Mr. Franklin Nilson of the Commerce Tavern
Essay Preview: Mr. Franklin Nilson of the Commerce Tavern
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Executive Summary
Mr. Franklin Nilson of the Commerce Tavern is considering the possibility of changing his long-standing policy of not accepting credit-card charges from his clients. His decision is complicated by the presence of two key uncertainties: a contingent bank-fee schedule and several non- quantifiable effects. The reservations for the restaurant stayed booked three months in advance. Since 1982, Nilson establishment had all the business it could handle.
His recent conversation with Anne Hamlet from Virginia merchants bank was encouraging. Nilson had thought that not taking credit cards had hurt his business, and the bank was willing to back up Nilson and the tavern. This was a big decision from Nilson, if this change in credit policy were to be attractive; the fees levied by VMB would have to be made up by increasing business.
The commerce tavern had enjoyed a reputation of being the finest colonial cuisine restaurant in colonial Williamsburg for over a decade. The tavern is located in a great spot, in a business/shopping district. The building was late eighteen century style, themed after the alehouse from that era. Their reputation as renowned, that every table was occupied on both Friday and Saturday night. Approximately, four hundred guest were serves each night. Nilson had received pressure to open during the weekday, he had resisted the temptation.
The tavern offered a limited menu of well prepared, authentic colonial dishes. The price of an entrée ranged from $13.95 to $15.95, with a full bar with prices ranging from $1.75 to $3.50. Also, has an extensive wine cellar of domestic and European wines ranging from $12.00 to $36.00 a bottle.
The taverns patrons were from Williamsburg, the local townspeople came back many times over. Less than one-third of his were from out of town, and most were returning for another visit. Due to the strong local customers, the Tavern didnt notice the periodic tourist cries that had virtually destroyed many other establishments in this area.
Decision problem
Nilson must decide to use a the credit card, with the banks rules of 1) check the expiration date on the card, 2) Check that the card does not appear on any restricted or revoked list, 3) check that the card was signed on the back, that the signatures are the same from sales receipt, 4) fill out the sales slip correctly provided by the bank with required information. Upon the bank within three business days with all the required information, then the bank will credit the restaurant for the face value of the sales slip minus the fee computed at the time of the sale.
Hamlet sent Nilson the standard bank credit-card participation agreement and provided information about the services. There were several factors that needed to be considered and fully understood before making the decision. These factors included credit card requirements, restricted or revoked conditions, sales completion process, fee charges and rate for credit card use per transaction. There are many fees associated with credit card transaction that have to be considered before deciding if they are profitable for the company. The bank was not able to send total sales data, and if profits had increased after the use of credit cards. The review of the credit usage by percentage also did not give if the restaurateurs were paying the bank.
Decision Alternatives & Evaluation
Take credit cards -With the four percent fee associated with credit card transactions, Nilson will have to take that into consideration before deciding if it would increase profits for the company. The Commerce Tavern, because business is very good and cash sales are high, the credit card would be a good decision for this company. As Nilson reviewed the results of his inquiries he knew taking into consideration on the trade-off between the increase in sales and the discount taken by the bank. He decided to further evaluate this opportunity by visiting some of the restaurants similar to his, and review the data given to him by the bank. In the past he had evaluated other projects by using the 20 percent hurdle rate and by considering the next three years only. Nilson also determined that information he reviewed was showing the customer spent more when using a credit card. The customer would not worry about using their credit cards, but would worry more if they used their cash. A determining factor in his decision making would be the increased amount spent on food and drinks when the customer used credit cards over the amount of cash spent. Nilson was convinced there was no easy way to determine what the percentage might be, knowing how consumers work and taking advantage of assuming more money would be spent.
After reviewing all the data, on all the other restaurants he found no consistent data emerged. The usage ranged from 25$ to 69%, with a median usage rate of 45%. He felt this left the tavern extent of credit card usage ambiguous, due to the differences in clientele and menu;