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For each one of the functional areas apply at least two from the introduced and discussed in this course decision support tools (e.g. Decision Tree Analysis, Sensitivity Analysis, SWOT Analysis, PESTEL Analysis, Break-Even Point Analysis, What-If-Analysis, Optimization Analysis, Risk Analysis, others).

need to be responsible for the part of PESTEL Analysis. Be sure to complete this with all the information. PESTEL Analysiis

1. Introduction
With regard to whether launching a microbrewery service in the Worcester community or
not, this report aims at analyzing the feasibility and profitability of starting a New BrewPub,
WooBrew in Worcester through applying different quantitative and qualitative analytical tools.
This section will present an overview of the New BrewPub, forming the basis for having a better
understanding of the possible marketing and financial management.
1.1 Problem Statement
Centering on the key problem of “What is the Rationale for Investing in a New BrewPub?” this
report explores its viability in the new location as a whole. To be located in one of the most
vibrant and livable cities, Worcester, in Worcester County, Massachusetts, United States,
WooBrew (Worcester and the WooSox) is expected to meet the needs of local residents (regular
visitors from the town and from the neighboring towns/cities) and also distant tourists (who
might be one-time visitors from different regional national and international places). After
deciding on the target market, the main challenges facing this new brewpub include what to
offer, at what price, and how to offer so as to gain sustainable development and competitive
advantages over the local rivals. Although local distributors restaurants and brew stores which
provide in-house made microbrewery products represent the competitive pressure, the entry of
WooBrew will not only enhance market dynamics regarding competition but also better serve
key stakeholders.
1.2 Overall Goals and Objectives of the Report
From the perspective of the brewpub owner, the overall goals and objectives can be listed from
three aspects including managerial, financial, and operational.
In terms of managerial, WooBrew in Worcester will be committed to creating a safe,
harmonious, and positive environment for suppliers, workers and consumers and other
stakeholders by strictly following relevant regulations and laws related to the brewing industry in
Massachusetts and the Federal Food Safety Modernization Act. Responsibility, accountability,
and transparency would be the essential managerial principles. When it comes to financial
objectives, it can be projected that in the next three years, the average net revenue would reach
$8,500,000 and another sub-store to be opened in the next 2-4 years. At least $5,000,000 free
cash is demanded for each fiscal year to ensure the smooth operation and reduce risks. To back
up with the financial achievements, budget for expenditures will be under strict scrutiny. When it
comes to operational, the business plans to create at least 2,000 job opportunities within three
fiscal years and maximum 20 times complaints about service quality, which is based on both
employee and customer satisfaction levels.
Agenda W4 LCR4-1, Monday, April 4 at 7 pm ET
1. Weeks 1 to 3: Summary
2. Week 4: Intro to Lecture 7 and Lecture 8
3. Week 4: Discussion Board
4. Assignment 2 (Due Sunday, April 10 at 11:59 pm ET): Q & A
Agenda W4 LCR4-2, Wednesday, April 6 at 7 pm ET
During the session, I will work with the business simulation v401, and will demonstrate how to apply it
for solving tasks related to the functional areas “Marketing Management” and “Financial Management”.
1. Preparation for Assignment 3
1.1. Business Running Case
1.2. Demo Exercise Part 1
1.3. Demo Exercise Part 2
2. Team Exercise: Applying quantitative and qualitative decision support methods for the selection of
starting assumptions for a new decision cycle “Functional Area Financial Management” and for the analysis
of the output parameters of the new business project Microbrewery.
Boston University MET AD715 © Dr. Zlatev, 2022
1
Weeks 1 to 3: Summary
Nr. Of
Students
Students, AD715 02/Spring 2022
Bb Discussions
Quizzes
Assignment 1
Assignment 2
Team-A3.1
Team-A3.2
Individual A3
Final Presentation
TOTAL
W1
W2
W3
W4
W5
100
4.30/5 4.47/5 4.xx/5
4.32/5 4.30/5 4.30 /5
8.8/10*
x.xx/5
x.xx/5
x.xx/10
10
+ 20
+ 10
+ 20
X.XX/5
xx/5
W6
W7
Pts
Pts
T-A3
Ind-A3
25
25
10
10
8
12
25
25
10
10
10
100
20
10
100
(*) Missing Grades
Boston University MET AD715 © Dr. Zlatev, 2022
2
FOUNDATIONS
OF MANAGERIAL
DECISION MAKING
(MDM)
Module 1
Module 2
L-1: Foundations
of MDM
L-3: Managing Group
Decisions &
Negotiations
L-2: Improving
Individual
Judgment in MDM
Module 3
Module 4
Module 5
Module 6
L-7: Marketing
Management and
DM
L-9: Operations
Management and
DM
L-11: Performance
Management
and DM
L-8: Financial
Management and
DM
L-10: Innovation
Management and
DM
L-12: Managers of
21st Century and
MDM
L-4: Strategic Decision
Making in
Organizations
DECISION ANALYSIS
&
DECISION SUPPORT
IN BUSINESS
APPLICATIONS OF
MANAGERIAL
DECISION MAKING
Boston University MET AD715 © Dr. Zlatev, 2022
L-5: Quantitative
Analysis and DM
L-6: Decision
Analysis & Support
in Business
3
Team Assignment 3 (PART 1 & PART 2): Video Tutorials for AD715
VIDEO
W4
VIDEO
W4
VIDEO
W4
W4
W4
W4
W4
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
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Discussion Forum M4: Preparation for Assignment 3 PART 1
LECTURE 7 → Complete all M4 Individual & Team Exercises and discuss one or two of the following questions:
o
What implications can be drawn for the launch of a microbrewery service?
o
Evaluate the proposed new draft beer products (business running case, attachment 1) and discuss important factors to be
considered in the process of selection of the successful combination of existing (offered by other breweries) and the new
(in-house made) products.
o
At what price should the new products be sold? Why?
o
Evaluate the placement alternatives (in-house and through local wholesalers), including the sales needed to break even
for the new microbrewery.
o
What distribution strategy do you recommend for the new microbrewery unit?
o
Design a promotion strategy for the new draft beers. Include how the restaurant owner should advertise and what
message she/he should convey.
o
In preparation for your Assignment 3 PART 1, explain your initial plan for selection and application of decision support
tools and methods.
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Discussion Forum M4: Preparation for Assignment 3 PART 1
LECTURE 8 → Complete all M4 Individual & Team Exercises and discuss one or two of the following questions:
o Explain the model of competitive advantage and economic value created, and the causality among value, cost, and price
o Explain how companies are planning to increase their intrinsic value
o Explain one of the five steps of the financial planning process and clarify its importance with examples from your Team Assignment 3 PART1
o Discuss one of the three components of the corporate finance plan (sales forecast, forecasted financial statements, and methods for raising
any external financing), and demonstrate its importance with an example from your Team Assignment 3 PART 1
o Demonstrate with an example from your Team Assignment 2 PART 1 the main items need for the calculation of the free cash flow.
o Explain the process of implementing, managing, and control of the financial programs with the help of an example related to your Team
Assignment 3 PART 1
o Financial Management Process & Corporate Business Strategy: explain the horizontal and vertical integration of the decision making with
the help of an example from your Team Assignment 3 PART 1
o In preparation for your Team Assignment 3 PART 1, explain your initial plan for selection and application of decision support tools and
methods needed for the functional area financial management
o Select one important from your prospective topic from the article “Turning Strategy Into Results”, and discuss how you can use the lessons
learned in your Team Assignment 3 PART 1
o Select one important from your prospective topic from the article “How to Value a Company by Analyzing its Customers”, and discuss how
you can use the lessons learned in your Team Assignment 3 PART 1
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Lecture 7: Marketing Management and Decision-Making
1
Marketing Management and Decision Making – An Introduction
2
Marketing Management Process: A Decision-Making Focus
3
Marketing Management and Decision Support Tools
4
Corporate Management, Marketing Management, and Decision Making Explained
with the Help of the Business Running Case & the Business Simulation for AD715
Lecture 8: Financial Management and Decision Making
1
Financial Management and Decision Making – An Introduction
2
Financial Management Process & Corporate Business Strategy: horizontal and
vertical integration of the decision making
3
Financial Management: Decision Making Focus & Decision Support Tools
4
Corporate Management, Financial Management, and Decision Making Explained
with the Help of the Business Running Case & the Business Simulation for AD715
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1
Marketing Management and Decision Making – An Introduction
For centuries market is the physical place where buyers and sellers gathered
to buy and sell goods. According to Kotler, the structure of flows in a modern
exchange economy (see the figure on the right) is described as follows:
o Manufacturers are buying resources from the resource markets (raw
materials, parts, components, labor, and money), are turning them into
finished products and services, and are selling them to consumers.
o Consumers sell their labor and receive money with which they pay for
goods and services.
o The government collects tax revenues to buy goods from resource,
manufacturer, and intermediary markets and uses these goods and
services to provide public services.
o The interacting sets of markets on nation’s level are linked through
exchange processes to the global economy.
The relationship between the industry and the market can be described
as a simple marketing system (see the figure on the right), where:
o the sellers send goods, services and communications (information
about the products and the offers) to the market;
o the buyers send money and information (about the market and the
needs and wants of the consumers) to the sellers
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1
Marketing Management and Decision Making – An Introduction
Important Definitions:

Marketing

Marketing Management

Marketing Decisions
‘The activity, set of institutions, and process creating, communicating, delivering, and exchanging
offerings that have value for customers, clients, partners, and society at large’ (AMA, July 2013)
o
o
o
o
the process of analyzing, planning, implementing, coordinating, and controlling programs
involving the conception, pricing, promotion, and distribution of products, services and ideas
designed to create and maintain beneficial exchanges with target markets
for the purpose of achieving organizational objectives.
Marketing decisions are important for the ongoing success of the company for varieties of reasons:
o to target those customer groups whose needs are most consistent with the firm’s resources
and capabilities;
o to develop products/services that meet needs of the target market better than competitors;
o to make its products and services readily available to potential customers;
o to develop customer awareness and appreciation of the value provided by the company’s
offerings;
o to obtain feedback from market as a basis for continuing improvement in the company’s
offerings;
o to work to build long-term relationships with satisfied and loyal customers
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1
Marketing Management and Decision Making – An Introduction
Important Definitions:

Marketing Strategy

Marketing Mix

Product Market
NOTE:
More definitions (with
references) are provided
in the Lecture Notes
(Lecture 7)






