INTODUCTION TO MARKETING

Based on the information provided in the case study, create an integrated marketing communication (IMC) for NOBU Hotels. Please include at least 4 promotional mix tools and describe the promotion/activity with sufficient details for each.

Traveling in Nobu Style: Converting Restaurant Patrons to Hotel Guests

The name “Nobu” is synonymous with an exceptional Japanese dining experience, perfected by chef Nobu Matsuhisa over a more than 30-year career. Matsuhisa, together with actor Robert De Niro and restaurateur Drew Nieporent, opened the first Nobu restaurant in 1994 and to date, there are now 38 Nobu restaurants worldwide.

But if you talk to Trevor Horwell, the CEO of Nobu Hospitality, Nobu represents much more than just a restaurant experience. It’s a true lifestyle brand that also encompasses a relatively small, but growing portfolio of luxury hotels, too — eight of which are open now, and eight more are in the pipeline.

Horwell’s primary focus as CEO is to continue to grow the Nobu Hotels brand and as he opens up diners’ eyes to the fact that cannot only eat at a Nobu but stay at one, too, he hasn’t forgotten the brand’s origins in the process.

“We don’t normally do a hotel unless we think that a Nobu Restaurant can do well in that location,” said Horwell. “That’s very important because what we want to do first and foremost is to make sure there is a draw for locals, and that really comes down to the Nobu Restaurant.” Horwell said the majority of his Nobu hotel restaurant diners — 80 percent on average — are local residents, not hotel guests. “It’s not like a tourist restaurant. We like to attract the locals. We want that built-in customer.”

“We are defined by the restaurant, in a way,” he said. “We play to our strengths. If you look at the hotel business today, the majority of hotels are suffering because they don’t lead with food and beverage. don’t have strong food-and-beverage concepts, and a lot of hotels are losing money. Today, we play to our strengths because that is one area that we do very, very well, and we bring in locals.”

The idea to launch Nobu Hotels, he said, came from the fact that when Nobu Restaurants were located inside of a hotel, they “were the draw for the hotel and we were bringing in customers.”

“If I only convert 5 percent of my customers in Nobu Restaurant to stay in our hotels, then at the end of the day, we’re filling out hotels. It’s not a tall order to do that, and you can do that very well and very quickly if you offer the right product.”

Nobu Hotels has the advantage of having built its brand over a 24-year period with its restaurants first, followed by the first Nobu hotel that opened within Caesars Palace Las Vegas in 2013.

“The first focus for us, really, is to expose the brand to our restaurant customers,” Horwell said. “We touch all types of Nobu customers. And we also provide instant identity. If you put ‘Nobu Hotel’ on a hotel, the word ‘Nobu’ says something and it attracts a certain type of customer.” Horwell said that, for example, when the first Nobu opened, the hotel had “more than one billion media impressions.”

So, what’s next for the brand, and how does Horwell plan to grow Nobu Hotels? He explained, “We’re not driven by reservations systems because we’re small. It isn’t as if we need a huge reservations system to fill a 400-room hotel. That’s why a lot of these corporations do well, because they have the reservations platform to fill the big hotels.” Nobu Hotels, by comparison, average anywhere from 100 to 150 rooms generally.

“The reason why those young lifestyle brands have emerged is because they’re like us. They are entrepreneurial, they’re unique because it’s a concept that’s come from the heart, from whoever is the original founder. But when it’s absorbed by a corporation, the whole thing changes. At the end of the day, the specialness is lost because then the corporation’s running it, and then, I think you lose what your original concept was all about. I think that’s the biggest issue.”

Horwell also doesn’t necessarily think of Nobu Hotels as occupying a place in luxury hospitality, instead referring to the brand as “special.”

“I look at our hotels not as luxury,” he said. “I look at them as special. I like us to be special, in each location we’re in. ‘Luxury’ is a word that’s used too much in terms of ‘everything is luxury today.’ For us, we’re ‘special.'”

“That’s why I’m saying, from a company perspective, we’re very entrepreneurial.

Today’s evolving luxury traveler is seeking “youthfulness” no matter what age they are, and they are “very curious and very adventurous. Because of that, it’s important for hospitality brands, Nobu included, to not just say they’re unique but to really offer unique experiences. He pointed to Nobu Ryokan Malibu in California as an example. The 16-room retreat overlooks the beach and is right by the ocean, and right next door to the Nobu Restaurant in Malibu. It becomes a destination, and that’s something Nobu wants to offer.

It’s also a different concept from what the other Nobu Hotels have. While Nobu Hotels are places where there’s an emphasis on bringing in the locals, the Ryokans are meant to be more private.

“The Ryokan is actually a place where people don’t want to necessarily be seen,” Horwell explained. “It’s a hideaway, a retreat. You can only book through a general manager and it’s a special place.” He added, “We will do more Ryokans, definitely, in locations that we think is right.”

A major focus for Nobu Hotels is to grow the company and the brand with the right talent and partners, as well as make sure that the Nobu Hotels brand is reaching the right consumers.

“The most important thing, from our perspective, is to build a relationship with our existing customers,” he said. “It’s about, first and foremost, on digital, working our databases. We like to do that through email, through a lot of channels. We just brought on a new head of digital. Capturing data is very, very important now, and that’s something that is a main focus and her team.”

