demand forecasting

Would you like some “Free” with that?

Posted on by jolan30131f14

freeburger

This just might be a possible question asked by a McDonald’s employee in the imminent future. Currently, the only reward you get for eating at McDonald’s is: well, the food itself. McDonald’s does not have a rewards card to attract customers to stop by because of additional points or freebees. Though, it sure can use one.

The traffic in McDonald’s in on a steep decline. Frankly, their forecast also suggests a continuing future decline. We have previously discussed in class the need to identify the reason for having a negative trend and making adequate changes and adjustments to avoid declining sales. This is exactly what McDonald’s is doing. They are reconsidering their strategy and trying to come up with a way to retain their clients, meanwhile attract more clients who can make up for the decline over the recent years.

To create this new traffic, McDonald’s designed what you can almost call a new product, a loyalty card, which it is planning to introduce in the upcoming days. Other food chains such as Panera, Subway, and Starbucks already have some form of a loyalty card, and they all have seen a greater rate of return after its introduction. People love when they get a good deal: a purchase made on sale or just a freebee. Therefore, people are choosing places that reward them for their loyalty with rewards-only deals, or accumulation of points which eventually leads to some discount. This also helps keep customers loyal.

The three major fast food chains: McDonald’s, Burger King and Wendy’s have yet to come up with a loyalty card. Being the first to introduce one can definitely be a competitive advantage for McDonald’s. This can help them further differentiate themselves from the other two.

In addition, McDonald’s market consists of people who are relatively small spenders, which is what brings them to McDonald’s, a food chain with fairly low prices. Introducing a loyalty card that can save them even more money or get them a better deal will definitely be something these types of customers are interested in. Another amazing benefit of a loyalty card is that companies can track client’s purchases. They can then use this information to customize their marketing with coupons and sales that are specific to your interests. Therefore, this is an ideal solution for the decreasing sales at McDonald’s. The loyalty card will keep clients from going to the other places, which do not reward them for coming in.

Although many companies focus on improving their processes through efficiency and cost cutting, without sales, there is no need for production at all. McDonald’s is currently in need of increased sales and traffic. And although investing in the design and creation of a loyalty card can be quite costly, I believe it will definitely pay off with increased sales and loyal customers.

 

Do you think the loyalty card will keep their clients loyal? increase traffic? increase sales?

What is your experience with loyalty cards?

 

http://consumerist.com/2013/10/01/mcdonalds-testing-rewards-program-for-customers-using-mobile-devices/

http://www.businessweek.com/articles/2014-11-03/mcdonalds-and-other-fast-food-chains-step-up-battle-for-loyal-customers-with-rewards

Avis takes a page from the airlines.

Posted on by andy30123f14

avis

For years the airlines have been perfecting the art of filling seats using algorithms and now Avis, the car rental company is doing the same. The car rental business has been a murky one and company’s have resorted to discounting their services to appeal to customers. Avis saw this as an opportunity to increase profits by improving upon their pricing tools. Now Avis has its own software, referred to as the “demand fleet pricing tool,” adjusting rental prices based on local data, past pricing, and other factors in 110 major markets. Airlines have been using similar technology to maximize revenue on air flights based on types of fares offered on that specific flight.

 

Top car rental companies Enterprise and Hertz have been less aggressive on their price increases. Nelson told analysts on a conference call. The pricing tool “accelerates and streamlines the decision-making process well beyond the capability of manual action.” Translation: Software is far more adept at extracting higher rental rates than humans, just like in the airline industry. According to a revenue airline manager under anonymity conditions says,”Each airline has a complex computer system based on algorithms that can maximize the profit on each flight based on the types of fares offered on that specific flight.” Airlines know that the system can use all available data to maximize profit. Information that cannot be predicted or computed by the algorithm requires the hand of a revenue airline manager, which is in charge of going into the system to adjust for events at certain destinations or weather conditions.

