Introduction
This research paper critically examines a scenario that focuses on the problem of revenue maximization and effective demand management. The scenario involves two key stakeholders, namely Mr. Chang, the owner of Enter the Dragon, a high-end Asian restaurant in Chicago, and Groupon, a company that offers daily discounts to users. The essence of the conflict is that Mr. Chang wants to stimulate demand at his restaurant, especially on weekdays, as demand is currently lower than desired, which means Enter the Dragon is de facto profitable.
Groupon can help Mr. Chang to stimulate demand by incorporating Enter the Dragon into the Groupon platform: this means that the daily Groupon audience will be able to buy promo codes, coupons, and discounts for the Chicago restaurant, which will increase the popularity and brand awareness, which means that in the long run, sales and thus profits are expected to increase (Chopra, 2019; Kao et al., 2020). However, making a specific decision should not be based solely on forecasting and theoretical expectations, but also on data regarding budget expectations. Thus, the present research work, built on a case study, aims to investigate the proposed scenario and evaluate the effectiveness and efficiency of the decision to be made. The work is structured so that, after a critical discussion of the idea of switching to a partnership with Groupon, the strategy of artificially reducing the offer and its consequences is evaluated, and alternative partnership models between the restaurant and the platform are explored.
Assessing Financial Performance: The Daily Deal
First, it is necessary to understand Groupon’s operational mechanism to assess the fundamental need for this collaboration. In other words, it is necessary to determine the economic rationale for using such a platform for the Enter the Dragon restaurant. The nuances of this cooperation are complicated by the fact that the products sold by Enter the Dragon on Groupon will offer customers a significant discount, up to 50%, if the platform can recruit a certain number of users who redeem the coupon.
In other words, for simplicity, we can assume that Enter the Dragon has created a new pizza that Mr. Chang wants to advertise through Groupon (Chopra, 2019). If the pizza initially costs $30, Groupon can put it on sale at 50% off so that users can buy a coupon for the same pizza for $15. It is also noteworthy that the proceeds from the sale of the Groupon coupon are split in half with the business partner, meaning that, from the $15 per coupon, Enter the Dragon receives only $7.5. These calculations create a natural question about the effectiveness of such a partnership, in which the restaurant receives a profit per pizza of $7.5 instead of the original $30.
The results of the financial considerations above show that the Chicago restaurant is actually losing (or under-earning) money, as it is selling pizza for less than its usual price and needs to share some of that money with Groupon. Although the financial benefit is significantly reduced, it is essential to note that such a scheme must be seen as excluded from marketing (Kao et al., 2020).
Restaurants (like any other partner businesses) use Groupon to attract more people, since Groupon’s daily audience is likely larger than the individual business’s. This collaboration can lead to users who happen to see a coupon for Enter the Dragon eventually becoming regular customers of the restaurant, bringing stable revenue to the company (Özkan et al., 2020). In other words, the functional meaning of such collaboration with Groupon is to invest in advertising and attract new customers by leveraging the platform’s full technical and reputational capabilities, while paying a customer-acquisition fee from a portion of the profits.
Additional financial analysis in the scenario reported that the restaurant’s variable cost per table is $10, while the average cost per table is $60. The collaboration with Groupon generates $15 in revenue for Mr. Chang, which means, in this case, the restaurant receives $15 for each coupon sold (per table), which exceeds the variable costs by $10 per table — the restaurant has a net profit of $5 per table (Evmenchik et al., 2021). At the same time, the difference with the average costs in the restaurant turns out to be negative, which means that if we take into account additional fixed costs, which include rent, wages, utilities, and other fixed costs, the company loses profit when cooperating with Groupon. It follows that if only the variable costs are taken into account, Enter the Dragon is in favor, but if fixed costs are taken into account, the company loses money for each coupon.
In this context, it is important to consider that the Chicago-based restaurant is unlikely to use Groupon as a selling platform to increase net profits in the short term. On the contrary, it is important to realize that the point of this collaboration is to attract new customers who may become loyal customers (Kao et al., 2020). For example, if new customers return and pay the full price later, the initial losses may be offset in the long run.
Potential undesirable factors should also be considered for the fairness of the calculations and analysis results. For example, if this partnership brings the restaurant a large number of new customers each day, Enter the Dragon’s current customers may be dissatisfied, as there are likely to be problems with reservations and the restaurant’s reputation. If Enter the Dragon has positioned itself as a high-end restaurant, attracting a large number of less affluent customers through Groupon may negatively affect the brand image (Ren, 2020). Thus, many factors, both financial and reputational, should be considered in the decision.
Artificial Demand Restriction
It is natural to assume that a restaurant does not want to incur severe losses for both financial and reputational levels, expecting some gain in the future. Therefore, it is within Mr. Chang’s power to limit the number of tables the restaurateur can sell to the Savored platform at a discounted price to attract customers. Assuming the financial benefit of partnering with Savored or Groupon is identical ($15 per table), partnering with Savored may yield additional benefits for the Chicago restaurant. Specifically, using Savored offers Mr. Chang more flexibility by creating opportunities to limit the number of “cheaper” tables.
In the long run, such a decision helps the restaurateur manage customer flow more flexibly and ensure that discounts are available only on the days or hours needed (Song et al., 2021). The decision to partner with Savored, in addition to offering demand management opportunities, also creates reputational benefits for Enter the Dragon by minimizing (or even eliminating) customer agitation over paying less than the restaurant’s regular price (Ren, 2020). It follows that the ability to control demand artificially can improve a restaurant’s overall profitability and management structure if such administration proves adequate.
Conclusion
This research paper aimed to analyze two strategies for increasing recognition and potential sales growth for Enter the Dragon, working through different mechanisms. Savored offers the Chicago restaurant the flexibility to customize the number of tables with a reduced reservation cost, while Groupon engages the audience through coupons. Both platforms should be considered solely for promotion and advertising, rather than as tools to increase sales, as the profit from such a partnership is minimal or even harmful. It is important to note that the choice between Savored and a daily deal (Groupon) depends on the level of expectations. If the main goal is to increase visitor numbers quickly, a Groupon daily deal may be more attractive. Conversely, if Mr. Chang prefers a more controlled and flexible approach that minimizes losses and helps manage demand flow, Savored may be a better choice.
References
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