“I think the main thing for us is the customer relationship management (CRM) because you can do so much with it,” he said. “You can know your customer. It’s one part of the business that we are heavily focused in in and we can extract a lot of information from that.”

In addition to beefing up its customer relationship management system, Nobu is also testing out a loyalty partnership, of sorts. The Nobu London Shoreditch joined Design Hotels last year, giving the property access to distribution on Design Hotels’ site, as well as a connection to the Starwood Preferred Guest loyalty program. Three Nobu hotels are also members of Leading Hotels of the World. “A lot of our customers aren’t driven by points,” he said. “When I travel, I don’t go for points. I want to stay in a hotel where I enjoy the staff, the food and beverage, the products — all of that — and I will pay a premium for it.”

Appendix A
Additional Information about NOBU

Nobu Hotels

"A Place to go and be seen"

By “wrapping” the concept of a luxurious boutique hotel around energized public spaces, Nobu Hotels creates powerful stages for shared experiences of excitement and escapism. Featuring the best of everything with imaginative new restaurants, high- energy bars, relaxing rejuvenation, distinctive service, remarkable retail and an air of celebrity, Nobu Hotels will afford guests and privileged owners the most exclusive entry into unparalleled experiences that lay at the crossroads of innovation and imagination.

Source:

Excerpted from ‘Nobu Hotels CEO on a Restaurant-First Approach to Hospitality’ by D. Ting. Skift – March 22, 2018. +Experts and image from Nobu restaurant and hotel website

Question: Identify TWO target segments for the NOBU brand and briefly describe each using the relevant concepts covered in this course

Traveling in Nobu Style: Converting Restaurant Patrons to Hotel Guests

The name “Nobu” is synonymous with an exceptional Japanese dining experience, perfected by chef Nobu Matsuhisa over a more than 30-year career. Matsuhisa, together with actor Robert De Niro and restaurateur Drew Nieporent, opened the first Nobu restaurant in 1994 and to date, there are now 38 Nobu restaurants worldwide.

But if you talk to Trevor Horwell, the CEO of Nobu Hospitality, Nobu represents much more than just a restaurant experience. It’s a true lifestyle brand that also encompasses a relatively small, but growing portfolio of luxury hotels, too — eight of which are open now, and eight more are in the pipeline.

Horwell’s primary focus as CEO is to continue to grow the Nobu Hotels brand and as he opens up diners’ eyes to the fact that cannot only eat at a Nobu but stay at one, too, he hasn’t forgotten the brand’s origins in the process.

“We don’t normally do a hotel unless we think that a Nobu Restaurant can do well in that location,” said Horwell. “That’s very important because what we want to do first and foremost is to make sure there is a draw for locals, and that really comes down to the Nobu Restaurant.” Horwell said the majority of his Nobu hotel restaurant diners — 80 percent on average — are local residents, not hotel guests. “It’s not like a tourist restaurant. We like to attract the locals. We want that built-in customer.”

“We are defined by the restaurant, in a way,” he said. “We play to our strengths. If you look at the hotel business today, the majority of hotels are suffering because they don’t lead with food and beverage. don’t have strong food-and-beverage concepts, and a lot of hotels are losing money. Today, we play to our strengths because that is one area that we do very, very well, and we bring in locals.”

The idea to launch Nobu Hotels, he said, came from the fact that when Nobu Restaurants were located inside of a hotel, they “were the draw for the hotel and we were bringing in customers.”

“If I only convert 5 percent of my customers in Nobu Restaurant to stay in our hotels, then at the end of the day, we’re filling out hotels. It’s not a tall order to do that, and you can do that very well and very quickly if you offer the right product.”

Nobu Hotels has the advantage of having built its brand over a 24-year period with its restaurants first, followed by the first Nobu hotel that opened within Caesars Palace Las Vegas in 2013.

“The first focus for us, really, is to expose the brand to our restaurant customers,” Horwell said. “We touch all types of Nobu customers. And we also provide instant identity. If you put ‘Nobu Hotel’ on a hotel, the word ‘Nobu’ says something and it attracts a certain type of customer.” Horwell said that, for example, when the first Nobu opened, the hotel had “more than one billion media impressions.”

So, what’s next for the brand, and how does Horwell plan to grow Nobu Hotels? He explained, “We’re not driven by reservations systems because we’re small. It isn’t as if we need a huge reservations system to fill a 400-room hotel. That’s why a lot of these corporations do well, because they have the reservations platform to fill the big hotels.” Nobu Hotels, by comparison, average anywhere from 100 to 150 rooms generally.

“The reason why those young lifestyle brands have emerged is because they’re like us. They are entrepreneurial, they’re unique because it’s a concept that’s come from the heart, from whoever is the original founder. But when it’s absorbed by a corporation, the whole thing changes. At the end of the day, the specialness is lost because then the corporation’s running it, and then, I think you lose what your original concept was all about. I think that’s the biggest issue.”

Horwell also doesn’t necessarily think of Nobu Hotels as occupying a place in luxury hospitality, instead referring to the brand as “special.”