Market Research
Market Segment
Target Market
Brand
Market Positioning
Marketing Plan
o The primary focus of marketing strategy is to effectively allocate and coordinate marketing
resources and activities to accomplish the company’s objectives within a specific product-market.
o The scope of a marketing strategy is specifying the target market(s) for a particular product or
product line.
o The overall competitive advantage and synergy of the company is based on a well-integrated
program of marketing mix elements (product, price, place, promotion) tailored to the needs and
wants of potential customers in the target market
4Ps elements, characterized through selected variables:
o product: product variety, quality, design, features, brand name, packaging, sizes, services,
warranties, returns;
o price: list price, discounts, allowances, payment method, credit terms;
Price Considerations
Cost Determination & Analysis
o place: channels of distributions, coverage, assortments, inventory, transport
o promotion: sales promotion, advertising, sales force, public relations, direct marketing
A market used to exchange a final good or service … measured each year by gross domestic product.
o The demand side of product markets includes consumption expenditures, investment
expenditures, government purchases, and net exports.
o The supply site of product markets is production of the business sector.
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Marketing Management and Decision Making – An Introduction
PRICE
PRODUCT
Market Segmentation
Market Positioning
Differentiation & Brand Positioning
Targeted Market Size
PLACE
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PROMOTION
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1
Marketing Management and Decision Making – An Introduction
Price
Considerations
Cost Determination
& Analysis
Variable
Costs
Unit-level costs, directly associated with a
particular object (e.g. exported product)
Fixed Costs
Business expenses (also called indirect costs
or overheads) that are not dependent on
the level of goods or services produced (or
traded) by the business. They tend to be
time-related (e.g. rent per month,
management salaries per months)
Total Revenue
$
Total Costs
Total
Variable
Costs
Total
Fixed
Costs
Total Costs
=
Variable Costs + Fixed
Costs
time
Total Revenue
$
Total Revenue = Quantity X Price/Unit
Profit
Total Variable Costs = Quantity X Variable Costs/Unit
( = Total Expenses)
Total Costs
Total Contribution = Total Revenue – Total Variable Costs
Profit Before Taxes = Total Contribution – Total Fixed Costs
Break-Even Point
where
Total Revenue = Total Costs
Loss
Total
Revenue
Total
Costs
Net Profit = Profit Before Taxes – Profit Taxes
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time
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Marketing Management and Decision Making – An Introduction
Competitive
Positioning
Example: Investing in BrewPub
ASSIGNMENT 3 PART 1
Managerial Report
Chapter 1: Introduction
• Problem statement
• Overall goals on objectives
of the report
• Structure of the report
Define the location of the restaurant
Define the current status:
Who are your customers
Who are your competitors
Why change is needed
Define the size of the restaurant
Investing in a New Brew Pub:
owner’s objectives SLIDES #16 & 17
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Marketing Management and Decision Making – An Introduction
Competitive
Positioning
Example: Investing in BrewPub
B-Sim
Tab Project-Start
Example: preparing for
international trade &
logistics transactions of an
Import/Export Company
B-Sim Tab Mktg-Mgt
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Marketing Management and Decision Making – An Introduction
Competitive
Positioning
Example: Investing in BrewPub
Business Running Case, Appendix 1
A: Recipes and Ingredients
The provider of the turnkey brewing system
offers:
(i) a large inventory of the most popular
styles designed to appeal to a broad
range of tastes, from novices to
experts;
(ii) an optional custom recipe program in
which the brew master of the system
provider formulates tastes exclusively
for the client (the buyer of the brewing
system). This can include reverse
engineering to simulate and improve
the client’s choice of branded product;
(iii) inclusive batch kits that provide the
precise ingredients and supplies
needed to brew a perfect batch of beer.
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Marketing Management and Decision Making – An Introduction
Competitive
Positioning
Example: Investing in BrewPub
Business Running Case
Owner’s Objectives:
1. Define the overall goals and
objectives of the new business unit.
2. Based on the federal and state’s
specific legal rules and regulations,
to determine
(i) whether it is legal to acquire and
hold a brewers permit, and
(ii)whether the capacity output
(225.4K liters annually) of the
turnkey system would comply
with the state alcoholic
beverages acts/codes.
3. Define the business strategy for the
next three years of operation of the
new business unit (the BrewPub).
4. Define how different functional
strategies (e.g. marketing,
innovation, operations, organization,
finance) are influencing the overall
parameters of the business strategy
Continued…
NEXT SLIDE
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Marketing Management and Decision Making – An Introduction
Competitive
Positioning
Example: Investing in BrewPub
Business Running Case
Owner’s Objectives:
5. Based on selected critical success
factors and key performance
indicators, evaluate the proposed
strategy and plans.
6. Prepare an implementation plan for
the first six months of operation
(define specific actions and
resources needed).
7. Prepare and present a summary of
the results of the conceptual study.
8. Formulate the rational for a decision
whether
(i) to accept the offer, or
(ii) to redefine the starting
parameters of the initial request
for quotation and to request a new
quotation (based on new/modified
starting points, as discussed in the
conceptual study), or
(iii) not to invest in a BrewPub at all.
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Marketing Management Process: A Decision-Making Focus
Marketoriented
management
Hierarchy of
strategies (e.g.
on corporate or
business unit
levels)
Hierarchy of
decision-making
(e.g. product,
project, unit,
company)
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AD715 © Dr. Zlatev, 2022
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Marketing Management Process: A Decision-Making Focus
Market Opportunity
Analysis
Boston University MET AD715 © Dr. Zlatev, 2022
>>>>Domains of attractive opportunities
A
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Marketing Management Process: A Decision-Making Focus
Market Opportunity
Analysis
>>>>Marketing research and forecasting
Marketing research is an ongoing process for better
understanding of market and competitive conditions and of
what buyers in a given market want and need, and is usually
structured in six steps: problem definition, development of
an approach to the problem, research design formulation,
fieldwork or data collection, data preparation and analysis,
report preparation and presentation.
>>>>Market segmentation and targeting
Boston University MET AD715 © Dr. Zlatev, 2022
One efficient way to choose attractive market segments and to
select a competitive positioning for evaluating potential target
markets is demonstrated as a five step process of:
• choosing criteria to measure market attractiveness
and competitive positioning;
• weighting market attractiveness and competitive
position factors to reflect their relative importance;
• assessing the current position of each potential target
market on each factor;
• projecting the future position of each market based on
expected environment, customer, and competitive
trends;
• evaluating implications of possible future changes for
business strategies and resources requirements.
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Marketing Management Process: A Decision-Making Focus
From Market Research & Analysis
to Development of a Successful
Marketing Strategy:
➢ Matching existing or potential
products or services with the
needs of customers
➢ Informing customers that the
products or services exist
➢ Having the products or services
at the right time and place to
facilitate exchange
➢ Assigning a price to the products
or services
Types of Marketing Research:
– Market research
– Product or service research
– Consumer research
– Competition research
– Environment research
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Corporations are utilizing different
marketing research methodologies to
assess their business by focusing on:
– self-analysis (the business itself)
– the competition
– environmental factors that can impact
the business and/or its strategy
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2
Marketing Management Process: A Decision-Making Focus
Market Opportunity
Analysis
>>>>Positioning decisions
A
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Marketing Management Process: A Decision-Making Focus
Developing an effective strategic marketing program
for a product-market entry involves three interrelated
sets of decisions:
1. The manager must set specific objectives to
be accomplished within the target market,
such as sales volume, market share, and
profitability goals. Those objectives must be
(i) consistent with the firm’s corporate and
business-unit strategic objectives, and
(ii) specific enough to enable management to
monitor and evaluate the productmarket entry’s performance over time.
2. The manager must decide on an overall
marketing strategy to appeal to customersand to gain a competitive advantage-in the
target market.
3. The manager must make decisions about each
element of the marketing program
components (also called marketing mix
controllable elements, or 4 Ps).
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Marketing Management Process: A Decision-Making Focus
Developing Strategic Marketing Programs
>>> Business strategies and
marketing program decisions
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2
Marketing Management Process: A Decision-Making Focus
Developing Strategic Marketing Programs
>>> Product and service decisions
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A
2
Marketing Management Process: A Decision-Making Focus
Developing Strategic Marketing Programs
>>> Price decisions
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2
Marketing Management Process: A Decision-Making Focus
Developing Strategic Marketing Programs
Example: Investing in BrewPub
B-Sim
Tab Project-Start
Projected beer consumption
in the restaurant, FY-1
66% =
86339 /
129938
Projected distribution of the new brand outside the
restaurant (by wholesale buyers), FY-1 = 192173 = 69%
of the total production of new brand = 192173 / 278512
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>>> Distribution decisions
A
Projected in-house
beer consumption
FY-1, new brand
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2
Marketing Management Process: A Decision-Making Focus
Developing Strategic Marketing Programs
Traditional promotional elements are: advertising,
personal selling, sales promotion, and public relations.
Managers are referring to these elements as a
promotion mix, and are making related decisions
based on an integrated marketing communication
plan (known as IMC plan).
>>> Promotion decisions
A
Boston University MET AD715 © Dr. Zlatev, 2022
The IMC plan of a firm is based on
• overall strategic objectives,
• the characteristics and the decision processes of
the target market(s) the communication is
intended to reach, and
• the available budget.
The decision sequence for developing
the promotion mix and the IMC plan is
described as a five-step process:
• define the audience to be targeted;
• set the promotional objectives;
• set the promotional budget;
• design the promotion mix;
• evaluate the results.
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Marketing Management Process: A Decision-Making Focus
Organizing and planning for implementation
The fit between a business’s competitive and marketing
strategies and the organizational structures, policies, processes,
and plans necessary to effectively implement those strategies
has to be adjusted based on:
• the organizational structure and the varieties of business
units and product lines;
• the administrative relationship between different
organizational levels of the company;
• the organizational structure within a given business unit;
• the responsibilities and the level of competence of the
various functional departments of the business;
• the manner in which resources are allocated across these
functions; the mechanisms used to coordinate and resolve
conflicts among the departments;
• how the organizational structure of the company is adjusted
to the requirements of the international markets.
These adjustments are made based on the annual marketing
plan of the company and its effective communication:
• vertically (on corporate, business, and functional level), and
• horizontally (with other functional areas of the organization,
such as research and development, production, engineering,
human resources, finance)
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Marketing Management Process: A Decision-Making Focus
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Measuring and motivating marketing performance
Regardless of the organizational level involved, the performance
management process consists of the following five steps:
• setting standards of performance;
• specifying the necessary feedback data;
• obtaining the needed data;
• evaluating feedback data (explaining gap between actual
and given standards of performance);
• tacking corrective action.
This process design is directly linked to the issue of strategic
control and to the question: how can the manager monitor
and evaluate the overall marketing strategy and to ensure that
it remains viable in the face of changing market and
competitive realities. The process is applied to tracking the
performance of a particular product-market entry and to the
marketing actions taken to implement the marketing plan.
This tracking is also called marketing performance
measurement and is answering specific questions, such as:
• are we meeting sales and margin targets – overall and for
the various products and market segments;
• is each element of the marketing mix doing its job;
• which items in the product line are selling best;
• are the ads producing enough sales leads;
• is the sales force generating enough new accounts?
The periodic assessment of the marketing performance is
30
called marketing audit
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Marketing Management and Decision Support Tools
PESTEL Analysis
>>>> PESTEL template (course website)
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Marketing Management and Decision Support Tools
SWOT Analysis and SWOT Analysis Diagram
>>>> SWOT template (course website)
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Marketing Management and Decision Support Tools
Decision Trees Analysis
>>>> Tutorial: Decision Trees with TreePlan
(course website)
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Marketing Management and Decision Support Tools
Sensitivity Analysis
>>>> Tutorial: Sensitivity Analysis in SensIt
(course website, AD715: Required Tutorials)
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Marketing Management and Decision Support Tools
Dashboards
>>>> Table ‘Performance’/v401
(Assignment 3: business simulation)
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B
1
Financial Management and Decision Making – An Introduction
The firm has a competitive advantage when it
creates more economic value than rival firms
The relationship between economic value creation and competitive advantage is fundamental in strategic management:
it provides the foundations upon which to formulate a firm’s competitive strategy for cost leadership of differentiation
See Lecture 4
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See Lecture 7
36
B
Financial Management and Decision Making – An Introduction
1
Competitive Advantage and Economic Value Created: The Role of Value, Cost, and Price
Value (V)
(V – C)
=
=
Total Perceived
Consumer Benefits
Economic Value
Created
(V – P)
=
Consumer Surplus
(P – C)
=
Firm’s Profit
=
Consumer
Maximum
Willingness to Pay
=
C
C
=
=
Firm’s Cost
Firm’s Cost
Reservation Price
Boston University MET AD715 © Dr. Zlatev, 2022
Economic Value Created (EVC) is the difference
between a buyer’s willingness to pay for a product
or service and the firm’s total cost to produce it
EVC = Value (V) – Cost (C) = V – C
Reservation Price is the maximum price a
consumer is willing to pay for a product or service
based on the total perceived consumer benefits
Value (V) is the dollar amount a consumer
attaches to a good or services, also called