 

Avis saw a record breaking quarter this summer and forecasts predict to have a record breaking year. The more dynamic pricing for Avis is responsible for a 3 percent increase in prices which has generated 2.5 billion last quarter. Avis says each 1 percent increase in price represents $33 million to the company. Avis realizes that car rentals are part of travel expenses and is taking advantage by adjusting their pricing based on what is going on in the travel sector. Similarly to airlines that adjust seat prices based on the market, for example the a ticket price to Brazil in summer 2013 was not the same as summer 2014 when Brazil hosted the World Cup, Avis is using a similar approach.avisthailand.com

 

The increase in price for a car rental is hardly noticeable in the traveler’s overall trip expenses, less than a $2 increase in a typical four day trip. The ability to charge more for cars in North America, including for rentals made as part of corporate contracts, plays the largest role in Avis Budget’s improved financial performance. Avis is not revolutionizing anything, they did not reinvent the wheel all they did was improve on the systems in place and incorporate a new pricing tool, one that the airline industry has used for decades.

 

Can you think of other industries that can use this pricing tool? Have you used car rental services and was the price reasonable? Do you think this is a good idea to charge more for the same services? Do you think the increased profits will continue? Why or why not?

 

 

http://www.businessweek.com/articles/2014-10-30/avis-prices-rental-cars-like-airline-seats-and-youre-paying-more

http://www.foxnews.com/travel/2011/12/08/confessions-airline-revenue-manager/

If CVS Pharmacy Can Say No To Smoking, You Can Too!

Posted on by f1233bnikolova

020514_cvsnosmoking

Link to Article: http://www.forbes.com/sites/scottdavis/2014/02/06/cvss-decision-to-dump-tobacco-delivers-on-its-brand/

CVS Pharmacy has recently taken a large step forward in their industry by making the strategic decision to remove tobacco products from all of their stores in order to show how serious they are about being committed to the health of their customers. Also, for CVS customers that are smokers, they will begin offering free online assistance to help their customers stop smoking if they choose to do so. This was obviously a difficult decision and one that could potentially lose them a lot of money, but they believe that this decision will have the opposite effect, and will actually help them strengthen their brand, retain their current customers, and inspire new customers to come into their stores.

I think this directly relates to the material that we covered in class when it comes to the decisions that departments have to make together regarding the success/failure of their company. A decision like this is obviously not made overnight and is one that can only benefit the company if everyone in the company (all departments) is onboard. In class, we learned that a part of a company’s successful strategy is that “learning and continuous renewal are essential parts of a [successful company’s] strategy.” CVS is choosing to “lead the market” instead of “follow the market” and I believe this will really pay off for them. According to the author of the article, “CVS is “putting its money where its brand is” and has the first mover advantage.”

I also believe this article directly relates to the business simulation we did in class. I think the simulation really showed us how important it is for companies to make important thought out decisions and to not try to be something that they’re not. I also think it proves to us that even though at times it was hard to let go of a product that we have been making for a while, sometimes it was the best decision for the overall health of the company. While CVS could’ve remained successful being in the tobacco industry, they chose to differentiate themselves from their competitors and hopefully help them gain a competitive advantage.

Overall, I believe that this decision was the right one for CVS especially since none of its competitors have really done anything as of yet regarding selling tobacco in their stores (Walgreens?). I believe that in order to make these decisions CVS executives strategically evaluated all of their market segments and made sure to forecast so that in case their revenues did fall dramatically, the company would be able to bounce back. One thing that really stood out to me while doing this simulation is how important forecasting is and how important knowing your market segments are in order to be successful. I feel like my team had a lot of trouble with this in the beginning of the competition and this is what caused us to suffer later on. Knowing your products and knowing the market segments that those products are is extremely important and making sure that all of your departments are working cohesively is just as important.

Do you agree with CVS’s decision to remove tobacco from their stores?
What do you think it’s competitors will do regarding CVS’s decision? Will they drop tobacco products as well?
What else do you think CVS can do to set themselves apart from their competition?
Do you believe this will negatively impact CVS’s business?