“I look at our hotels not as luxury,” he said. “I look at them as special. I like us to be special, in each location we’re in. ‘Luxury’ is a word that’s used too much in terms of ‘everything is luxury today.’ For us, we’re ‘special.'”

“That’s why I’m saying, from a company perspective, we’re very entrepreneurial.

Today’s evolving luxury traveler is seeking “youthfulness” no matter what age they are, and they are “very curious and very adventurous. Because of that, it’s important for hospitality brands, Nobu included, to not just say they’re unique but to really offer unique experiences. He pointed to Nobu Ryokan Malibu in California as an example. The 16-room retreat overlooks the beach and is right by the ocean, and right next door to the Nobu Restaurant in Malibu. It becomes a destination, and that’s something Nobu wants to offer.

It’s also a different concept from what the other Nobu Hotels have. While Nobu Hotels are places where there’s an emphasis on bringing in the locals, the Ryokans are meant to be more private.

“The Ryokan is actually a place where people don’t want to necessarily be seen,” Horwell explained. “It’s a hideaway, a retreat. You can only book through a general manager and it’s a special place.” He added, “We will do more Ryokans, definitely, in locations that we think is right.”

A major focus for Nobu Hotels is to grow the company and the brand with the right talent and partners, as well as make sure that the Nobu Hotels brand is reaching the right consumers.

“The most important thing, from our perspective, is to build a relationship with our existing customers,” he said. “It’s about, first and foremost, on digital, working our databases. We like to do that through email, through a lot of channels. We just brought on a new head of digital. Capturing data is very, very important now, and that’s something that is a main focus and her team.”

“I think the main thing for us is the customer relationship management (CRM) because you can do so much with it,” he said. “You can know your customer. It’s one part of the business that we are heavily focused in in and we can extract a lot of information from that.”

In addition to beefing up its customer relationship management system, Nobu is also testing out a loyalty partnership, of sorts. The Nobu London Shoreditch joined Design Hotels last year, giving the property access to distribution on Design Hotels’ site, as well as a connection to the Starwood Preferred Guest loyalty program. Three Nobu hotels are also members of Leading Hotels of the World. “A lot of our customers aren’t driven by points,” he said. “When I travel, I don’t go for points. I want to stay in a hotel where I enjoy the staff, the food and beverage, the products — all of that — and I will pay a premium for it.”

Appendix A
Additional Information about NOBU

Nobu Hotels

"A Place to go and be seen"

By “wrapping” the concept of a luxurious boutique hotel around energized public spaces, Nobu Hotels creates powerful stages for shared experiences of excitement and escapism. Featuring the best of everything with imaginative new restaurants, high- energy bars, relaxing rejuvenation, distinctive service, remarkable retail and an air of celebrity, Nobu Hotels will afford guests and privileged owners the most exclusive entry into unparalleled experiences that lay at the crossroads of innovation and imagination.

Source:

Excerpted from ‘Nobu Hotels CEO on a Restaurant-First Approach to Hospitality’ by D. Ting. Skift – March 22, 2018. +Experts and image from Nobu restaurant and hotel website

