Tex Greenhorn an American Nightclub - Case Study Example

In case of Tex Greenhorn an American nightclub, on weekends the club is full & during week it is only a 3rd full. But for its rival nightclub, Europa, business was thriving with a long line of customers irrespective of day, time and weather in spite of a higher admission fee. Gary Becker’s analysis on restaurant pricing could be directly applied in this case. He says that people would prefer to go to “in” places. This being the case of a nightclub, his analysis is very much valid. This crowd mentality is called the conformity preference, meaning people like to do the same thing that others did. When people go to a new place and look for a restaurant, supposing they see two restaurants with similar settings, space, décor and everything, except that one is empty and the other is full, they choose the full one, even if they have to wait in line to get a seat. Call it the fear of the unknown or the comfort of doing what everybody is doing or the risk of going against the norms. Like it is said in the case of restaurants “Menu pricing is a very tricky task because you need to price items so that you can operate profitably and, just as important, offer your targeted guests a good price/value relationship.” (Gorodesky and McCarron 1997-2008). The solution to increase the business of Americana: Problem 1: The nightclub business is bad during weekdays but is fairly full on weekends. Solution: Assuming that the weekend business will always be good owing to the obvious reasons. There could be two ways to increase the footfalls during weekdays. One is to give the weekend customers a reason to come in on other days too. Tex could decide to give the weekend customers a form of privilege card or coupon that offers a discount of 20% on the entrance fee usable only during the next Monday to Friday. The percentage could be more if Tex can afford it. These could be distributed inside the nightclub with to the customers on weekends with the words like “As a token of our appreciation for your support to Americana etc.” The result: If the theory of market equilibrium works here the demand will increase with the drop in price. The above figure shows the relation between demand and price. The three curves show the demand for a different good at prices P0and P1. When price decreases from P0 to P1 quantity demanded increases in each of the three cases. Although quantity demanded increases in all three cases, the amount of the increase differs for each demand curve. “Consumer responsiveness to price changes is measured by the price elasticity of demand, which describes the relationship between a change in quantity demanded of a good and a change in price”. However, some goods even if price increases demand remain the same, as also reaction of change in price of different person also vary. (Chapter 5: The Elasticity of Demand. P. 58). The weekend customers will feel honored and won’t miss it if they can help it. They will make it a point to drop in sometime next week. By making it valid for only the next week Tex would be able to actually measure the effectiveness of this campaign in a short time. The other way to increase the weekday business is to attract new customers. They could be the people visiting the town for a few days or the first timers from students and youth segment or the Europa customers. This can be done by a poster outside the entrance offering a free Americana Special Cocktail worth a good amount of money. The advantages of offering this drink, is that the cost of making the drink may be much less than it’s advertised worth. And the ingredients of the drink may be varied to adjust the cost to Tex’s advantage. Moreover, they can be purchased in bulk because every customer is going to have one at least and there is more than a fair possibility of them asking for more if they like it. Market equilibrium & market clearing: Market condition where amount of the goods and services purchased is equivalent to the supplier’s production of goods and services is called market equilibrium. Any market can bring efficient outcomes and reach competitive equilibrium, if proper redistribution is done by trader’s first resource itself, with a well-organized resource distribution framework. (Competitive Market Equilibrium. 1997). The market equilibrium can be established through “market clearing” which relies on the assumption that markets goes where quantity supplied & demanded are equal through the process of price adjustment. When the market gets cleared of all the excess stocks and overcomes shortages “market clearing” is done. Suppose, demand for certain products increases due to some unavoidable circumstances, the market will get out of equilibrium due to this excess demand resulting in shortage of goods. However, if the markets are free to change price, due to excess demand the rate of the product will start rising, which will ultimately result in more production in short run. This increased production will again bring balance between supply and new demand. Here the adjustment mechanism clears the scarcity of goods from market and new equilibrium is formed. Simultaneously, when in the market the supply increases & overrules the demand, that’s is production is more than the goods demanded the prices are/can be adjusted till excess supply is remedied, and again equilibrium is maintained between demand and supply. “In the short run (and possibly in the long run), markets may find a temporary equilibrium at a price and quantity that does not correspond with the long-term market clearing equilibrium.” (Market Clearing. 2008). Problem II: Tex is right when he ascertains that the competing club has become the “in” place. That means new customers will flock to Europa when they see the crowded queue outside even though the fee is higher. Solution: The solutions of the first problem is going to take care of the bulk of this problem also because if those solutions are successful the number of customers to Americana is going to increase which in itself has what is called self-multiplying effect. Like Gary Becker says, the more customers you can show, the more new customers will walk-in for your service. It will, however, pay dividends to know what is it that Europa is offering to its customers that Americana is missing, especially with the higher fee. It could be a new DJ or bartender or uniform of waiters or events and competitions or even partnerships with the nearby hotels etc. If there is something, the rest of the solution is in compensating for it. The idea is to get the crowd queuing to get in, which is the best advertisement there is. It would be a good exercise for Tex to sit down and do an analysis to find out what kind of people he is going to attract and then make the nightclub assume the best personality suited for that target market. This depends on what kind of music, drinks, food, prices, service and the whole atmosphere the nightclub has. People have their preferences in all these and then figure out what are the best ways to get the people there and keep them coming. Bibliography GORODESKY, Ron., and McCARRON, Ed. (1997-2008). Restaurant Marketing: Strategic Positioning of a Restaurant – Pricing. [online]. Restaurant Report. Last accessed 11 August 2008 at: http://www.restaurantreport.com/features/ft_stratpos1.html Chapter 5: The Elasticity of Demand. [online]. P. 58. Last accessed 11 August 2008 at: www.econ.ilstu.edu/lcarlson/401webpage/Text/Chapter5.PDF Competitive Market Equilibrium. (1997). [online]. SFB 504 Glossary. Last accessed 11 August 2008 at: http://www.sfb504.uni-mannheim.de/glossary/walraseq.htm Market Clearing. (2008). [online]. The Free Dictionary By Farlex. Last accessed 11 August 2008 at: http://encyclopedia.thefreedictionary.com/Market+clearing Read More