Technology in the Workforce and the Rise of the Nontraditional Work Environment

Posted on by emmyr598

Technology is changing the way people do business. With applications that create faster overall processes and improved communication, the key to success is often accomplished through the use of the right technology. Managers must be aware of what these changes are and how technology is facilitating them. There are a number of growing trends that demonstrate how the workforce is shifting towards nontraditional work environments and which technologies are being used to support these environments. Remote employees working in virtual work environments are becoming more commonplace in today’s workforce, whether it is through outsourcing work to other countries or US employees based in different geographic locations than their teams/managers. No matter which type of nontraditional work environment, it is clear that technology is a crucial key to success.

There are a number of different tools that a remote or virtual employee can use. Working in teams with people located in different geographic locations requires extra attention on communication. Managers must make sure that remote employees feel included and equal to their non-remote peers. In order to do so, there are a number of technologies that help bridge the geographic gap. Video conferencing allows individuals who are in different physical locations to interact as if they were all in the same place. Having a round-table meeting over video conference allows individuals to express themselves through gestures and expressions. It also creates a sense of familiarity amongst employees since it is a social environment. Another tool is web conferencing, which allows people on different computers to simultaneously view one person’s screen. This allows individuals to host a meeting where they can present to a large group and not have to send out loose documents. Another online tool that allows people in different locations to communicate is Instant Messenger. AIM (AOL Instant Messenger), Gchat (Google Chat) and Facebook Chat all allow you to communicate in real time via text with many other individuals simultaneously.

While these technologies have many benefits, a word to the wise is to be aware of everything that comes along with the use of technology in the workforce. On the positive side, technologies like video conferencing and web conferencing allow many different people to get together in one virtual location. Being able to type at the rate of a normal conversation (through an instant messenger program like AIM) also allows people from far distances to communicate. However, both of these positive benefits have the potential to be negative as well. Video and web conferencing can sometimes be difficult to set up and if the Internet is down you often lose access to many of those tools. Typing a conversation can also lead to things taken out of context because you lose tone and expression. Overall, technology can be used successfully as long as individuals are mindful of the potential roadblocks.

Have you seen nontraditional roles emerging in your work environment? What technologies does your company use (or have you personally used) to help you stay connected to your peers?

Breakfast for Dinner!? McDonald’s Doesn’t Think So…

Posted on by spr1311agreen

At some point, everyone has wished that their favorite breakfast foods could be served all day. Maybe not everyone, but that is only because they’re not fans of crispy bacon, syrupy pancakes, and perfectly crafted, flavor-filled breakfast sandwiches. McDonald’s has begun entertaining this idea of 24-hour breakfast and has discovered many logistical issues.

A former McDonald’s restaurant owner and current restaurant franchisee consultant explains, “It’s been tried and failed repeatedly. It just makes the operation too complicated.” McDonald’s offers breakfast until 10:30 am on weekdays and 11:00 am on weekends. Their breakfast accounts for 25%of their sales, but dominates the fast-food breakfast market. Making these items available all day doesn’t seem that hard, right? Unfortunately it is just not that easy. As we discussed in class, capacity always comes into play. It is not about storage of the food, it is about grill capacity. Cooking meats and eggs require different temperatures on the grill. For breakfast, bacon and sausage is cooked ahead of time, and the grill is set to a higher temperature to cook the eggs until 10:30 or 11. The current grills do not have the capacity to accommodate this difference. The company would have to figure out a way to match the required capacity to the anticipated demand. Another strategic issue would be labor. Since the scrambled eggs need to be stirred constantly, it would be difficult to make them during peak lunch and dinner hours. Since 65% of customers come through the drive-thru, speed is of the utmost importance.

McDonald’s is also worried about losing profits as well. The breakfast sandwiches and meals are cheaper than those for lunch and dinner. If they are all offered at the same time, people may trade down to the cheaper products, hurting McDonald’s earnings. Good things can come from enacting this too. Most of the breakfast items are healthier than the greasy burgers and fries, giving customers lower calorie and more beneficial options.

One thing to take into consideration is how to estimate demand. Will people actually buy these items throughout the day, or is it just nice in theory? People tend to want what they can’t have, and once it is made available, it may not be as popular as originally expected.
There are discussions of meeting somewhere in the middle. One option is only serving the breakfast sandwiches and not worry about giving the scrambled eggs the attention they require. Another option would be to test demand by serving breakfast until noon.If the company needs to make major changes to grill capacity and labor, then they must know if profits will make up for those costs.