In February 2016, Rahul Sajnani, owner of Moshi, a fusion restaurant in the Al Barsha area of Dubai, was pondering ways to make people more aware of his restaurant and its unique menu. A hands-on entrepreneur in his twenties, Rahul was not only involved in the day-to-day running of his restaurant, but he personally trained his staff and had developed the menu from scratch. The only problem with this level of involvement was that it left Rahul with little time to take care of marketing and branding. It was imperative for a new restaurant to become known in the market, but being a unique restaurant in Al Barsha was a challenge. Rahul’s discussions from the previous night with Khushboo, Moshi’s head of marketing and social media, had brought several issues to the fore. While Moshi’s menu was unique, with options such as cheesy chips Oman maki rolls, prawn tempura maki rolls, and pero pero mushroom momos, these items had no precedent in the market, which meant that the patrons had no idea what was good and what was not. How could Moshi grow in the industry with offerings that were so unique? Would the restaurant’s innovative nature be an asset or a liability? What sort of marketing strategy should Rahul adopt? Thus far, Rahul had relied on word-of-mouth publicity, but he wondered whether this practice would be adequate, going forward. As the owner of a start- up, he did not want to invest in advertising, so what were his alternative options? Because Rahul and Khushboo planned to open another restaurant in Dubai’s Oud Mehta locality, the first question they asked themselves was whether it was time to create a chain of Moshi restaurants or whether they should give the new location a completely different feel and target a specific customer segment. Khushboo pointed out that Moshi did not have a clear positioning in terms of its menu (see Exhibit 1), which consisted of Rahul’s fusion of Nepalese and Japanese cuisines. The next question pertained to increasing the product range. On the one hand, Rahul was happy that his dream of opening a restaurant with a unique cuisine had turned into a reality and that his start-up was getting a good response from customers. On the other hand, he faced some critical questions with respect to fostering th growth of his restaurant within a highly competitive industry. The Inception Rahul Sajnani started Moshi in Dubai’s Al Barsha locality in July 2015. The story behind the name of the restaurant was as interesting as the one behind its origin. That the restaurant specialized in fusion was evident from its name, Moshi, a portmanteau of “momo” and “sushi.” The distinctness of this restaurant lay in its dishes, which were noticeably different from the ones found in conventional restaurants. The restaurant abided by all the rules of the municipality. From the SAP-certified equipment for quality and safety to putting expiry dates on food contents, Rahul ensured that there were no lapses. He paid strict attention to the guidelines related to such things as specifications on the ratio of dining versus kitchen space and regulations about chefs changing their food-handling gloves every four hours. As in any other metro city, eating out was popular in Dubai. In one of his conversations, Rahul mentioned that, when eating out, people invariably ended up choosing fast food. This observation led to four distinct seeds of thought that became the basis on which Moshi was founded: (1) Why could eating out not be healthy? (2) Why did items like sushi have to be available only in a fine-dining setup? (3) When it came to sushi, why were there fewer options for vegetarians? (4) Why should eating out be expensive? Born and raised in Dubai, Rahul had gone on to finish his higher education in London, England. From then until now, there had always been one constant in Rahul’s life—his love for food, not just eating but also feeding others. Always happy to share his love of good cuisine, Rahul recalled how, during his student years, the responsibility of finding out where to eat and what to eat invariably fell on his shoulders whenever he spent time with friends. This love for finding new cuisines, new tastes, and feeding others had given Rahul’s passion a new dimension. Rahul’s family was vegetarian, and whenever he proposed eating sushi, his family had a difficult time finding a place that could accommodate their needs. Vegetarians had fewer choices, and the few they did have often mandated eating with chopsticks, which many found uncomfortable. Rahul wanted to do away with these hindrances. Rahul’s ponderings and the limitations of popular Japanese fare for vegetarians led Rahul to open Moshi in July 2015, over a year since the idea had first come to him in March 2014. After completing his studies in London, Rahul could have opted to join his family business in Dubai or take up another career of his choosing; however, he decided to open his own restaurant and convert his culinary passion into a profession. When the restaurant opened, it was no surprise that sushi formed one of the major items on the menu, including several options for vegetarians. “Pending Meal” Program Moshi opened in July 2015, which coincided with the holy month of Ramadan.1 Rahul’s philanthropic mindset made him collaborate with Dubai resident Sara Rizvi, the woman who had founded the concept of the “pending meal,”2 based on the idea of “pending coffee,” which had been very successful in Italy.3 At Moshi, 5 per cent of the total amount from every sale, including dine-in, take-out, and home delivery, went toward giving a meal to the needy. Rahul aimed to achieve his target of 500 pending meals by September 12, 2015 (see Exhibit 2). He chose local construction workers as his recipients, going to construction sites and distributing free meals to the workers there. Moshi managed to reach 443 patron-funded meals on September 12, 2015, and Rahul rounded up that number to 500 by adding 57 meals on his own. Although news of the “pending meal” drive was posted on Moshi’s social media platforms, Rahul insisted he had not launched the program for advertising purposes but as a corporate social responsibility initiative. His next pending meal plan, with a target of 1,200 meals by February 2016, was even more ambitious, but Moshi managed to surpass that goal, achieving 1,600 meals by February 14, 2016. The Menu The restaurant’s fusion theme was an accurate reflection of Dubai’s booming expatriate culture.4 Rahul divided his menu into eight sections, incorporating dishes from various origins such as Arab (cheesy chips Oman maki rolls), Thai (Thai green curry maki rolls), and Indian (chicken tikka maki rolls, paneer and spinach momo5); classics like chicken momo; and falafel sushi6 and other offerings that challenged any attempt at classification. Pricing The chefs made everything fresh after the placement of an order. Rahul’s aim was to debunk the myth that good-quality food had to be expensive, and hence, everything on Moshi’s menu was reasonably priced, providing value for money in terms of service and taste. A meal for two at Moshi cost around AED 80.7 Location Moshi was located in a rented space in the upscale Al Barsha area, a part of new Dubai. Because of the innumerable commercial and residential buildings in the locality, many restaurants had sprung up to cater to the workers and residents of the area. After much thought, Rahul had chosen this particular location for Moshi because of its centrality and accessibility (see Exhibit 3). Ambience Rahul planned the interior of the restaurant with the help of a designer friend. The ambience was one that would appeal to a young adult or a college student but would accommodate and welcome families as well. Rahul liked to describe the restaurant’s setting as “cool, comfortable, and trendy.” At Moshi, people could eat with forks, spoons, or chopsticks—whatever they felt comfortable with. The trendy atmosphere was preserved through the contemporary furniture and the cutlery. Staff and Service Moshi’s staff strength of 18 included nine chefs, four drivers for home deliveries, two cashiers, one operations manager, one marketing manager, and Rahul himself, the owner. The restaurant focused on diversity to ensure that it would appeal to a variety of ethnicities. Moshi employed people of Kenyan, Ugandan, Ghanaian, Pakistani, Bangladeshi, Indian, and Filipino descent, as well as others. Rahul provided the required training to his employees, focusing on soft skills to provide superior customer service. For example, the employees were asked to remember the names of regular customers, and they were empowered to be customer-centric while dealing with patrons. The employees received training in hard skills as well, such as learning how to use the cash register and serve food. They were provided with competitive salaries, medical benefits, accommodation, and free food during their shift. The staff was given days off in rotation, which was a common practice in the restaurant industry in Dubai. They were also given incentives, such as movie tickets and gift coupons. The restaurant was small, but the fast turnaround time—service in 15 minutes—ensured a good management of customer queues; additionally, the staff always engaged with the customers who were waiting outside. For instance, they served tea to customers waiting for a table or took orders so that when each customer’s turn came, their food was ready and they did not have to wait. The average footfall for dine-in traffic on weekdays was around 50 patrons per day, increasing to 90 per day on weekends. Marketing Rahul’s hands-on approach in the restaurant led to a good rapport with all patrons and even one-time-only visitors; he often utilized their feedback to develop new dishes and to tweak dishes to suit his customers’ tastes. Customization was a prime option provided at Moshi. The idea was to use personal selling and interaction to build rapport, in turn encouraging word-of-mouth recommendations. Although the word-of- mouth publicity worked to a considerable extent, Rahul knew it was not enough, so he ensured online visibility through Facebook, Twitter, Instagram, and Snapchat, making sure to keep the sites current with regular posts and offers. As an added incentive, Moshi collaborated with a nearby parking lot to provide free parking for visitors to make it convenient for them to come to the restaurant. Competitors Rahul believed that, given the unique nature of its offerings, Moshi had no competition; however, its location pitted it against many other restaurants in the vicinity, not to mention the regions covered by restaurants that offered home delivery. Exhibit 4 lists those restaurants that could be considered Moshi’s major competitors. The Problem Moshi reported a turnover of $170,000 by December 2015, with a net profit of $37,000. Rahul was planning to invest an additional $400,000 to support his expansion and marketing plan. He realized that the menu at Moshi served the palate of many nationalities and was not restricted to just one, and that was how he had intended it to be—catering to all palates; however, that characteristic also made it difficult to identify where Moshi’s market actually lay. Brand identification became tough because the expatriate community had no understanding of the Moshi brand or menu. While the neighboring competitors had a very clear demarcation of their respective clientele, Moshi had the potential to either steal their clientele or risk being lost in the crowd. As Rahul pondered the possibilities for the new restaurant he wanted to open in Oud Mehta, all these issues posed some concern. Rahul had to think carefully about how to market his uniquely diverse offerings to the multicultural population of Dubai. Was he truly in a monopolistic market, or was that a false notion? Was Moshi’s product range conducive to segmentation and effective marketing? Should Moshi restrict itself to its unique menu, or should it expand the menu to cater to a larger set of customers?

