costs do NOT Change for the time period
Rent
Advertising
Salaries
Number of Servers Number of Radio Spots
Dollars
Quantity of Coffee Sold

4. Variable Costs and Fixed Costs
Total Variable Cost
Dollars
Fixed Cost
Quantity of coffee sold

5. You have to know the Difference
Between a
1) Fixed Cost for the decision period
And a
2) Variable Cost for the decision period
Cost of Goods Sold is the Total Variable Cost
Direct cost of making a single cup of coffee is the variable cost per cup, V

6. Weekly Report on Marketing Performance
Revenue, R = P x Q
$3.50 x 1069 cups
$3,741.50
Cost of Goods sold, V x Q
$0.32 x 1069
Total variable Cost =$342.08
Gross Profit, G = (P-V) x Q
$3.18 x 1069
$3,399.42
Servers
Fixed Marketing Cost $1,741.50
Adv & promotion
Fixed Marketing Cost $2,800.00
Total Fixed Marketing Cost = $4,541.50
Marketing’s Contribution to Weekly Profit
($1,142.08)
Calculating the the direct cost for making a cup of coffee (aka variable cost per cup, V)

7. Servers are Part of the Product/Service mix
Once selected they are a fixed cost for week
Need to have sufficient numbers each working
Recommend wages for 10 hrs per week at $10 per hour = $100 a week per server
Recommend starting with 20 servers
And 3 managers at $250 a week

8. You will choose something for
All Four P’s of the marketing mix
Recommend a Staring Price of $3.50
Recommend the $6 coffee to start with for Product
And 20 servers for Service Quality
Promotion
Hours of Operation (Place)

9. How much to Spend on Advertising and Promotions?
Ted Mitchell

10. How much to spend on advertising?
The Affordable Method is the most you can afford to spend after you decide on how what a normal profit is
Assume you believe a normal net profit is $2,500 a week

11. If we need profit = $2,523 then we can afford to spend $2,000 on advertising
Weekly Estimated
Revenue, R
2436 cups x $3.50
$8,527
COGS, Total Variable Costs
2436 cups x $0.282
Per cup of Best Coffee
$687
Gross Profit, G = R- COGS
(P-V) = $3,22
$7,840
Servers and managers
20 servers x $100 ea
3 man x 250 = 750
$2,750
Advertising
Afford to spend $4,523 – $2,423
$2,000
Inescapable Weekly Overhead expense (conservative)
$667
Approximating profit with advertising
Need $2,423 to keep the shareholders happy
$2,423

12. How much to spend on advertising?
The Objective-Task Method is spend enough to create an adequate awareness level
The goal of advertising is to create awareness of the cafe among potential customers
If you are zero awareness spend lots of $
If you are 90% awareness then spend zero $

13. To get the business up and running
You need to spend more than $4,523 in the first few weeks on advertising
And accept a weekly loss for the first few weeks

14. You need to know Customer Awareness level
You have to Buy the Professional Market Study to get the market’s awareness level
Be sure to buy it!
The awareness will grow without advertising but it grows very, very slowly!

15. You will choose something for
All Four P’s of the marketing mix
Recommend a Staring Price of $3.50
Recommend the $6 coffee and 20 servers to start with for Product/Service Quality
Recommend general awareness advertising and 10 radio spots in the first week for Promotion
Hours of Operation (Place)

16. What Place Decisions?
Ted Mitchell

17. You have Three strategic place decisions 1) the location in the town
2) The type of furnishings
3) The weekly decision as to the number of days and hours to stay open
What does it cost to stay open an additional hour?

18. You will choose something for
All Four P’s of the marketing mix
Recommend a Staring Price of $3.50
Recommend the $6 coffee and 20 servers to start with for Product/Service Quality
Recommend general awareness advertising and 10 radio spots in the first week for Promotion
Recommend open on the weekends and start with 70 Store Hours of Operation (Place)

19. This is NOT an optimal decision set for the first week
Price Tag: of $3.50 for medium cup
Product and Service $6 coffee and 20 servers
Promotion: general awareness advertising and 10 radio spots
Place and Time: 70 Store Hours of Operation
This a reasonable decision for the first week
It is NOT a good decision for week 4!

20. Start Exploring the
Consequences of Changing ONE Marketing Input at a time.
Do NOT Try to change two or more things at a time.
When exploring the practice games be systematic. Deal with the most strategic elements of marketing activities first.
Remember the practice game is to help you prepare a strategy for playing the ‘Single-Shot’ game

21. To earn the points in a Practice game
You must finish the game on the last decision period (week) specified for that particular game
Usually on 16th or 8th week of the simulated decisions
Keep making decision until the computer will not let you advance any further

22. Any Questions?
about where to start with the 4P’s in week #0 of the simulation game.