Question

Three years ago, Vincent Chow completed his degree in accounting. The economy was in a depressed state at the time, and Vincent managed to get an offer of only $20,000 per year as a bookkeeper. In addition to its relatively low pay, this job had limited advancement potential.   Since Vincent was an enterprising and ambitious young man, he declined this offer and started a business of his own. He was convinced that because of changing lifestyles, a drive-through coffee establishment would be profitable. He was able to obtain backing from his parents to open such an establishment close to the industrial park area in town. Vincent named his business The Cappuccino Express and decided to sell only two type types of coffee; cappuccino and decaffeinated.   As Vincent had expected, the Cappuccino Express was very well received. Within three years, Vincent had added another outlet north of town. He left the day-to-day management of each site to a manager and focused his own attention on overseeing the entire enterprise. He also hired an assistant to do the record keeping and to perform selected other shores.

Required:

1. What is the competitive strategy of Vincent’s business – cost leadership, differentiation, or focus?
2. What are the critical success factors of The Cappuccino Express? Which of these are controllable by Vincent?
3. What major tasks does Vincent have to undertake in managing The Cappuccino Express?

Answer 1

Requirement 1

There are three generic competitive strategies:

Cost Leadership - target market very extensive, aim is to have the lowest price. Products not specialized, try to appeal to consumers due to their low prices.

Differentiation - products or services presented with exclusive features that customers want, typically a more dedicated niche. Able to charge higher prices due to these added features.

Focus Strategy - either a cost leadership or a differentiation strategy, but targeted for a narrow, focused market.

Vincent’s business uses a Focus Strategy. The Cappuccino Express was created with the conviction that due to people’s changing routines, convenience would be key –providing quick and convenient coffee to busy people.

Requirement 2

Critical Success Factors are the strategic financial and non-financial measures of success. To be more specific Critical Success Factors are facets of the firm’s performance that are crucial to its competitive advantage.

The Cappuccino Express Critical Success Factors :

Quality and price of existing products

Locations specific..near Malls , schools , offices etc.

Devise new products at regular intervals

Customer Turnover – capability to keep lines short, cars moving through line

Keeping Loyal customers with quality products thus reducing advertisement costs

Providing excellent customer service

Improving Profitability

Most of these Vincent will be able to display some control over whether it is modifying prices, products, steering different locations or creating training programs. On the other hand, if Vincent’s basic supposition no longer holds true, no matter what he does he may not be able to break even, let alone turn a profit.

Requirement 2

Vincent has to embark on many tasks in managing The Cappuccino Express. First, Vincent must outline a mission statement, goals, and objectives. As manager, Vincent must do market research. He must find out about his competitors, customers, and the economy. Also, he must employ a workforce and train them. He must divide the costs into manufacturing costs (direct materials, direct labor, and manufacturing overhead) and non manufacturing costs (selling and administrative costs). This will allow for financial monitoring and accurate forecasts of profits, inventory, and costs. Vincent should evaluate both of his locations and decide whether to stay in business or expand. Also, Vincent should appraise his product offerings, services, and quality. He can decide which types of advertising (promotions and discounts) to offer.