1. DESCRIBE the ways Rahul Sajnani, owner of Moshi, was a hands-on entrepreneur and EXPLAIN the problem that created.

2. IDENTIFY the challenge Moshi faced due to its menu and DESCRIBE how it affected the marketing strategy.

3. EVALUATE two ways Sajnani ensured Moshi’s service and staff became the backbone of the restaurant.

8. A “laissez-faire” approach to the macroeconomy before the Great Depression influences our government to:

            a) See business downturns as a “serious malady” in a “healthy” system, and therefore take only short-term deficit spending measures to help recovery.

            b) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore wait for recovery to occur naturally.

            c) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore work to redesign the system to avoid such failure in the future.

            d) See business downturns as a failure of the type of system Adam Smith envisaged, and thus move toward a modern, more managed economy.

            e) See business downturns as a failure of the current system to be the type that Adam Smith envisaged, and thus move toward less government interference in the macro economy

9. Keynes believed that the Great Depression was caused by:

            a) Unemployment.

            b) Deficit spending by the government.

            c) The tax increases put through by President Herbert Hoover.

            d) The policies of “demand-style” economies.

            e) A fall in aggregate demand.

10. Keynes believed that the best method for ending the Great Depression would be to:

            a) Increase the money supply so that individuals would have more to spend.

            b) Cut government spending and increase taxes to reduce.

            c) Increase government spending and cut taxes so that consumers would spend more.

            d) Cut both government spending and taxes so that government would not be such a large     part of the economy.

            e) Increase both government spending and taxes to increase the role government played     in the economy.

11. Keynes was:

            a) In favor of a federal budget deficit to cure an inflation.

            b) Opposed to a federal budget surplus to cure an inflation.

            c) In favor of a federal budget deficit to cure a recession.

            d) In favor of a federal budget deficit regardless of the state of the economy.

12. Proponents of monetarism:

            a) Feel that fiscal policy of worthless.

            b) View government spending as the most important public policy tool.

            c) View taxation as the most important public policy tool.

            d) Support Keynesian economics.

            e) View the money supply as the most important public policy tool.

13. The word “stagflation” describes a situation in which:

            a) Inflation is stagnated.

            b) Inflation increases with economic growth.

            c) Inflation and unemployment occur at the same time.

            d) Inflation is low enough to grow economic growth.

            e) Inflation is zero.

14. The main difference between economic change before 1970 and after 1970 is that before 1970:

            a) Most macroeconomic instability was caused by simultaneous shifts in aggregate demand and aggregate supply.

            b) Most macroeconomic instability was caused by shifts in aggregate supply.

            c) Most macroeconomic instability was caused by shifts in aggregate demand.

            d) The government assumed no direct responsibility for the level of employment.

            e) The government itself was a much less important player in the macroeconomy.