Consumer willingness to pay or Reservation price
Profit is the difference between price charged (P)
and the total cost to produce (C), or (P – C)
Producer Surplus is another term for profit
Consumer Surplus is the difference between the
value (V) consumer attaches to a good or services,
and the price (P) she/he paid for it, or (V – P)
Source: Rothaermel, f.: Strategic Management 4e,
McGraw Hill 2018, pp. 155 – 160
37
B
Financial Management and Decision Making – An Introduction
1
AN EXAMPLE
Competitive Advantage and Economic Value Created: The Role of Value, Cost, and Price
INDIVIDUAL CONSIDERATION FOR BUYING:
Let’s assume you consider buying a laptop
computer and you have a budget of $1,200
o You narrowed your search to two models, one
offered by Firm A and the other by Firm B
o Firm’s A laptop is more or less generic with a
price $1,000 – this is the absolute maximum
you’d pay for it, or the reservation price
o You value Firm’s B laptop at $1,200 – it has
higher performance, is more user-friendly,
and has higher ‘coolness factor’.
o Given that you value Firm’s B laptop by $200
more than Firm’s A model, you will purchase a
laptop from Firm B, ending up paying as much
as your reservation price allows.
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NEXT
OVERALL MARKET FOR LAPTOP COMPUTERS
Firm A and Firm B are competing in the market for laptop computers
Assumptions:
IF
o Both Firm A and Firm B have the same total unit costs of producing the
particular laptop models under consideration ($400) and
o The market at large has preferences similar to yours
THEN Firm B will have a competitive advantage:
o Firm B creates more economic value than Firm A (by $200) but has the same
total unit cost ($400)
o Firm B’s laptop is perceived to provide more utility than Firm A’s laptop which
implies that Firm B creates more economic value ($1,200 – $400 = $800) than
Firm A ($1,000 – $400 = $600).
IN SUMMARY:
o Firm B’s advantage is based on superior differentiation leading to higher
perceived value.
o The competitive advantage can be quantified: it is $200 per laptop sold for
Firm B over Firm A ($200 = $1,200 – $1,000)
Source: Rothaermel, f.: Strategic Management 4e,
McGraw Hill 2018, pp. 155 – 160
38
B
Financial Management and Decision Making – An Introduction
1
AN EXAMPLE
Competitive Advantage of Firm B: Same Cost as Firm A but Firm B Creates More Economic Value
Competitive Advantage = $1,200 – $1,000 = $200
$1,000
=
Total
Perceived
Consumer
Benefits
=
Consumer
Maximum
Willingness
to Pay
=
Reservation
Price
$600
Economic
Value
Created
= $600
$400
Cost
= $400
Firm A
$1,200
=
Total
Perceived
Consumer
Benefits
=
Consumer
Maximum
Willingness
to Pay
=
Reservation
Price
Firm B
Boston University MET AD715 © Dr. Zlatev, 2022
Scenario for Firm B: Price = $1,000
$1,200
$200
$1,000
Competitive
Advantage
Economic
Value
Created
$600
= $800 =
$600 + $200
Consumer
Surplus
Producer
Surplus
or Profit
= $600
$200
$600
Price
=
$1,000
$400
$400
Cost
= $400
Cost
= $400
$400
Firm B
Source: Rothaermel, f.: Strategic Management 4e,
McGraw Hill 2018, pp. 155 – 160
39
B
Financial Management and Decision Making – An Introduction
1
AN EXAMPLE
Competitive Advantage and Economic Value Created: SOME LIMITATIONS
o Determining the value of good in the eyes of consumers is not a simple task.
Companies need to look at consumers’ purchasing habits for their revealed preferences,
Consumer Purchasing Habits:
which indicates how much each consumer is willing to pay for a product or service.
Review Lecture 7
Apply in Assignment 3.1 Task 3-1
In the Example: V = highest price the consumer is willing to pay = Firm B reservation price = $1,200
Hence, Firm B captures all the economic value created (V – C = $800) as producer surplus or profit (P – C = $800)
o The value of a good in the eyes of consumers changes based on income, preferences time, and other factors
o To measure firm-level competitive advantage, we must estimate the economic value created for all products and services offered
by the firm. This estimation may be
→ an easy task if the firm offers only a few products or services
→ much more complicated for diversified firms that may offer hundreds or thousands of products and services across industries
and geographies
o The economic value creation perspective gives us one useful way to assess competitive advantage:
→ It lies at the center of many strategic management frameworks such as generic business strategies [as demonstrated in
Assignment 1 (Alphabet’s Google), and in Assignment 3 (Investing in an in-house Microbrewery)]
→ It falls short when managers are called upon to operationalize competitive advantage. When the needs for “hard numbers”
arises, managers and analysts frequently rely on firm financials such as
– accounting profitability or
– shareholder value creation
NEXT
to measure firm performance
Boston University MET AD715 © Dr. Zlatev, 2022
Source: Rothaermel, f.: Strategic Management 4e,
McGraw Hill 2018, pp. 155 – 160
40
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
SHAREHOLDER VALUE CREATION
The primary objective of management should
be to maximize stockholders’ wealth by
maximizing the company’s fundamental or
intrinsic, stock price (and overall market value).
The decision makers in a company are creating
strategies for the competitive and sustainable
development of the corporation based on the
assumption that the intrinsic value of the firm
will continue to grow for a foreseeable future
[t = 1(1)∞, where t is usually measured in
months].
Boston University MET AD715 © Dr. Zlatev, 2022
41
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
Overall Goal:
Increase the Intrinsic Value
HOW?
1. Improve FCF
2. Reduce WACC
Free Cash Flows (FCF) are the cash flow available for
distribution to all of a firm’s investor (shareholders and
creditors) after the firm has paid all expenses
(including taxes) and has made the required
investments in operations to support growth
Weighted Average Cost of Capital (WACC) is the
average return required by all of the firm’s investors. It
is determined by the firm’s capital structure (the firm’s
relative amounts of debt and equity), interest rates,
the firm’s risk, and the market’s attitude toward risk
Boston University MET AD715 © Dr. Zlatev, 2022
42
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
HOW to Increase the Intrinsic Value?
A growing firm often needs to raise external
funds in the financial markets. The actual
price of a firm’s stock is determined in those
markets.
Thus, a primary requirement for the
managers is:
1. based on different operating
assumptions to project financial
statements and use them to
calculate expected future FCF.
2. based on different financial policy
assumptions to project the WACC.
see the diagram
All these projected documents are
integrated in the strategic and tactical (or
operational) plans of the company, and are
often called financial plans.
Boston University MET AD715 © Dr. Zlatev, 2022
43
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
The Financial Planning Process
generally involves five steps
STEP 1
The firm forecasts financial statements under alternative versions of the operating plan in order
to analyze the effects of different operating procedures on projected profits and financial ratios
STEP 2
The firm determines the amount of capital that will be needed to support the plan: how much
the new assets needed to achieve the target sales will cost (since without adequate capital, the
plan obviously cannot be realized)
STEP 3
The firm forecasts the funds that will be generated internally. If internal funds are insufficient to
cover the required new investment, then it must:
(i) identify sources from which the required external capital can be raised (taking account of any
constraints due to bond covenants that limit its debt ratio and other financial ratio);
(ii) recognize market conditions in financial markets (e.g. trends in the banks fees and interest
rates on firm’s lines of credit).
STEP 4
The firm established a performance-based management compensation system that rewards
employees for creating shareholder wealth. The emphasis here should be on the long run, not on
profits over the next few quarters, months, and even year or two.
STEP 5
The management must monitor operations after implementing the plan to spot any deviations
and then take corrective actions.
Boston University MET AD715 © Dr. Zlatev, 2022
44
B
Financial Management Process & Corporate Business Strategy:
2
horizontal and vertical integration of the decision making
Financial Opportunity Analysis
The main three components of the financial plan are:
Sales Forecast
The sales forecast starts with the
review of the history of sales during
the past 3 to 5 years (for some
industries and products up to 10
years). This review is based on a
thorough research and analysis of
historic datasets for specific
products, companies, and markets
of interest for the firm.
Next, as part of the marketing
strategy of the company (this topic
was discussed in Lecture 7), the
planners are making sales
projections for the next several
years.
sales forecast
forecasted
financial
statements
methods for
raising any needed
external financing
An example for sales projections (based on our Business Simulation, table ’36-Mo-Fin-Pr’)
is explained as follow: (i) The forecasting period is 36 months; (ii) Sales projections have
been made by products and overall for all products; (iii) Sales per product per month
Boston University MET AD715 © Dr. Zlatev, 2022
45
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
Financial Opportunity Analysis
The main three components of the financial plan are:
sales forecast
forecasted
financial
statements
methods for
raising any needed
external financing
Forecast the operating items on the income statement and balance sheet
These include sales, costs, operating assets, and spontaneous operating liabilities
(all these items are needed for the calculation of the free cash flow).
1. Forecast items that depend on the firm’s choice of financial policies, such as the dividend
payout policy and the planned financing from debt and equity.
2. Forecast interest expense and preferred dividends, given the levels of debt and preferred
stock that were forecast according to the financial plan.
3. Use the forecasted interest expense and preferred dividends to complete the income
statement.
4. Issue or repurchase additional common stock to make the balance sheets balance.
Boston University MET AD715 © Dr. Zlatev, 2022
46
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
forecasted
Financial Opportunity Analysis
The main three components of the financial plan are:
sales forecast
financial
statements
methods for
raising any needed
external financing
In our Business Simulation, we will work with a
consolidated table, called ’36 Months Pro Forma
Financial Statements’
(or ’36-Mo-Fin-Pr’).
The table consolidates all financial projections,
needed for the conceptual study by the owner of
an existing restaurant in preparation of a decision
to invest or not in a new BrewPub (as requested in
the Business Running Case)
Excel’s calculations don’t necessary follow this sequence, but
content all the data needed for customized outputs, by
applications, such as:
1. Loan related applications;
2. Preparation of prospectus for potential private investors;
3. Financial statements, needed for the business strategy of
the company;
4. Financial statements, needed for project oriented
business plans.
Boston University MET AD715 © Dr. Zlatev, 2022
47
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
Financial Opportunity Analysis
sales forecast
The main three components of the financial plan are:
forecasted
financial
statements
methods for
raising any needed
external financing
Additional Funds Needed (AFN)
AFN =
minus
Required increase in assets
minus
Increase in spontaneous liability
Increase in retained earnings
Where:
Boston University MET AD715 © Dr. Zlatev, 2022
48
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
Implementing, Managing, and Control of the Financial Programs
The diagram on the next slide is a summary of a typical budgeting system for controlling strategy implementation.
The management of the company:
1. Defines
(i) the overall goals and objectives for a long-term sustainable development
(ii) the annual expectations and targets per business units and functional areas
(iii) the capital investment requirements and budgets
1
2. Develops sales forecast, income goals, sales and revenue budgets
2.1. Broken down into
(i) overall expense and cost goals, expenditure budgets and schedules, and
(ii) specific budgets and schedules in marketing, innovation, operations, administration, and financial
2.2. Consolidated into three main budgeted financial statements:
(i) cash flows
(ii) income statement
(iii) balance sheet
2
3
3. Needed as
(i) feedback indicators for the overall performance evaluation of a firm or a business unit (e.g. the micro), and
(ii) management tools during the implementation of the business strategy and the functional strategies
in time sequences, predefined for different level of decision making (days, weeks, months, years).
Boston University MET AD715 © Dr. Zlatev, 2022
49
B
2
Financial Management Process & Corporate Business Strategy:
horizontal and vertical integration of the decision making
Implementing, Managing, and Control of the Financial Programs
1
2
3
Boston University MET AD715 © Dr. Zlatev, 2022
50
B
3
Financial Management: Decision Making Focus & Decision Support Tools
Boston University MET AD715 © Dr. Zlatev, 2022
51
B
3
Financial Management: Decision Making Focus & Decision Support Tools
FROM:
Implementing, Managing, and
Control of the Financial Programs
Live Demo
Boston University MET AD715 © Dr. Zlatev, 2022
52
B
3
Financial Management: Decision Making Focus & Decision Support Tools
Live Demo
Boston University MET AD715 © Dr. Zlatev, 2022
53
B
3
Financial Management: Decision Making Focus & Decision Support Tools
Live Demo
Boston University MET AD715 © Dr. Zlatev, 2022
54
B
3
Financial Management: Decision Making Focus & Decision Support Tools
Live Demo
Boston University MET AD715 © Dr. Zlatev, 2022
55
B
3
Financial Management: Decision Making Focus & Decision Support Tools
Video Tutorial for AD715:
Optimization Analysis in Solver
Goal-Seeking Analysis (MS Solver)
Video Tutorial for AD715:
Business Simulation – Risk Analysis (MCS)
OPTIONAL: Risk Analysis (Monte Carlo Simulation)
Boston University MET AD715 © Dr. Zlatev, 2022
56
Preparation for submission of the managerial report Team Assignment 3 PART 1
TITLE:
What is the Rationale for Investing in a New BrewPub?
Conceptual Study by the Owner of an Existing Restaurant/Tavern (Based on a running case and a business simulation package)
Read the Business Running Case: The decision making process in evaluating the rational for investing in a new BrewPub
(preparation for a conceptual study by the owner of an existing restaurant/tavern)
Learn how to use a business simulation package, specifically developed for this course, in combination with selected decision
support tools covered in this course.
DUE DATE: Week 5 Day 7 at 11:59 pm ET
Possible Points: 8
Task 3-0 (A3/Part 1):
Structure and present your paper in the form of a Managerial Report, with a cover page, table of content, main
body, appendices. Recommended length of the main body of Part 1 (without the preparatory and appended
parts): 15 pages APA format.
(max 1 points)
Task 3-1 (A3/Part 1): Based on the business simulation ‘Strategies and Decision Support in Organizations’ and the business running case,
define and present the overall goals and objectives from the business owner point of view. (max 2 points)
Task 3-2.1 (A3/Part 1): Formulate your preparation for a decision making based on a research of the following areas of your study -Marketing Management, Financial Management.
(max 2.5 points)
Task 3-3.1 (A3/Part 1): For each one of the functional areas apply at least two from the introduced and discussed in this course decision
support tools (e.g. Decision Tree Analysis, Sensitivity Analysis, SWOT Analysis, PESTEL Analysis, Break-Even Point
Analysis, What-If-Analysis, Optimization Analysis, Risk Analysis, others).
(max 2.5 points)
Boston University MET AD715 © Dr. Zlatev, 2022
Preparation for submission
of the managerial report
Team Assignment 3 PART 1
Assignment 3 Part 1: Participation
Statement for Individual Contribution
Last Name & First Name of the Team
Members (in alphabetical order):
1.
2.
3.
4.
5.
_________________________
_________________________
_________________________
_________________________
_________________________
Boston University MET AD715 © Dr. Zlatev, 2022
2
Preparation for submission of the managerial report Team Assignment 3 PART 1
Task 3-1: Based on the business simulation ‘Strategies and Decision
Support in Organizations’ and the business running case, define
and present the overall goals and objectives from the business
owner point of view.
Demo Exercise PART 1
1 Define the location of the restaurant
1. Introduction:



2 Define the current status:
Who are your customers
Who are your competitors
Why change is needed
Problem statement
Overall goals on objectives of the report
Structure of the report
2. Managerial decision making process
3 Define the size of the restaurant
for selected functional areas of the new business unit
2.1. Selected functional area #1: Marketing Management & DM
2.2. Selected functional area #2: Financial Management and DM
4 Investing in a New Brew Pub: owner’s objectives
3. Application of decision support tools
Business Running Case (page 3)
3.1. Selected functional area #1: Marketing Management & DM
>>> Decision support tools #1.1:
>>> Decision support tools #1.2:
3.2. Selected functional area #2: Financial Management and DM
>>> Decision support tools #2.1:
>>> Decision support tools #2.2:
Before confirming/rejecting the offer, the owner would like to prepare
a conceptual study, structured as a managerial report that will address
the following questions:
Boston University MET AD715 © Dr. Zlatev, 2022
1.
2.
3.
4.
Define the overall goals and objectives of the new business unit.
Based on the federal and state’s specific legal rules and regulations,
to determine ….
Define the business strategy for the next three years of operation …
….
3
Preparation for submission of the managerial report Team Assignment 3 PART 1
Task 3-2: Formulate your preparations for a decision making based on a research of the
first two areas of your study (Marketing Management & Financial Management).
1. Introduction:
• Problem statement
• Overall goals on objectives of the report
• Structure of the report
2. Managerial decision making process for selected functional areas of the new business unit
FUNCTIONAL
AREA
For each one of the functional area’s, describe the process and answer the following four questions:
1. Integration of the functional
2. Opportunity analysis (business 3. Developing of three years plans 4. Implementation, management,
strategy and plans with the company model, core competency,
for successful operations per
and control of the functional area
strategies and resources
competitors, differentiators)
functional area
three year program
2.1. MKTG MGMT
2.2. FIN MGMT
Boston University MET AD715 © Dr. Zlatev, 2022
4
Preparation for submission of the managerial report Team Assignment 3 PART 1
Task 3-3: For each one of the functional areas (as presented in tasks 3-1 and 3-2) apply
at least two from the discussed in this course decision support tools (e.g.
Decision Tree, Sensitivity Analysis, SWOT Analysis, PESTEL Analysis, BreakEven Analysis, What-If-Analysis, Risk Analysis, others).
1. Introduction:
Decision Tools
(BEFORE)
2. Managerial decision making process
FUNCTIONAL AREA
Decision Tools
(AFTER)
MKTG MGMT
3. Application of decision support tools
A
B
C
D
3.1. Selected functional area #1: Marketing Management & DM
>>> Decision support tools #1.1:
A
B
>>> Decision support tools #1.2:
C
D
3.2. Selected functional area #2: Financial Management and DM
>>> Decision support tools #2.1:
E
F
>>> Decision support tools #2.2:
G
H
Boston University MET AD715 © Dr. Zlatev, 2022
FIN MGMT
E
F
G
H
5
Preparation for submission of the managerial report Team Assignment 3 PART 1
Possible decision tools before entering assumptions in tab. Project Start
– PESTEL Analysis
– SWOT Analysis
– PORTER Competitive Forces
– VRIO Framework to Reveal Competitive Advantages
– Corporate Business Model (Who, What, How, Why)
– Core Competence-Market Matrix
– Platform Strategy
Possible decision tools before starting a new cycle related to Marketing
Management:
– PESTEL Analysis
– SWOT Analysis
– PORTER Competitive Forces
– What-If-Analysis (in combination with Break-Even-Point Analysis)
– Price Sensitivity Analysis
– Variable Costs Sensitivity Analysis
– Optimization Analysis
– Dashboards & Trend Analysis (based on Tab. Performance and Tab. Sim-Report)
– Decision Tree Analysis
Possible decision tools before starting a new cycle related to Financial
Management:
– PESTEL analysis
– SWOT Analysis
– What-If-Analysis (in combination with Break-Even-Point Analysis)
– Analysis of the three Financial Statements
– Risk Analysis
– Decision Tree Analysis
Boston University MET AD715 © Dr. Zlatev, 2022
Possible decision tools after the completion of each cycle (same for
Marketing Management and Financial Management):
– Tab. Sim-Report (analyze the change of selected business parameters
in comparison to previous cycles)
– Tab. Performance (analyze the change of the efficiency ratios in
comparison to previous cycles)
– Tab. Performance (trend analysis – compare the change of selected
business parameters for different cycles)
– Tab. D-Analysis (analyze the change of the chart Break-Even-Point in
comparison to previous cycles)
– Tab. D-Analysis (apply What-If-Analysis in combination with BreakEven-Point)
– Tab. 36-Mo-Fin-Pr (analyze the summary for FY-1, FY-2, FY-3; it is
located at the end of the table)
Clarifications:
o You can use the same decision tool(s) for different
functional areas.
o If you decide to use the same decision tool(s) for
different functional areas, you have to consider the fact
that the assumptions needed for the new cycle for each
one of the functional area are different (the difference
should be explained in the Managerial Report)
6
Preparation for submission of the managerial report Team Assignment 3 PART 1
Starting Assumptions: Answers to Selected Questions
On-premise Sales versus Off-premise sales
On-premise sales mean direct to consumer sales for the consumption on the premises of an establishment.
o Bars, restaurants, and wineries are examples of “on premise” establishments.
o Breweries are required to give away, for free, samples of their beer during public tours and tastings.
o The breweries are allowed to sell souvenir pint glasses to attendees.
o Breweries should be able to sell their beer for on premise consumption.
o On site sales will simplify the current tour and tasting regulations and will provide additional revenue for production breweries. 96.8% of the craft
breweries in the country are in states that allow breweries to have on premise sales.
Off-premise sales mean direct to consumer sales for consumption off the premises of an establishment.
o These are “to-go” sales of packaged product in establishments like wineries and package stores.
o Both production breweries and brewpubs are not allowed to sell beer to-go in any format.
o In the US, 93% of craft breweries are in states where production breweries can sell beer to go and 95.2% of craft breweries are in states that allow
brewpubs to sell beer to go.
o Off premise sales will allow breweries to better interact with the consumers that visit them.
o These sales will provide additional revenue to the breweries and tax revenue to the state.
o To go sales allow breweries to better market their core beers while providing a avenue to sell beer that is made is quantities too small for the traditional
3-teir system.
Boston University MET AD715 © Dr. Zlatev, 2022
7
Preparation for submission of the managerial report Team Assignment 3 PART 1
Starting Assumptions: Answers to Selected Questions
DIFFERENT TYPES OF BREWERY LICENSES ON STATE LEVEL: AN EXAMPLE WITH THE STATE OF MASSACHUSETTS
In order to legally produce and sell beer commercially, a brewer must be authorized to operate by obtaining both national and state approval. The Alcohol
and Tobacco Tax and Trade Bureau issues “TTB permits,” granting approval of a brewer’s operations on the national level.
All types of commercial brewers qualify for the same TTB permit, which may be filled out online at the TTB’s website and should be done prior to applying
for any state level license. The average processing time for the application is about 86 days and may include an on-site inspection of the proposed
premises. After approved, the brewer must obtain a license on the state level.
In Massachusetts, there are several types of state brewers’ licenses available through the Massachusetts Alcoholic Beverages Control Commission (ABCC),
depending on how the brewer intends to run its business.
The most basic brewing license in Massachusetts is the Manufacturer of Wine and Malt Beverages license. Under M.G.L. ch. 138, §19, a brewer holding
this license is authorized to manufacture and blend wine and/or malt beverages. Manufacturer licenses do not allow for the self-distribution of its products
to retailers and therefore Manufacturers must use a wholesaler to bring their product to market.
The next type of brewing license in Massachusetts is the Pub Brewery license. Unlike a farmer-brewer, a pub-brewer is authorized to produce malt
beverages with the use of cereal grains or hops whether those ingredients were produced or bought by the brewer locally or not. M.G.L. ch. 138, §19D. The
Pub-Brewer is authorized to sell its manufactured beverages at wholesale and retail to consumers for off-premises consumption but is not allowed to “selfdistribute” to retailers. Traditionally, a Pub Brewery License, when operated in conjunction with a Section 12 On-Premise Pouring License, is thought of as
more of a pub or restaurant than a working brewery. A Pub Brewery licensee seeking to operate a pouring style establishment will need to obtain the
Section 12 On-Premise Pouring License, which is subject to the license quota of the town or city where the business it to be located.
When considering the pursuit of a craft beer venture, issues such as which brewing license to acquire, should be addressed early on in the process to
ensure smooth sailing before the TTB and ABCC.

