Question

1. Based on the information in the case, what are El Mejicano’s objectives in this decision-making? (300 words minimum)

The directors of fast food chain of restaurants based in Barcelona named El Mejicano were considering whether to begin the promotion for their new line of menus than originally planned. "I think we should go ahead with the price cuts," Pedro Morales said. "After all, it couldn't hurt! At the very worst, we'll sell these menus cheap for a little longer than we had planned, and on the other side we could beat Panchito to the punch. Panchito is the most important competitor of El Mejicano in Barcelona and they are also a fast food chain specialized in Mexican food. "That's really the question, isn't it?" replied Ana Perales, the marketing manager of the firm. "If Panchito really is planning their own menus promotion, and we start our promotion now, we would beat them to the punch. On the other hand, we might provoke a price war. And you know what a price war with that company means. We spend a lot of money and resources fighting with each other. There's no real winner. We both just end up with less profit."

Manuel Pereira, the finance manager for El Mejicano, piped up, "The consumer wins in a menus price war. They get to buy things cheaper for a while. We ought to be able to make something out of that."

Antonia Lozano, CEO for El Mejicano, looked at the finance manager thoughtfully. "You've shown good horse sense in situations like these, Manuel. How do you see it?"

Manuel hesitated. He didn't like being put on the spot like this. "You all know what the sales projections of menus are for the 4-week promotion as planned. Ana Perales tells us to expect sales of 2 million euros. The objective is to gain at least 2 percentage points of market share of the fast food market in Barcelona, but our actual gain could be anywhere from nothing to three points. Profits during the promotion are expected to be down by 10%, but after the promotion ends, our increased market share should result in more sales and more profits."

Pedro Morales, the sales manager, broke in. "That's assuming Panchito doesn't come back with their own promotion in reaction to ours. And you know what our report is from Laura Valencia. She says that he figures Panchito is up to something."

"Yes, Laura did say that. But you have to remember that Laura works for our advertising agent. Her incentive is to sell advertising. And if she thinks she can talk us into spending more money, she will. Furthermore, you know, she isn't always right. Last time she told us that Panchito was going to start a major campaign, he had the dates right, but it was for a different menu line altogether."

Antonia wouldn't let Janice off the hook. "But Janice, if New Morning does react to our promotion, would we be better off starting it early?"

Manuel thought for a bit. If he were working at Panchito and saw an unexpected promotion begin, how would he react? Would he want to cut prices to match the competition? Would he try to stick with the original plans? Finally he said, "Look, we have to believe that Panchito also has some horse sense. They would not want to get involved in a price war if they could avoid it. At the same time, they aren't going to let us walk away with the market. I think that if we move early, there's about a 30 % chance that they will react immediately, and we'll be in a price war before we know it."

"We don't have to react to their reaction, you know," replied Antonia.

"You mean," asked Ana Perales, "we have another meeting like this to decide what to do if they do react?"

"Right." "So," Manuel said, "I guess our immediate options are to start our promotion early or to start it later as planned. If we start it now, we risk a strong reaction from Panchito. If they do react, then we can decide at that point whether we want to cut our prices further."

Ana Perales spoke up. "But if Panchito reacts strongly and we don't, we would probably end up just spending our money for nothing. We would gain no market share at all. We might even lose some market share. If we were to cut prices further, it might hurt profits, but at least we would be able to preserve what market share gains we had made before Panchito's initial reaction."

At this point, several people began to argue among themselves. Sensing that no resolution was immediately forthcoming, Antonia Lozano adjourned the meeting, asking everyone to sleep on the problem and to call her with any suggestions or insights they had.

Answer 1

El Mejicano’s objectives in this decision-making are

· Combat competition- Their prime competitor is Panchito and the management needs to consider how to gain the competitive edge to combat the competition with Panchito. This is a very important factor to be considered in the decision making because intense competition might lead to price war which would result in price cuts eventually leading to minimal or no profits.

· Gain leadership in the restaurant industry through price cuts- El Mejicano’s intention is to be the industry leader through price cuts. They are ready for the price cuts however this should not lead for any price war. Price cuts would enable the restaurant to win consumers during the promotion period and after the promotion period there would be higher profits.

· Gain at least 2 percentage points of market share of the fast food market in Barcelona- This is also one of the main objectives of the restaurant. They are formulating strategies to gain the 2 pecentage points of the market share in Barcelona. To achieve this goal, the restaurant needs to combat the intense competition and win the consumers. Strategies involved in achieving this goal are new menu lines, price cuts and promotions.

· Start the promotions of the new line of menus earlier than planned- El Mejicano’s objective is to gain the market share in the industry. They need to either start the promotions early or late. If they start early, Panchito would react immediately and strongly, then they can decide about further price cuts. If Panchito reacts strongly and El Medjicano has not reacted at all, then the restaurant would lose the money invested in promotions by gaining nothing. Thus, the decision is now whether to start the promotions early or not.

Thus, it is pertinent for El Mejicano to make a decision considering all the above factors.