15. The labor force consists of:

            a) All the people in the economy.

            b) All the people in the economy over 16 years of age.

            c) All the adults in the economy able to work.

            d) All the adults in the economy who hold jobs or are looking for them.

            e) All the adults in the economy qualified to hold a job.

16. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The number of people in the labor force is:

            a) 100

            b) 30

            c) 10

            d) 80

            e) 70

17. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The rate of unemployment is:

            a) 10 percent.

            b) 12.5 percent.

            c) 14.3 percent.

            d) 20 percent.

18. The labor force participation rate for women in the United States has

            a) Stayed the same over the last 30 years      

            b) Increased significantly since the 1950s     

            c) Been influenced by decreasing real wages since 1960     

            d) Trended substantially downward since the 1950s

            e) Increased only very slightly since the 1950s

Food and Beverages at Northeastern University Football Games

Northeastern University (NEU), a large state college in Stephenville, Texas, 30 miles northeast of the Dallas/Fort Worth metroplex, enrolls close to 20,000 students. The school is the dominant force in the small city, with more students during fall and spring than permanent residents.

A longtime football powerhouse, NEU is a member of the Big Eleven conference and is usually in the top 20 in college football rankings. To bolster its chances of reaching the elusive and long-desired number-one ranking, in 2010 NEU hired the legendary Bo Pitterno as its head coach. Although the number one ranking remained out of reach, attendance at the five Saturday home games each year increased. Prior to Pitterno’s arrival, attendance generally averaged 25,000–29,000. Season ticket sales bumped up by 10,000 just with the announcement of the new coach’s arrival. Stephenville and NEU were ready to move to the big time!

With the growth in attendance came more fame, the need for a bigger stadium, and more complaints about seating, parking, long lines, and concession stand prices. Northeastern University’s president, Dr. Marty Starr, was concerned not only about the cost of expanding the existing stadium versus building a new stadium but also about the ancillary activities. He wanted to be sure that these various support activities generated revenue adequate to pay for themselves. Consequently, he wanted the parking lots, game programs, and food service to all be handled as profit centers. At a recent meeting discussing the new stadium, Starr told the stadium manager, Hank Maddux, to develop a break-even chart and related data for each of the centers. He instructed Maddux to have the food service area break-even report ready for the next meeting. After discussion with other facility managers and his subordinates, Maddux developed the following table showing the suggested selling prices, and his estimate of variable costs, and the percent revenue by item. It also provides an estimate of the percentage of the total revenues that would be expected for each of the items based on historical sales data.

Maddux’s fixed costs are interesting. He estimated that the prorated portion of the stadium cost would be as follows:

salaries for food services at $100,000 ($20,000 for each of the five home games); 2,400 square feet of stadium space at $2 per square foot per game; and six people per booth in each of the six booths for 5 hours at $7 an hour. These fixed costs will be proportionately allocated to each of the products based on the percentages provided in the table. For example, the revenue from soft drinks would be expected to cover 25% of the total fixed costs.

Maddux wants to be sure that he has a number of things for President Starr:

(1) the total fixed cost that must be covered at each of the games;

(2) the portion of the fixed cost allocated to each of the items;

(3) what his unit sales would be at break-even for each item—that is, what sales of soft drinks, coffee, hot dogs, and hamburgers are necessary to cover the portion of the fixed cost allocated to each of these items;

(4) what the dollar sales for each of these would be at these break-even points; and

(5) realistic sales estimates per attendee for attendance of 60,000 and 35,000. (In other words, he wants to know how many dollars each attendee is spending on food at his projected break-even sales at present and if attendance grows to 60,000.) He felt this last piece of information would be helpful to understand how realistic the assumptions of his model are, and this information could be compared with similar figures from previous seasons.

Discussion Question

1. Prepare a brief report with the items noted so it is ready for Dr. Starr at the next meeting.

Note: Answers should be in word version format please

Why GDP is a Poor Measure of Progress

WOULD a feudal king swap places with a present-day insurance clerk? The king has many palaces and armies of servants. But he is also a martyr to toothache. News reaches him slowly. His food is often stale. And he is bored of his courtiers. He might willingly trade his kingdom for life as an office drone in the 21st-century, with its dentistry, refrigeration, Google and YouTube. The poser underlines the great material advances made in recent centuries. It also shows how tricky it is to compare living standards over time and across societies. Comparisons over recent decades are routinely made using GDP, but they are troublesome. Why is GDP a poor measure of progress?

Gross domestic product is a measure of output, income and spending all at the same time. In post-war Europe and America, the growth in living standards and in GDP were synonymous. GDP growth became a target for politicians and a scorecard by which they were judged by voters. Even so, it has always had critics. Environmentalists have long lamented that GDP treats the plunder of the planet as something that adds to income, rather than being treated as an expense. A repeated charge is that GDP is divorced from notions of spiritual well-being. Robert Kennedy once famously took aim at GDP which, he said, counted cigarette advertising and jails but did not include “the beauty of our poetry or the strength of our marriages”. Still, GDP growth was a decent, if rough, guide to material progress. The more output and income was generated (after adjusting for inflation), the better off we were.