THE DIFFERENT TYPES OF BREWERY LICENSES IN MASSACHUSETTS

Boston University MET AD715 © Dr. Zlatev, 2022
8
Preparation for submission of the managerial report Team Assignment 3 PART 1
Starting Assumptions: Answers to Selected Questions
DIFFERENT TYPES OF BREWERY LICENSES ON STATE LEVEL: AN EXAMPLE WITH THE STATE OF MASSACHUSETTS (useful links)
The Alcoholic Beverages Control Commission (ABCC) of the Commonwealth of
Massachusetts regulates the manufacturing and sale of alcohol within the state.
To acquire your Massachusetts liquor license, submit an application package,
pay a fee and notify your neighbors of your intentions.
https://www.mass.gov/orgs/alcoholic-beverages-control-commission
Different Types of Alcoholic Beverage State Licenses (ABCC)
One can learn more about the different Alcoholic Beverage State License by
typing a question in the search window of ABCC site.
Alcoholic Beverages Distributors License
Alcoholic Beverages Wholesaler License
Alcoholic Beverage Ship Chandler License
Alcoholic Beverages Storage Permit
Alcoholic Beverages Warehouse Permit
Alcoholic Beverages Storage Permit
Alcoholic Beverages Direct-to-Consumer License
12C Caterer License
Alcoholic Beverages Direct Wine Shipper License
Alcoholic Beverages Ship Master License
Alcoholic Beverages Airline License
Alcoholic Beverages Railroad License
Alcoholic Beverages Transportation Permit
Transportation and Delivery Permit
Express Transportation Permit
Cargo License (Airline, Ship, Railroad)
Alcoholic Beverages Broker or Salesman Permit
Alcoholic Beverages Broker Permit
Alcoholic Beverages Salesman Permit
Boston University MET AD715 © Dr. Zlatev, 2022
Alcoholic Beverages Manufacturer License
Alcoholic Beverages Farmer Brewery License
Alcoholic Beverages Manufacturer License
9
BU MET AD715:
Quantitative & Qualitative Decision-Making
ASSIGNMENT 3: BUSINESS RUNIINING CASE
©2014 – 2022 Dr. Zlatev
Business Running Case: Investing in a New BrewPub?
(Conceptual Study by the Owner of an Existing Restaurant/Tavern)
New BrewPub: Starting Points
The owner of an existing restaurant/tavern operation is considering an opportunity to increase (locally)
the competitiveness of the company by investing in a new system (BrewPub) for brewing craft beer
(draught beer) in-house. In pursuing this proposed venture, the owner of the existing operation seeks to
capitalize on national and regional trends that demonstrate a skyrocketing interest in craft and specialty
beers1.
After a thorough evaluation of a broad spectrum of offers, the owner selects a proposal for a capital
project with the following starting parameters:
System Characteristics of a 40 barrel (8 tanks, 155 gallon/tank) BrewPub System

Turn-key system (brand-new equipment, consists of eight 155 gallon tanks = 40 bbl) for
simultaneously brewing up to eight types of craft beer on-site. System characteristics:
(i)
The patented malt extract system incorporates brewing, fermenting, and serving from the
same tank.
(ii) The brewing system includes a heater, combination fermentation/serving tanks, glycol
chiller, stainless steel faucets or tap directly on the tank, and all hoses, valves, carbonator,
and gauges required for brewing and also for the draught beer system (connection from
the serving tank to the faucet in the restaurant OR to the draught beer tapped in kegs,
prepared for wholesale).
(iii) The system provider offers complete sets of ingredients for making up to 25 different
types of crafted beer (see Appendix 1 for more details). All recipes have been carefully
crafted to create refreshing, highly drinkable beers.

Two possible distribution models:
(i) Draught beer (measured in pints) for direct sale (retail) in the existing restaurant/tavern;
(ii) Draught beer (tapped in kegs), to be distributed through licensed beer wholesalers2;
(iii) Kegged and/or tanked draught beer should always be kept cold, which the industry has
standardized at 38° F. Under these conditions, the storage life of the craft beer is 30 days3.

