Fig. 1 shows the front of RoJaz Coffee, an independent business in a town shopping street. Its owner, Azeem, has improved the seating area and introduced a ...
Question 1 Report
Fig. 1 shows the front of RoJaz Coffee, an independent business in a town shopping street. Its owner, Azeem, has improved the seating area and introduced a loyalty card. During the last year, annual sales revenue rose from $160 000 to $184 000. However, a national coffee chain has opened nearby. Azeem has $25 000 cash available. He can either use the cash to add a small kitchen and sell lunch, or spend it on online advertising and a delivery service. He wants the business to make a long-term profit while keeping regular customers satisfied.
(a) Define the term customer loyalty. [2]
(b) Calculate the percentage increase in RoJaz Coffee's annual sales revenue. Show your working. [3]
(c) Analyse how improving customer service could help RoJaz Coffee to become more successful. [5]
(d) Assess which option Azeem should select: adding a lunch kitchen or developing online advertising and delivery. Justify your answer. [8]
Answer Details
(a) Customer loyalty means customers repeatedly choose to buy from the same business [1] because they are satisfied with or trust it, rather than switching to competitors [1]. [2]
(b) Increase in annual sales revenue:
\[$184\,000-$160\,000=$24\,000\]
\[\frac{\$24\,000}{\$160\,000}\times100=15\%\]
The percentage increase is 15%. [3]
(c) Friendly, efficient service improves customers' experience [1], making them more likely to return [1]. Repeat purchases increase sales revenue [1]. Satisfied customers may recommend RoJaz or post positive reviews [1], attracting new customers at low cost [1]. Good service can also differentiate the independent coffee shop from the national chain, while fewer complaints and refunds help protect profit. [5]
(d) A lunch kitchen widens the product range [1], potentially attracting office workers and increasing spending per customer [1]. It could spread sales across more times of day [1]. However, equipment, ingredients and staff could use most of the $25,000 [1], and food waste or weak lunch demand could reduce profit [1].
Online advertising and delivery can reach customers beyond the shopping street [1] and offer convenience, helping RoJaz compete with the chain [1]. They may generate extra sales, but delivery commissions, packaging and delivery costs reduce the profit made per order [1].
A justified choice is online advertising and delivery if local research indicates enough online demand: it broadens the market with less operational complexity than opening a kitchen [1]. A lunch kitchen is also acceptable if strong lunchtime demand and affordable equipment are evidenced [1]. [8]
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