That equation worked pretty well when the economy was still mostly farms and factories, producing things of similar quality that could easily be counted. But GDP is less suited to the task of measuring modern, service-led economies that are geared towards the quality of consumer experience, rather than consumption of greater quantities. It is far harder to identify the extent to which changes in price reflect a better service. When medical charges rise, it will generally count as inflation, even if the quality of health care is improving faster than prices are rising. And where consumers pay nothing, as is often now the case with digital services, they do not register in GDP. The consumer benefits from Google and Facebook are thus excluded. Previously paid-for things, such as maps, encyclopedias and music recordings, are now free. So they have dropped out of GDP. Online shopping, banking and travel-arranging is more convenient for consumers. To the extent that all this saves on buildings, it detracts from GDP. For the most part, the trickiness of measuring the output of services leads real GDP to be understated. But mis-measurement works the other way, too. For instance, if an airline squeezes more (and thus cheaper) seats on to a plane, it counts as extra output, even though the quality of service falls. Perversely, the more risks banks take, the more they contribute to GDP, even as the quality of lending falls.

GDP is a creature of the industrial era of mass-produced, homogenous goods. It is a far less useful guide to affluent economies where the quality of services is prized over simply having more stuff. It is badly attuned to digital economies, where activities that were once paid for, such as contacting friends or finding information, no longer attract a charge. GDP is thus increasingly failing to fully capture gains in average living standards. It is tricky to compare the life of a medieval king to that of a modern-day worker. But it is almost as difficult to put a number on how much better is a consumer basket that includes smartphones and music streaming to one filled with fax machines and audio-cassettes.

Discuss why GDP may or may not be a good measure of progress in modern economics using examples from the the above article to support your answer ( word count:250-350 words)

{ Hint : a complete discussion will present both sides of the argument }

Before taking this class, did you think your diet was balanced? What are the strengths and weaknesses of your current diet? Your initial answer should be 500 words minimum. Reference at least two sites you visited on this topic (APA or AMA citation).

Comment and provide feedback to the comments (300 words minimum). PLEASE PROVIDE A SUBSTANTIAL RESPONSES (300 word minimum) FOR THE ABOVE PARAGRAPH.Express ideas and opinions in a clear and concise manner with obvious connection to the topic.

Before answering this discussion question, I had to look up what a balanced diet is because I don’t truly know the real definition of what is considered balanced. According to Healthline, “you should consume the majority of your daily calories in fresh fruits, fresh vegetables, whole grains, legumes, nuts, lean proteins”. When remembering what I ate the past few weeks, I thought that I sometimes have a balanced diet, but it is inconsistent. There would be days where I would eat cheetos and eat one meal of rice and some type of protein, and that would get me full for a day. Then there are other days where I would create my own smoothies with a good amount of fruits and vegetables, then eat my proteins with a side of steamed vegetables. For the most part, I live a healthy life but I treat myself often with processed foods and desserts. Growing up in an Asian household, our meals are usually focused on rice and then there would be side dishes of protein and vegetables, varying from 2-3 different dishes. So with that, we get a good balance of carbohydrates and proteins. One of my favorite dishes is tofu in a tomato reduced soup. I absolutely hate legumes and any type of bean, so I am glad that I can enjoy tofu, so that I fulfill the consumption of what is considered balanced. My strengths of my current diet is that I try to drink a smoothie every day to get my daily dose of fruits. I enjoy all types of fruit and the only one I would refuse to eat are avocados. I also love tomatoes and I try to cook and incorporate tomatoes into my daily meals. I love eating vegetables as well and because I am used to eating steamed vegetables, it is healthier than using more ingredients and stir frying them to make them taste better. I eat fruits and vegetables almost daily with few exceptions during the week. My weaknesses however, are definitely eating empty calories. According to WebMD, “there are basically two empty-calorie culprits in our diets: anything with lots of sugar or other sweeteners and anything with lots of fat and oil”. One of my weaknesses is eating chips and drinking fruit juice such as Minute Maid Fruit Punch. I try to limit my intake on empty calories and the most helpful tip that helped me limit them is by not having them in the house. When I have them in the house however, I usually eat them in one or two sittings, and I would be full for the day. When I go grocery shopping, I try to get just one bag of chips or sweets to help satisfy my craving and focus the rest of my groceries on healthy foods. Another vice I have is eating out, which used to take up a good amount of my diet, as I used to eat out in restaurants once or twice a week. Because of the pandemic happening, I haven’t been eating takeout and feel that even after it is over I will limit how often I eat out as I am used to it now.