Annual maximum production capacity of a 40 bbl BrewPub System is based on the following
assumptions:
(i)
(ii)
One pint = 16 oz = 474 ml
One keg = half barrel = 15.5 gallons = 124 pints
The Brewer’s Association reports that small and craft beer producers are seeing success even in a weak economy. In the
first half of 2013, dollar sales “were up 15 percent” and “volume of craft brewed beer sold jumped 13 percent.”
Retrieved from URL: http://www.brewersassociation.org/pages/media/press-releases/show?title=brewers-associationreports-continued-growth-for-u-s-craft-brewers
2
To learn more, review https://www.ttb.gov/beer
3
To learn more, review http://craftbeerrestaurant.com/Craft_Beer_Restaurant/Storage_Guidelines.html
1
1
BU MET AD715:
Quantitative & Qualitative Decision-Making
ASSIGNMENT 3: BUSINESS RUNIINING CASE
©2014 – 2022 Dr. Zlatev
(iii) One bbl = brewer’s barrel = 31 gallons = 2 kegs = 117.4 liters = 248 pints
(iv) One tank = 155 gallon = 5 bbl = 10 kegs = 587 liters = 1240 pints
(v) Maximum capacity of a 40 bbl BrewPub system (8-155 gallon tanks):
1 Tank
8 Tanks
Week: 1 X 1 = 1 X 155 g = 1,240 pints; 1 X 8 X 1,240 p = 9,920 pints
Month: 4 X 1 = 4 X 1,240 p = 4,960 pints; 4 X 8 X 1,240 p = 39,680 pints
Year: 48 X 1 = 48 X 1,240 p = 59,520 pints; 48 X 8 X 1,240 p = 476,160 pints

One-week production cycle. The brewing process
includes:
Step 1: sanitize tank (10 minutes) and mix
ingredients (30 minutes)
Step 2: fermentation (5 days)
Step 3: chill tank and serve (1-2 days)

Minimal size requirements:
(i) 100 sq ft of tiled floor space (floor able to
hold 1800 lbs on three legs)
(ii) standard floor drain
(iii) 3/8 inch hot and cold water lines (with
valves)
(iv) 4 standard electrical outlets

Production personnel: two workers (one per shift)

Training program for:
(i) production personnel
(ii) salesforce
(iii) manager of the business unit BrewPub

Regular delivery to the business unit of complete
sets of ingredients for selected types of crafted
beer (see Appendix 1)

Service & maintenance contract (first 12 months
included in the price)