Is it about time McDonald’s serves breakfast all day? Based on demand and current statistics, would it be worth it and have the potential to succeed, or should they keep operations as they are?

References:

http://www.businessweek.com/videos/2013-05-06/whats-for-dinner-big-mac-or-egg-mcmuffin#r=most popular

http://www.businessweek.com/articles/2013-04-29/an-afternoon-mcmuffin-mcdonalds-is-still-considering-it

That’s the Way the Cupcake Crumbles: Is the market for the sweet delicacy crashing?

Posted on by spr1313krodriguez

Molly’s. More. Sweet Mandy B’s. Chicagoans may recognize these names as local eateries specializing in the most convenient of small pastries: the cupcake. Though recipes for these treats have been around for hundreds of years, and are a major staple at birthday parties and big celebrations, it was not until the early 2000s when the country started to develop a demand for gourmet cupcakes. You can thank the TV series Sex and the City (of all places!) for that; with the show prominently featuring the popular Magnolia’s cupcake shop, the nation went cupcake crazy. Today, hundreds of gourmet cupcake shops thrive in our city and throughout the country, rallying behind its industry’s largest leader, a New York-based publicly traded company called Crumbs Bake Shop. With mouth-watering flavors ranging from red velvet to cookie dough, you would think this market would continue to thrive off of our taste buds.

Unfortunately, that may not be the case anymore.

Source: The Wall Street Journal

At the peak of its success, Crumbs launched their initial public offering in June 2011 with a strong $13 per share. This past month in mid-April, though, its shares have sunk to $1.70, and they continue to fall at a disquieting rate. Because of this, the company adjusted their 2013 sales forecast from an initial $73 million to an unsettling $57 million. The declining performance of such a huge company as Crumbs has caused some analysts to claim that the market for gourmet cupcakes is beginning to collapse. A recent Wall Street Journal article poses the question, “Is the cupcake bubble that inflated relentlessly over the last decade finally about to burst?”

There are many factors that could have caused this impending cupcake recession. Probably the most apparent of these is the oversaturation of the market. Since the trend began, cupcake making became one of the prime choices for young entrepreneurs to kick-start their small business ventures. This has obviously led to increased competition and a staggering number of locations selling the same product; in Chicago alone, there are nearly three hundred different gourmet cupcake shops. But even these specialty stores have to compete with other establishments like grocery store chains, which are trying to attract the same market with their own cupcake concoctions. With all of this competition, the lines of differentiation start to blur, and it leaves consumers wanting a change of pace.

This change of pace is an additional factor contributing to the cupcake’s demise: consumers are growing tired of the fluffy delicacies and want to indulge in something new. The aforementioned Wall Street Journal article attempted to scour Twitter for the next big tasty treat. Responses differed from gourmet ice cream to mini-pies, but the uncertainty itself is pretty clear. Cupcakes are no longer king, and many successful cupcake shops are starting to feel it in their wallets… and their stomachs.

What do you think is the next big trend in the pastry/delicacy market? Do you think the “cupcake economy” will bounce back, or is it all heading down south from here?

Sources:

http://online.wsj.com/article/SB10001424127887324345804578425291917117814.html

http://stream.wsj.com/story/corporate-intelligence/SS-2-60962/SS-2-214382/

http://www.policymic.com/articles/35885/everyone-panic-the-cupcake-market-is-crashing

Infer: Better Math Can Produce More Sales

Posted on by spr1313zmares

Infer is a company that develops technology that allows company’s sales-tracking system to rank customer leads based on how likely they are going to purchase something. The company has raised 10 million over the last two years while working on this technology. Infer is rather simple as its software starts with basic information. For example, if a customer decides to enter their name, address and company when signing up for a product. The Infer system will then start doing research behind the person that signed up for the product.

The CEO, Vik Singh is young as he is only 28 years old, but he believes that his mathematical formulas will increase sales. Vik Singh and his 10-employee team are in the midst of improving sales by using better math.