Assume today is March 16, 2016. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science.
She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle,
Washington, and earns $38,000 a year that she anticipates will grow at 3% per year. Natasha hopes to retire at age 65 and
has just begun to think about the future.
Natasha has $75,000 that she recently inherited from her aunt. She invested this money in 30-year Treasury Bonds. She is
considering whether she should further her education and would use her inheritance to pay for it.
She has investigated a couple of options and is asking for your help as a financial planning intern to determine the financial
consequences associated with each option. Natasha has already been accepted to both of these programs, and could start
either one soon.
One alternative that Natasha is considering is attaining a certification in network design. This certification would
automatically promote her to a Tier 3 field service representative in her company. The base salary for a Tier 3
representative is $10,000 more than what she currently earns and she anticipates that this salary differential will grow at a
rate of 3% a year as long as she keeps working. The certification program requires the completion of 20 Web- based courses
and a score of 80% or better on an exam at the end of the course work. She has learned that the average amount of time
necessary to finish the program is one year. The total cost of the program is $5000, due when she enrolls in the program.
Because she will do all the work for the certification on her own time, Natasha does not expect to lose any income during
the certification.
Another option is going back to school for an MBA degree. With an MBA degree, Natasha expects to be promoted to a
managerial position in her current firm. The managerial position pays $20,000 a year more than her current position. She
expects that this salary differential will also grow at a rate of 3% per year for as long as she keeps working. The evening
program, which will take three years to complete, costs $25,000 per year, due at the beginning of each of her three years in
school. Because she will attend classes in the evening, Natasha doesn’t expect to lose any income while she is earning her
MBA if she chooses to undertake the MBA.
1. Determine the interest rate she is currently earning on her inheritance by going to Yahoo! Finance
(http://finance.yahoo.com) and typing the word “Treasury” in the search field and picking the 30 year yield
(ticker: ^TYX) off the dynamic menu that appears. Then go to “Historical Prices” (located in the left column) and
enter the appropriate date, March 16, 2016 to obtain the closing yield or interest rate that she is earning. Use this
interest rate as the discount rate for the remainder of this problem.
2. Create a timeline in Excel for her current situation, as well as the certification program and MBA degree options,
using the following assumptions:
Salaries for the year are paid only once, at the end of the year.
The salary increase becomes effective immediately upon graduating from the MBA program or being certified.
That is, because the increases become effective immediately but salaries are paid at the end of the year, the first
salary increase will be paid exactly one year after graduation or certification.
3. Calculate the present value of the salary differential for completing the certification program. Subtract the cost of
the program to get the NPV of undertaking the certification program.
4. Calculate the present value of the salary differential for completing the MBA degree. Calculate the present value of
the cost of the MBA program. Based on your calculations, determine the NPV of undertaking the MBA.
5. Based on your answers to Questions 3 and 4, what advice would you give to Natasha? What if the two programs
are mutually exclusive? That is, if Natasha undertakes one of the programs there is no further benefit to
undertaking the other program. Would your advice be different?

Section 2 - CASE ANALYSIS INSTRUCTIONS:

1. Read the case below carefully and answer ALL the questions which follow.

2. Your answers may be entered using a Microsoft Excel spreadsheet OR may be entered in a table format using Microsoft Word.

HEALTHY OPTIONS INC.

Healthy Options is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and falls within a MARCS depreciation of 5 years, and is expected to have a scrap value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase accounts payable by $50,000 at the beginning of the project. Healthy Options expects the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000.

The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line. Expected annual sales for the ECG machines in years one to three are $1,200,000, and $850,000 in the following two years. The variable costs of production are projected to be $267,000 per year in years one to three and $375,000 in years four and five. Fixed overhead is $180,000 per year over the life of the project.

The introduction of the new line of portable ECG machines will cause a net decrease of $50,000 in profit contribution after taxes, due to a decrease in sales of the other lines of tester machines produced by the company. By investing in the new product line Healthy Options would have to use a packaging machine which the company already has and which will be sold at the end of the project for $350,000 after-tax in the equipment market.

The company’s financial analyst has advised Healthy Options to use the weighted average cost of capital as the appropriate discount rate to evaluate the project. Information about the company’s sources of financing is provided below:

• The company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. Healthy Options has also issued 4,000 new bond issues with an 8 percent coupon, paid semiannually, and which matures in 10 years. The bonds were sold at par, and incurred floatation cost of 2 percent per issue. • The company’s preferred stock pays an annual dividend of 4.5 percent and is currently selling for $60, and there are 100,000 shares outstanding.

• There are 300,000 shares of common stock outstanding, and they are currently selling for $21 each. The beta on these shares is 0.95.

Other relevant information about the company follows: The 20-year Treasury Bond rate is currently 4.5 percent and you have estimated market-risk premium to be 6.75 percent using the returns on stocks and Treasury Bonds from 2010 to 2019. Healthy Options has a marginal tax rate of 25 percent. As a recent graduate of the UWIOC, The General Manager of the company has hired you to work alongside the Financial Controller of the company to help determine whether the company should invest in the new product line. He has provided you with the following questions to guide you in your assessment of the project and to present your findings to the Company.

REQUIRED:

7. Determine the weighted average cost of capital (WACC) for Healthy Options.

8. Calculate the initial investment cash-flows.

9. Calculate the after-tax operating cash-flows.

10. Determine the tax on salvage value of the equipment, then show the terminal year cash-flows.

11. Identify three (3) relevant cash flows which were mentioned in the case and how they should be treated in the capital budgeting decision.

12. Taking into consideration all the information given, determine the Net Present Value of the project and advise the company on whether to invest in the new line of product. (Use your answer to Q7 rounded to the nearest whole in the calculations of the other questions where necessary