Offered final price for the package: $150,000

Option: Financing through a private financing
institution is available
Combination fermentation/serving tank,
capacity 155galon = 1,240 pints
Conceptual Study: Starting Points
The owner of the existing restaurant/tavern:
➢ owns the space needed for the new project, but has to rent an additional 200 ft² for the
wholesale operation (selling of kegs);
2
BU MET AD715:
Quantitative & Qualitative Decision-Making
ASSIGNMENT 3: BUSINESS RUNIINING CASE
©2014 – 2022 Dr. Zlatev
➢ would like to separate the new operation from the existing business in the restaurant/tavern and
is planning to manage it as a separate business unit, fully controlled by the current company;
➢ is preparing a database with all market and product-related information (please review the
AD715 course website, page ‘Business Running Case’).
Before confirming/rejecting the offer, the owner would like to prepare a conceptual study
structured as a managerial report that will address the following questions:
1.
2.
3.
4.
Define the overall goals and objectives of the new business unit.
Based on the federal and state’s specific legal rules and regulations4, to determine (i) whether it
is legal to acquire and hold a brewers permit and (ii) whether the capacity output (225.4K liters
annually) of the turnkey system would comply with the state alcoholic beverages acts/codes.
Define the business strategy for the next three years of the new business unit (the BrewPub).
Define how different functional strategies (e.g. marketing, innovation, operations, organization,
finance) are influencing the overall parameters of the business strategy
Evaluate the proposed strategy and plans based on selected critical success factors and key
performance indicators.
Prepare an implementation plan for the first six months of operation (define specific actions and
resources needed).
Prepare and present a summary of the results of the conceptual study.
Formulate the rationale for a decision whether
(i)
to accept the offer, or
(ii)
to redefine the starting parameters of the initial request for quotation and to request a
new quote (based on new/modified starting points, as discussed in the conceptual
study), or
(iii)
not to invest in a BrewPub.
5.
6.
7.
8.
The conceptual study will be prepared with the help of a business simulation package called
‘Strategies and Decision Support in Organizations’
➢ To learn how to use the business simulation, review the ‘Tutorial for AD715: Business
Simulation – How to Play.
➢ The software application ‘Strategies and Decision Support in Organizations’ is preinstalled in
the file folder AD715, accessible within the virtual labs assigned for AD715
(https://www.bu.edu/metit/services/client-technology/virtual-lab/ )
4
Based on legal information on alcohol state laws, publish on www.ttb.gov official state government sites, or third party
sites, such as http://www.law.cornell.edu/wex/table_alcohol
3
BU MET AD715:
Quantitative & Qualitative Decision-Making
ASSIGNMENT 3: BUSINESS RUNIINING CASE
©2014 – 2022 Dr. Zlatev
Appendix 1: Recipes, Ingredients, and Supply Kits for the Proprietary BrewPub System
A: Recipes and Ingredients
The provider of the turnkey brewing system offers:
(i)
a large inventory of the most popular styles designed to appeal to a broad range of tastes,
from novices to experts;
An optional custom recipe program in which the brewmaster of the system provider
formulates tastes exclusively for the client (the buyer of the brewing system). This can
include reverse engineering to simulate and improve the client’s choice of the branded
product;
inclusive batch kits that provide the precise ingredients and supplies needed to brew a
perfect batch of beer.
(ii)
(iii)
The batch ingredient and supply kits include concentrated brewers grade malt extracts and other
proprietary ingredients (also called brewer’s wort), which are
(i)
made based on a multiple-step infusion brewing process for high fermentability and free
amino nitrogen (FAN) levels, which is critical to good brewing;
carefully vacuum evaporated to retain its full, rich flavor;
all-natural – they do not contain added caramels, sugars, preservatives, or additives.
(ii)
(iii)
All recipes are formulated and standardized for the patented malt extract BrewPub system and are
prepared based on the highest international standards for quality control and assurance of the final
products.
B: Estimates – Production Costs per Product [$ per pint]
#
Products
1
2
3
4
5
6
7
8
9
Pilsner All-Malt Beer
Bavarian Lager All-Malt Beer
Light Wheat Beer
Red Wheat Beer
Pale Ale Beer
Nut Brown Ale
Bock Dark Beer
Stout Beer
Selection of 17 more products
Notes:
Production Costs (Variable Costs), per pint
Materials
Labor
Others
Ingredients (*)
CO2 + H2O
$0.35
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.35
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
$0.33-$0.35
$0.02 – $0.05 $0.15 – $0.25 $0.22 – $0.35
Notes
(**); (****)
(**); (****)
(***); (****)
(***); (****)
(***); (****)
(****)
(***); (****)
(****)
(****)
(*)
The cost per product is based on the price of a delivered, complete set of ingredients (one supply batch kit is
required for the production of one 155 gallon tank of beer)
(**) Products recommended for both direct sales in the existing restaurant/tavern AND as draught beer tapped
in kegs (wholesale)
(***) Products recommended for direct sales in the existing restaurant/tavern
(****) Cost per product for CO2, H2O, Labor, and Others varies for different locations
4
Assignment 3: Business Running Case – Microbrewery Investment Analysis
Boston University
Metropolitan College
AD715 A2 – Fall 2021
Team 5
Members: Xingkai Huang, Runze Liu, Xueer Su, Deru Wu, Jingwen Hou
November 13, 2021
Table of Contents
Executive Summary………………………………………………………………………………..2
Location and Target Customer …………………………………………………..…………………2
Competitors………………………………………………………………………………….………3
Restaurant Size and Employees…………………………………………………………….………5
Marketing Management Analysis & Decision-Making Tools…………………………………….5
Brief Summary for Marketing Management……………………………………..………….…..10
Decision Tools (Applied Before Entering Assumptions) – PESTEL Analysis ……………..……10
Decision Tools (Applied After the Submission of a Cycle) – SWOT Analysis…………….…….12
Financial Management Analysis & Decision-Making Tools…………………………….……….14
Decision Tools (Applied before the Submission of a Cycle) – Risk Analysis……………………16
Decision Tools (Applied after Entering Assumptions) – Financial Statement Analysis………19
Appendices……………………………………………………….……………………….….…..21
References ………………………………………………………………………………….…….26
1
Executive Summary
This report provides the general overview of an existing tavern owner action to make a
conceptual study and business analysis to evaluate the rationale behind the decision for investing
in a new microbrewery. This business case is backed up with the business simulation model and
the business running case for typical winery startups. Throughout the report, you will see a
careful analysis of this potential business opportunity – opening a microbrewery inside an
existing business – using the following supporting tools (E.G. SWOT analysis; Risk analysis,
etc.). In brief, this potential business opportunity may add value for the company, in turn
facilitating competitive advantage and operation efficiency for an existing business.
Location and Target customer
New York is among the top tourist destinations in the world. The restaurant is located in
the heart of downtown Manhattan, in between the 7th Avenue and the 8th Avenue. Since the
visitor flow rate is really high, it is near Fifth Avenue. According to The Tourism Industry in
New York City, it set a high record of 66.6 million visitors in 2019 and generating $47.4 billion
in spending(The tourism industry in New York City 2021). Target customers are high end
society, white collar, visitors, couples on dates, and also we can organize ceremonies and
weddings.
In terms of consumer demand, the demand for low-end beer has gradually become the
demand for high-end beer. In terms of product competitiveness, young consumers are more
concerned about whether the product itself is delicious, not whether it is a big-brand beer. The
current stage of craft brewing The beer market is dominated by emerging brands. In terms of
2
production costs, due to the high cost of craft beer, the corresponding price is 3-5 times that of
ordinary industrial beer. It is close to or even more than the pricing of some high-end beer. In
other words, craft beer is inherently high-end beer attributes in terms of production costs and
product taste, but the craft beer market has not yet appeared to dominate the industry’s high-end
brands. In other words, craft beer is not hitting the low-end consumer market but enjoying the
market dividends generated when low-end demand shifts to high-end demand. The emerging
craft beer brands will have an impact on traditional high-end beer brands in the future.
Competitors
One major competitor is Fifth Hammering Brewing Company. A quick background story
for this brewing company. Their name, Fifth Hammer, comes from the story of Pythagoras
coming to understand the nature of harmony. At a forge where five men were busy hammering,
he found the first four hammers to be beautifully aligned. The fifth, not so much. The fifth
hammer is the discordant + indescribable portion of the universe to which we all intentionally
turn a blind eye. Enough with background information, Fifth Hammer has been around the
neighborhood for a while. Given that, they already accumulated and retained a great portion of
customers around the neighborhood. Additionally, their brewery beers are produced and served
uniquely with a variety of choices available for customers. As mentioned on their website, Their
beers are not Kosher but most beers produced by typical methods and ingredients (malted cereal,
yeast, water, and hops) don’t violate dietary law or present kashrut concerns. As they serve their
customers, they list any additives on our beer list in our taproom and on our online beer menu.
Their beers are vegan EXCEPT when they use lactose – they’ll always note in our beer
descriptions when they use a non-vegan product. Other than their unique attribute inside their
3
beer products, they also run their business much like what our tavern business currently does,
like offering places for small family events, etc. Given all that, Fifth Hammer Brewing Company
could be a potential but potent competitor as we try to introduce our brewery brand in the
Manhattan Area.
The other major competitor would be Clinton Hall, which was built in 1824. This
company serves 20 different beers with on-site flux capacitors, so it attracts many customers.
Clinton hall has five branches in New York, each with a slightly different leading food and
craftsmanship. The chief beer officer’s diversified planning scheme has caused an enlarged
audience.
Other than those small competitors located in the Manhattan area, there is also a great
chance for our new brand to experience the potential competition from two other major brewery
companies serving at the national level, such as D.G. Yuengling and Son, and Boston Beer
Company.
D.G. Yuengling and Son, as the oldest craft brewery in the United States, is the largest
craft brewery in the country. This fast-growing beverage company was founded in 1829 and has
been family-owned and operated for nearly two centuries. D.G. Yuengling and Son, Inc produces
beer at two breweries in Pottsville, Pennsylvania, and Tampa, Florida, including the popular
Yuengling Traditional Lager, Yuengling Hershey’s Chocolate Porter, and Oktoberfest beer. Its
production volume is 2.6 million barrels of beer.
The Boston Beer Company, founded by Jim Koch in 1984, has adopted family recipes for
several generations, one of the world’s most popular craft brews. It is located in Boston,
Massachusetts, the beer brewing giant is known for its Samuel Adams beer, voted the best beer
in the United States. The Boston Beer Company has developed rapidly since its establishment
4
and has become the second-largest craft brewery in the United States. Today, beer companies
brew more than 60 styles of Samuel Adams beer at breweries in Boston, Massachusetts,
Cincinnati, Ohio, and Breinigsville, Pennsylvania. Its production volume is 1.75 million barrels
of beer.
Restaurant size and employees
The restaurant has 3,000 square feet including 200 square feet for microbrewery. There
are 168 interior dining seats, including the bar seat. The restaurant has some new positions and
estimated salaries are shown below: beverage manager, machine repair technician, beer sales
representative, brewer, marketing manager.
Marketing Management Analysis & Decision-Making Tools
Taking account of the “Black Swan” catastrophe that happened in the year 2020, the
aggregate demand for U.S. beer volume was down three percent. Taking a deeper look into this
declining number, crafted brewer volume sales declined around nine percent, while further
lowering small and independent brewer’s share in the U.S. brewery market by nearly twelve
percent compared to previous years. (National Beer Sale & Production data, Brewer
Association) However, if we quote the data summarized by National Brewer Association (B.A),
those data will open up a whole new perspective regardless of the seemingly gloomy business
world we trapped ourselves into. Based upon the production data provided in the B. A website,
credited to the complicated social phenomenon caused by the issue of COVID-19 virus in the
year 2020, all industries have been greatly affected by the COVID issue; the brewery industry is
not an exception as well. Given the COVID issue in the year 2020, The Nation B. A has
5
conducted an integrated analysis for the production volume analysis for the U.S. beers market.
As indicated by the data shown in exhibit 1.1 again confirms, compared to the previous year, the
U.S. beer production has shrunk precisely two-point nine percent. A more detailed look into that
data, the production volume for the crafted beer industry, one segmented category for the U.S.
beer industry, has been necked down around ten percent in the COVID period. While keeping
those data in mind, We would like to introduce another analysis report conducted by National
B.A. which would open up a new horizon for us regarding the brewery industry in today’s
turbulent and pessimistic beer market. According to the data provided in exhibit 1.2, which is the
counting number for brewery providers for the previous five years, we can spot the number for
each brewery supplier that embodies continuous growth since the year 2015. Paying careful
attention to the last column in this exhibit, the national B. A summarized the changes between
the year 2019 and year 2020. One intriguing fact about the percent changes of U.S. breweries
between the year 2020 and year 2019, the percent changes data revealed most brewery suppliers
are still growing their business despite the negative effect exerted by the COVID issue in 2020.
The data in exhibit 1.3 again confirm the trend we discovered. To explain what’s inside exhibit
1.3, in each year column, the green rectangle (inside) is representing the number for brewpub
closing and the dark blue rectangle (outside) is represented as the number for the brewpub
opening. After clarifying necessary market information in the market, we strongly believe there
is a huge opportunity for running a small and independent brewpub in the post-COVID era.
Given the resources we have right now, retrieved from what we have been mentioned in
introduction pages for our tavern business, the advantages that come with operating a two
hundred feet microbrewery inside our tavern have taken over the disadvantage, or we say risk,
involved into it. When a decision comes into play in the business world, people are always
6
overwhelmed by those numerical numbers (E.G. profitability, break-even point, etc.). As a result
of over focusing on the numerical data itself, people are prone to underestimate, or even neglect,
those unquantifiable factors that should be taken into consideration from the inception. Talking
from our perception, the phenomenon would be compounded easily when it comes to decision
making (perfectly fit into our consideration for opening an extra microbrewery in our tavern).
Enough with the data and reflection from the market, it’s time to elaborate on our marketing plan
for the potential microbrewery business. Before that, I would like to throw out one
unquantifiable factor, which also acts as an indispensable part, regarding structuring a proper
market plan for any business: Setting the goal and approaches to build your brand and your
presence around your targeted market with a refined product at the very beginning.
To better clarify the simulation outputs for our marketing decision, we need to understand
the basic starting assumptions being established in our simulation model. We would discover the
motives under each assumption from three perspectives: Marketing channels and associated
Cost, Product description and target market size, and Projected Monthly demand by years.
1)
Marketing channels and associated Cost [Please refer to Exhibit 1.4]
Branding, promotion, service, advertising, social media, etc. – those are key factors
played in marketing management. Marketing is acting as a bridge between your business and
your targeted consumer groups. It’s a concentrated effort to push your brand on a variety of
platforms to invoke awareness from potential customers. Given the importance of marketing
strategies and unique decisions for building an extra microbrewery inside our tavern, we
developed four major channels to market our new (microbrewery) brand, including Local
advertising, Trade show, Website, and Social media. Though the existing tavern business grants
7
the basic customer base for building the awareness for the new brand, we should aim to
acknowledge potential customers using both offline activities (local advertising and trade show)
