Background
Terra Bite Lounge is a coffeehouse that was opened by Ervin Peretz in Kirkland in 2006. The major peculiarity of this business is that it has no fixed-price menu; instead, it allows the customer to determine the amount of money that he/she wants to pay to the shop (Cotte & Trudel, 2009).
Most importantly, this company relies on the principle of anonymity; in other words, they do not know how much each of the clients pays.
On the whole, this idea is based on the premise that a well-to-do person, who visits the shop, is most likely to pay generously for the services provided to him/her, and this fee will make up for those people, who did not pay too much.
This paper aims to analyze the strengths and weaknesses of this organization and explain the challenges that it may face. Finally, it is necessary to make recommendations which can improve the further strategies of this enterprise.
SWOT Analysis
At this point, we need to discuss the internal strengths and weaknesses of this company, as well as those external factors which may affect it in the future.
Strengths
- Reduced staff. Since there is no cash handling in this coffeehouse, the company was able to minimize the need for the personnel, especially if we are speaking about cashiers. Furthermore, this shop keeps only one barista per shift, and this enables them to diminish labor costs (Cotte & Trudel, 2009).
- Attractive Payment Scheme. Terra Bite Lounge allows customers to pay for coffee in advance, so they do not have to take money every time they go to this shop. It also appeals to a person’s desire “to be good” (Cotte & Trudel, 2009). It touches upon the person’s self-esteem.
- Good quality of the services offered to the customers.
- Ability to forgo financial transactions costs (Carroll & Buchholtz, 2008, p 897).
Weaknesses
- Lack of any control mechanisms. The management of this company is unable to determine how much money is paid by the customer, and how much he/she pays.
- Low revenues from food sales.
Opportunities
- Customer’s positive attitude toward the business model and payment scheme, adopted by the management of Terra Bite Lounge.
Threats
- The intensity of the competition in this particular industry. At the moment, this market is dominated by such international companies as Starbucks, Diedrich Coffee, Kraft Foods, Nestle, etc. (Bacon; Mendez, & Gliessman 2008).These organizations can set lower prices for their products and services, while Terra Bite Lounge cannot do it.
- The changing demographic trends in America. First, one has to bear in mind that Terra Bite Lounge serves the needs of affluent communities in which people are more inclined to behave responsibly.The company was founded in 2006, and at the time the payment scheme, proposed by Ervin Peretz was quite successful.
he ongoing economic recession has significantly diminished the purchasing capacity of many people, and it is quite probable that some of them may take advantage of Terra Bite Lounge.
Additionally, one has to take into account that the American population is continuously growing, mostly due to the inflow of immigrants from developing countries (Sharpner, 2007). These people can visit this coffeehouse, but not all of them will be able to pay.
The key issues
Now the management of this coffeehouse has to answer several important questions which are crucial for the development of further strategies. First of all, they need to determine what kind of customers they need to target. They need to know their age, residence, and values.
Secondly, the administrators have to decide whether the existent payment scheme is fully suitable for Terra Bite Lounge, given the current economic situation in the country.
Last but not least, the managers of this company need to know what exactly attracted the customers, for instance, the idea of mutual trust, the simplified procedures, the quality, and variety of products and services and so forth.
Their main task is to learn more about people’s perceptions of the pay-what-you-want system.
Opportunities and alternatives
Before opening a coffee house in any area, the management should collect as much information as they can about the community. In particular, they need to focus on the following data:
- Level of unemployment and average income level;
- The number of coffee shops in the given area;
- The attitude of the customers’ toward the idea of a pay-what-you-want shop. For this purpose, the company will have to interview their current customers in Kirkland as well as their potential client.
The management can choose from the following options.
They can open a shop in a small but affluent town like Kirkland and retain the original payment system. The positive aspect of this approach is that the company will still retain its uniqueness, but it will receive sufficiently less profit than traditional coffeehouses like Starbucks.
The second strategy is to switch to a traditional priced-menu. In this way, the company will be able to increase their revenues from sales, but it will no longer stand out among other coffeehouses.
The third option is to establish a prepay system that allows a customer to buy coffee or confectionary beforehand. For instance, he/she can pay the company a certain amount of money in advance, during the next visits to the shop. This person will not have to take cash or credit card.
However, to implement such a prepay system; the company will have to acquire new computer technologies.
Recommendations
Among these options, the third one seems to be the most effective. There are several reasons for it. First, it will enable the company to avoid those clients who are reluctant or unable to pay for goods and services. Moreover, the responsible patrons will not feel that they are paying for someone else.
The second point that we need to consider is people’s attitude toward the so-called pay-what-you-want system. Certainly, it may appeal to the visitors because it is based on the idea of mutual trust; however, it also involves some stigmatization of a person.
For instance, a regular visitor of Terra Bite Lounge may be labeled by others as someone who cannot afford a decent meal or drink. In popular opinion, the pay-what-you-want shop can be associated with poverty and low status in society.
Of course, it is a stereotype, but it can greatly affect the decisions of potential clients. In contrast, a prepay system will reduce cash handling to a minimum and will make the clients feel much more comfortable.
Reference List
Bacon. C. & Medez V. & Gliessman S. (2008). Confronting the coffee crisis: fair trade, sustainable livelihoods and ecosystems in Mexico and Central America. Cambridge: MIT Press.
Caroll A. & Buchholtz A. (2008). Business and Society: Ethics and Stakeholder Management. NY: Cengage Learning.
Cotte J. & Trudel R. (2009). Terra Bite Lounge: Pay What You Want Café. Ivey Publishing. pp 1-4.
Sharpner. S. (2007). Demographics of the United States. NY: Nova Publishers.
Terra Bite Lounge (2011). Press Notes. Web.