Vik doesn’t seem to be short on confidence as he feels that this new  innovation is sure to help increase sales. The problem is the fact that he is  very young and there may not be that many people that believe in his new ideas. He may not be the best person to trust for sales, but he certainly has the right engineering track record. He worked with Google fine tuning search systems before moving to Microsoft. At Microsoft, he developed technology with Jim Gray, who of the greatest computer scientists of the last half century. He finished working with Microsoft and built a new Yahoo search system.

Vik Singh has worked with some of the biggest technology gurus in the world. Vik Singh says, ” The way the typical company manages data is piss-poor in comparison and there is more science at Facebook (FB) behind seeing which of your friends are getting drunk across the street from you.” This seems to be a common theme with all the new web-savvy engineers that are trying to make new rules for business applications. Vik Singh wants to treat sales deals like a puzzle. If Infer can makes their sales deal like a puzzle then it can be solved with an algorithm rather than a dinner between people who have ideas.

Infer has worked with Box and other customers to verify their research. It works with historic sales and compares outcomes with their own predictions. Singh continues to tell everyone that the experiments come out nearly perfect, but he has not released any proof of this for businesses to see. In my opinion, there are a lot of other things that factor in when dealing with sales. There needs to be more facts when trying to rely on just math to increase sales. From a management point of view, I don’t know if Vik is taking things a little too far with all these math equations, but he does have the technology background to speak for him. Then again who has time for someone that is only 28 years old and is trying to change the way selling works?

Links:

http://www.businessweek.com/articles/2013-04-24/infer-promises-more-sales-through-better-math

http://techcrunch.com/2013/04/23/infer/

http://blog.studentrnd.org/post/37455656817/why-asians-are-better-than-americans-at-math

How Six Flags could learn from this class

Posted on by spr1322tgutheil

http://socal.catholic.org/images/local_ad/2010024016magic.jpg

Six Flags Entertainment Corporation filed for bankruptcy protection in 2009 after years of being in devastating amounts of debt, poor management and multiple changes in who owned the company. This initiates the first issue as there is no way there can be a good way to manage a large company like this with so many changes in leadership. By the time the people that work for Six Flags got used to the new style of leadership, the ownership changed again therefore messing up the whole system again. A long-term plan should have been established with somebody that would be there the whole time this be through the different stages of ownership.

The company started doing a little bit better again in mid-2010, and today in 2013 analysts say that the company can have a good season ahead of it as it has new attractions that can improve the attendance and therefore the revenue. Through finally having good management again the company has improved season pass sales, less discounting and more financial income through parts of the business such as dining. What the earlier owners and managers should have realized is that forecasting plays a huge role in how their business is doing. They should have realized that discounting is good but definitely can not be the end all be all as it may attract people, but there has to be a line draw to make sure it is still profitable for the company and therefore the employees.

The fact that there are a lot of new rides and attractions posts a lot of opportunity in terms of that a lot more people will start showing up. One of the reasons that Six Flags Corporation had been struggling is that old customers were getting saturated with the rides and attractions that were available to them because they had been to the parks so often. With the new rides a lot of the long-time goers will start going again and the season ticket sales will go up again.

Management also mentioned that this will not be the old Six Flags ever again as it will establish a new business plan and “has willingness to rethink its business model and track record of success.” It seems as if this new set of management knows how to promise the company future success, but the question is if it will actually be able to successfully implement all of these new strategies to guarantee they won’t slide into losses again. The keys to success for a company like Six Flags are good forecasting for what needs to be done in order to get a lot of tickets sold, good management of the employees and facilities, along with making sure the rides and attractions provide variety and do not get boring.

http://www.businessweek.com/ap/2013-04-19/credit-suisse-initiates-coverage-of-six-flags

Forecasting Failure?

Posted on by spr1312shyzny

Analysts have forecasted Caterpillar, Inc. (CAT), the industry-leading construction equipment manufacturer, to decrease in production this year. The company has been relying in foreign markets such as Asia and in the Pacific to keep them afloat after the 2008 recession. Looking at the decline in spending and cut backs in these foreign markets, analysts are forecasting rough weather in the upcoming quarters for CAT.