and leveraging the power of the internet (social media and website presence). Constraint to
limited budgets for each year, we further analyze and allocate our initial investment
proportionally to each channel. As you can discover from the graph, the primary way we try to
promote our new brand is through local advertising; Activities like wine tasting night, brief field
trip inside the brewery system, etc. Other than that, we plan to invest a small portion of our
initial investment into trade shows: aiming to evoke initial brand recognition in the public. Aside
from promoting our new brand offline, the small, independent brand needs to build its
recognition by leveraging the power of the internet. Research revealed 97% of customers
research their purchase online before their actual buying behavior. (Mike Kalil Blog, Doncania
Media) Which, in other words, indicates websites and social media platforms are crucial
components of your marketing strategies. Putting all these into numbers and sequence of
importance, we would invest around $35,000 into our local advertising, $25,000 each in both
social media platform and website and a small portion of $5000 into the trade show. Taking into
account the fact that we are introducing a new brand based upon the current tavern business, we
expect steady growth for marketing cost for our offline channels, especially local advertising
while looking forward to what could bring to our business with our investment for building our
online presence for the new brand.
2) Product description and target market size [Please refer to Exhibit 1.5 and Exhibit 1.6]
In our market plan, we made two decisions to refine our product. For any business entity,
mostly for a startup brand, it’s crucial to differentiate which product to focus on. Among all
products we plan to launch for our new brand, we believe that it is important for us to focus on
8
promoting our two main products: Pilsner (BR01-01) and Bavarian Lager (BR01-02) [please
refer to percentage expression for target market size in exhibit 1.6]. Considering the unique
environment of our new brand and our service natural for appealing to a wider customer base
aside from existing customers we retained, we hold the opinion that we should take a distinct
approach when we come to decide how to promote our brand. As defined in the last two columns
in exhibit 1.5, we designed our product into a smaller package for both wholesale and retail.
Compared with the usual size in wholesale, which has a height of 23.3 inches and a diameter of
16 inches, we reduce the size of our product to a height of 0.7 inches and a diameter of 10
inches. Meanwhile, we also reduce the usual height for our beers by a moderate amount to align
with our market positioning for people, likely the bourgeoisie, who come to the store in the
Manhattan area. The shrink in size for the wholesale market may increase our products’ audience
types, such as family as our customer. The smaller size means the consumer can consume one
barrel faster than other brands. Therefore, the consumer may consider less about the beer
reservation, which makes our wholesale products more suitable and potential customers.
3) Projected Monthly demand by years [Please refer to Exhibit 1.7]
In respect to years of experience in running out tavern business, also being confirmed
with research in customer behavior for alcohol consumption, there is a fixed season pattern in
New York City. Though alcohol is a commodity for people, people’s purchasing behavior would
increase as the winter season comes. In New York City, the peak period for alcohol consumption
ranges from late November to April annually. Back up with this research data, we implanted the
observed seasonality into our simulation model [specific data in exhibit 1.7].
9
Brief Summary for Marketing Management
From what has been discussed above, we may safely conclude that the marketing
decisions made are consistent with the output parameter given out after running the simulation.
[Addressed in exhibits 2.1 and 2.2] In the output reports, it has to be noticed that retail is the
primary market we need to focus on once we launch our microbrewery project in our tavern
business. Despite the huge up-front investment needed, there is a promising future for opening a
microbrewery inside our tavern business concerning synergistic effect chance between launching
the new brand and the existing business.
Decision Tools (Applied Before Entering Assumptions) – PESTEL Analysis
Political: Political factors are an important area in the marketing of craft beer. Firstly, sales tax is
a key component of the government’s policy. New York City’s general sales tax is 4%, including
beer, wine, and liquor. Secondly, since the outbreak of COVID-19, mandatory home orders and
dining restrictions have greatly affected product sales. Indoor dining in New York City requires
people 12 and older to show identification and proof of vaccine, meaning they have received at
least one dose of a COVID-19 vaccine. Also, New York City’s indoor dining capacity has
increased to 75 percent since May. After more than a year of restrictions, this represents that the
city is moving towards a complete lifting of the restaurant restrictions. With the lifting of these
restrictions, sales of craft beer will gradually increase.
Economic: Sales of products are usually accompanied by economic growth. In recent years, with
the popularity of craft beer, small craft brewers have contributed $62.1 billion to the U.S.
10
economy in 2020. These economic contributions come mainly from three systems of the craft
beer industry, including breweries, wholesalers, and retailers. In addition, the craft beer industry
is contributing more jobs to the U.S. economy. Research shows that the industry has provided
more than 400,000 jobs, including the serving staff at brewpubs; this group is also the main
member employed in our restaurants.
Social: Society, culture, and customs are potential aspects of consumer purchasing power.
Young people love craft beer because it tastes more mellow. Craft beer also has some benefits,
such as a lower incidence of cardiovascular disease and arthritis, and moderate consumption can
also contribute to good health. The most important thing is the cultural and social functions of
craft beer, which meet the needs of the contemporary youth community. Young people prefer the
higher quality and taste of craft beer, and achieve social and relaxation purposes; it has led to a
more positive development of the craft beer market.
Technological: Technological innovation, as an important driving force of today’s social
development, has gradually transformed the traditional beer industry. First, the primary
innovation in craft beer is canning. Computer systems and artificial intelligence have automated
canning production lines, saving human and material resources. In addition, technological
innovation is applied to the beer industry data analysis. Companies can analyze consumer
preferences with big data and gain insight into market demand. Lastly, the process of
automatically tracking and recording distribution systems also contributes to the sustainability of
the craft beer industry and improves the efficiency of production.
Environmental: As market demand increases, one of the issues that brewers need to consider is
environmental factors. New York State has about 440 licensed breweries and produces more than
11
1.2 million barrels of craft beer per year. Therefore, the use of cost-effective production solutions
is essential for environmental protection, such as recyclable bottles and wastewater treatment. On
the other hand, the water of craft beer is upgraded and recycled to optimize the production and
manufacturing process of beer. In short, environmental factors contribute to the sustainable
production of craft beer and reduce carbon emissions.
Legal: Alcohol, as a special product of the food industry, is subject to legal restrictions. In 1984,
the federal government passed the National Minimum Drinking Age Act, which sets 21 as the
national minimum legal drinking age (“MLDA”); this also applies to New York City. Besides,
restaurants must obtain a liquor license issued by the New York State Liquor Authority to sell
liquor, wine, cider, and craft beer. On-Premises Liquor License is a standard for bars and pubs in
New York State. The agency must also serve food to customers and then obtain this permit.
Decision Tools (Applied After the Submission of a Cycle) – SWOT Analysis
Strengths: Our primary advantage is New York’s unique location. The restaurant is located in
the heart of Manhattan, the central business district of New York. The huge flow of people
provides a large customer base for our products. Besides, craft beer is popular for its better
quality and lower yield. Our restaurants add craft beer sales based on the culinary base,
providing a better service experience for our customers.
Weaknesses: Firstly, our weakness is the cost problem. The Manhattan area brings us a lot of
customers, but also brings high costs, such as rent and labor costs. This allows us to make efforts
in the market area to get higher returns. Secondly, as a restaurant that is just starting out and
12
selling craft beer, we may lack an effective management mechanism. However, quality
management and service are the basis for customer satisfaction and repeated purchases of craft
beer. Moreover, restaurant restrictions under COVID-19 may reduce the expected sales
performance of craft beer. These are the potential weaknesses of our craft beer business.
Opportunities: After the restaurant restrictions under COVID-19 were gradually lifted, the craft
beer industry rebounded and entered a stage of rapid development. More and more bars are
opening, and the market is highly saturated. Our craft beers target consumers precisely to people
in the Manhattan area, such as white-collar workers and tourists; We have also established a
clear brand strategic plan. To meet consumer demands for restaurant integrity, our restaurants are
separated from some areas for craft beer services. A full range of culinary and craft services
stimulates customer consumption and provides them with a high-quality experience.
Threats: The primary threat to our products is the competitive pressures from large breweries.
As an emerging brand and service provider, our restaurants lack market visibility and positive
customer satisfaction, which makes it difficult to sell our products. In addition, craft beer is
highly homogeneous, so differentiated competition is the key to our market share. At this stage,
our services lack diversification, and the various types of bars offer similar products and
services, which may lead to a downward trend in profitability. Lastly, new entrants are another
threat to us. In recent years, as wine culture has played an important role in social functions,
many businesses have found opportunities for craft beer. Importantly, it is relatively easy to enter
the beer industry, which poses another potential threat to our product.
13
Financial Management Analysis & Decision-Making Tools
Fixed cost analysis:
To sustain our high-quality service and business, the employee salaries occupy an
important proportion of our total fixed costs. In our employee arrangement (see Exhibit 3.1), we
have decided to hire two more salesmen to support our operations. The salesmen are in charge of
the wholesale distribution, and responsible for the marketing and advertising of our products.
The base salary for one salesman is $49,242 per year, with a 5% increase in the second year and
the third year. We have an additional $12,000 bonus for the salesman at the end of each year if
the earnings align with our expectations. We need a full-time assistant as our office accountant to
prepare our financial & accounting report, and deal with the daily basics in the office. There also
will be a beer manager who provides supervision of our inventory, system, and department’s
performance. Considering our limited budgets and as a start-up business, we decided to let the
manager of our original restaurant take charge of this part of the business with additional
compensation of $15,000 per year. The cost “varies” according to the production. Other costs
generated from hiring laborers such as brewers and bartenders are accounted into our variable
costs.
We rent a 600sf office near Broadway street in downtown Manhattan for $95 per square
feet for the rent expense. The total rent expense will be $57,000 per year with an increased
inflation rate of 2% in the second year and 3% in the third year. Our debt will be a total of
$100,000, which could cover our rent in the first year and other emergency miscellaneous fees.
Other market indicators include ROI 5%, risk-free interest rate, and profit tax of 25%. The utility
cost would be another non-negligible part of our total fixed costs. Considering the business scale,
we are going to lease cars to facilitate salesmen to carry out our business. We have a $16,000
14
budget for cars, computers and other office supplies, but the investment would decrease in these
parts in the following years. Additional fixed costs may include heat, light, phone, and insurance
expenses. The total fixed cost for each year would be $417,165, $422,958 and $429,120.
Financial statement analysis:
Based on our income statement, we can analyze our cost structure (see Exhibit 3.2) by
comparing the total expenses and the variable costs. We have total expenses of $734,411 in the
first year, including all the direct and operating costs. The variable costs accounted for
approximately 45 percent of total expenses during the three-year-length forecasting. Our revenue
of $1,303,375, combined with our variable costs, results in a gross profit margin of $986,129 in
the first year. By summarizing the forecasting, we observe that our gross profit margin is nearly
75% of our total revenue. After deducting all other expenses such as tax and fixed costs, our
business results in a positive net income of $426,723 in the first year, and $524,164, $608,218 in
the following two years with a consistent growth rate. (see Exhibit 3.3) Unlike the income
statement, the beginning of the cash flow statement accumulates the cash flow at the end of last
year. And the beginning cash flow balance in the first year is $0. Plus the $150,000 initial
investments, our cash flow statement results in a positive ending cash balance of $276,723 in the
first year. (see Exhibit 3.4) We have a large increased ending balance of $800,887 in the second
year and $1,409,105 in the third year.
The efficient ratios (see Exhibit 3.5) measure how efficiently our company uses assets to
generate revenues and our ability to manage those assets and liabilities. A decreased efficient
ratio means a company’s expenses are reducing or its revenues are increasing. By analyzing the
result of fixed costs over total revenue, our efficient ratio would be 0.32 in the first year, 0.29
and 0.27 in the second and third year, which are optical under our scale. Our company spends
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$0.07 marketing needed for the overall sale of 1$ in the first year, and $0.05, $0.04 in the second
& third year. This number indicates that our marketing budget is reasonable until now, and we
explained why we decrease our marketing costs in the market management. However, we could
properly increase our market budget if our profits continue to exceed our expectations. The
efficient ratio of our profits over total revenue will be $0.44, $0.48, and $0.50 during the three
years. Because the numerator of this efficient ratio is profit rather than an expense, then the
consistent increase outcomes show we are gradually achieving good business operation.
Decision Tools (Applied before the Submission of a Cycle) – Risk Analysis
In this project, the risk management plan defines how to implement the project risk
management activity process, plans the importance of risk management, assigns adequate
resources and operating hours to the restaurant, and lays a common and agreed basis for
assessing risk. The program risk management process begins in the project conception phase and
is completed in the early stages of project planning.
We analyzed and avoided risks in the following three aspects: low brand awareness,
restaurant operations and supply chain disruption under epidemic conditions. Bar consumers are
positioned in the middle class and above, with social needs and economic foundation. Now
restaurant bars have become more and more diversified and professional because of the survival
of the winners and winners. The restaurant bar that can survive and generate profits must have
certain brand awareness and continuous innovation.Craft beer is also divided into different
consumer groups and consumption places, different brands are designed for different occasions
and different consumer groups. Selling craft beer in bars includes the cost of venue and
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environment, plus the high profit ratio, people do not accept a large price gap, so brand influence
and popularity become particularly important. In the constant pursuit of effective brand
marketing, brand is the most stable flow pool, which needs to be considerable, visible and
datable.The arrival of big data not only affects the lifestyle of many people, but also the
development mode of many industries, making businesses pay more and more attention to the
overall brand promotion. For example, search engine promotion can bring more clicks and
opportunities, increase brand exposure on the Internet, promote the main products of the new
store, strengthen the brand line of brewing beer, expand online revenue and increase the profit of
the restaurant. From print media, TV media and Internet media, to many popular short video live
broadcasts and social media are good marketing channels and ways, so that there are more
channels to open brand awareness in the business era. After opening brand …
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