One of the biggest hits for Caterpillar was in purchasing Bucyrus International Inc. for $8 billion in 2011. This Chinese mining company was overvalued by $580 million, due to what Caterpillar thinks, were inflated profits by managers. Since China, the world’s largest exporter, has slowed down in production, Caterpillar is suffering as well.

According to the Wall Street Journal, CAT has announced 11% decrease in sales from this past quarter. This slow down, however, was not what Caterpillar had expected. In January, Caterpillar gave an outlook report for 2013 where they forecasted an increase in revenue of $8 billion and a $2 earnings per share increase. On the other hand, analysts are predicting that they will decrease in revenue from $65.2 billion to $62.1 billion by end of 2013.

Halting demand for mining equipment in Australia and Indonesia have also taken a tole in Caterpillar’s forecasting plan. With all markets slowing down, except for in Latin America, Caterpillar’s opportunity will be in these upcoming quarter. Caterpillar and other companies in the same situation will all be keeping their fingers crossed for  the US economy to pick up and start new production of construction and mining equipment to get back on track.

Another threat to Caterpillar is the more favorable use of natural gas to produce electricity. This causes a decrease in use of mining equipment and slows down equipment production. The narrowing use of CAT products has forced them to lay off the workers in the assembly plants.

Competitors of Caterpillar, like Komatsu, (the world’s second-largest seller of construction equipment) has also been struggling in the same markets and has already decreased their sales and profit forecast for this upcoming year. If Komatsu seen this coming, why didn’t Caterpillar?

With all these factors coming into play, Caterpillar should be reconsidering their forecasting plan and cut back on production as well as profit expectations for 2013. Will they heed this information or continue with their plan?

Do you think Caterpillar should have planned for this pause in production? Maybe Caterpillar should start producing new equipment for a new kind of consumer.

source: http://www.foxbusiness.com/news/2013/04/21/caterpillar-expected-to-cut-2013-guidance-in-first-quarter-report/

Black Friday vs. Black Thursday !!!

Posted on by f1234fshamoun

 

 

It’s that time of the year again Black Friday deals. I never understand why so many people sleep outside all night to get something that is limited to very low number like five or ten pieces and the person there whose number eleven just got nothing but waited all night in cold weather. Last year I decided to try and shop at midnight I went to Macy’s waited in line for about two hours and when we finally got into the store I honestly didn’t find any good deals so I think it was not worth it for me to wait in cold weather for noting. I just wanted to experience it and I did but I don’t think I would repeat it again. Well I found this interesting article that talks about opening as early as 8:00pm on Thursday this year that means Thanksgiving will be cut short for a lot of people. Wal-Mart was the first one to announce that they will be opening as early as 8:00pm this year. And this is when competitors come in to place Sears also announced they will open at 8:00pm. Now Wal-Mart has to worry about their competitors and what they are offering to beat their prices.

Wal-Mart also announced that they will have enough inventory from 10:00-11:00pm for customers to get the same deal as they would get in store online. Now inventory managing will be a big part of this they will have to make sure that inventory will remain available and the numbers of inventory are accurate so that no problems will occur with consumers. Wal-Mart has to make sure that their entire inventory will come on time with correct amount to avoid any problems. The best way to make sure inventory is accurate is to forecast their inventory and make sure the demand numbers are correct. Some customers are already unhappy because they will have to cut their Thanksgiving with family and friends early to go shopping so that’s why inventory has to be done correctly so that customers will be satisfied. But what happens to those poor employees who want to spend some quality time with their family and friends on Thanksgiving Day? Now they have to come to work early but will the quality of employees towards customers be the same? Of course not employees will be unhappy and quality will go down. This is where Wal-Mart and Sears need to work on quality management system so that they will make sure their employees are happy so that customers will be satisfied and happy also. So maybe paying them double on that day will make their employees happier. So opening early is good but Wal-Mart and Sears need to make sure that quality, and inventory is in good shape for customers to be happy and for them to make good profit.

Do you think opening early this year is a good idea? And will quality and inventory be in good shape or will there be a problem?

la-fi-walmart-black-friday-20121108,0,376002.story

la-fi-thanksgiving-shopping-protest-20121110,0,4704988.story