An Approach to Bar Management by Innovation: A Case Study of the Academic Bar in Bergen Norway

Transcription

1 An Approach to Bar Management by Innovation: A Case Study of the Academic Bar in Bergen Norway Lin Cheng-Chang, Department Hospitality management, Diwan University, Taiwan LIN Chih-Ting, Urban and regional planning, Faculty of Architecture, Design and Planning, the University of Sydney, Australia Wu Mu-Lin, Department Information Technology management, Diwan University, Taiwan ABSTRACT A qualitative research method of an in-depth interview, discussion, and analysis of the Academic Bar (the name and identifying details have been changed to protect his privacy). The strategic value of innovation theory coordinates with the product lifecycle to analyze the value curve of the innovation and then determine the direction of production and marketing. In the competitive environment, the Academic Bar follows development strategy focuses on marketing strategies to create competitive advantages and core competencies to get higher sales volume and to lower their manufacturing costs, creating and operating diverse sales channels. The Academic Bar located in Bergen, Norway, having six colleges or universities with 25,000 students in total. Owing to these changes, tourism is decreasing. However, the bar constructed a new market strategy using value innovation to create new target customers, and new production and marketing to meet the changing market. The bar is achieving this and is successful now. The objectives of the case study are (1).to realize the research and innovative strategy processes, (2).to prove the value of innovation in the constantly changing market environment. The approach analyze with the step of constructing Blue Ocean strategy (Kim & Mauborgne, 2004). Overall, testing the value of innovations, the Academic Bar has proven consistent with the logic of value innovation strategy. The innovative value has agreed with the four elements. Finally, the research and innovative strategy processes were realized and proved the value of innovation in the constantly changing market environment. Keywords: Blue Ocean strategy, reconstruct market boundaries, value innovation INTRODUCTION Companies make business strategies through analysis of the environment, competitors, and the strengths and weaknesses of the company. According to analysis, companies traditionally compare with competitor to choose a low cost, centralized and differential strategy. There is a different way to make the decision with an innovation to create a new market and value for both customers and firms. The strategy should be able to achieve differentiation but not to increase costs to the company. Strategy is selected in the competitive environment. Companies should follow the development of the market carefully in order to establish and develop customer satisfaction and loyalty. Business development strategy should focus on marketing strategies to create competitive advantages and core competencies to get higher sales volume and to lower their manufacturing costs, creating and operating diverse sales channels. The Journal of International Management Studies, Volume 4, Number 3, December

2 Servicescapes affect on the feeling of customer in the service environments. Ambient conditions refer to these characteristics of environment which is unconsciously affect customer s emotion, perceptions, attitudes and consuming behaviors. In service setting, the various structural characteristics such as visual (color, bright, size), aural (tempo, volume, and harmony), olfactory, tactile, taste, store image, space image, ambient factors and design factors (functional factors and aesthetic factors) are perceived different influences (Kotler, 1974). The right style of employees maintains important role to complete the service delivery process which is influence on a customer s pleasure and arousal. Anyway, the style of the employees which is achieved in ways of professional appearance and attractiveness should be completely congruent with the restaurant image to maximize the effect on customer perceptions. A spatial layout that makes people feel constricted has a direct effect on quality of customers perceptions which higher levels of excitement indirectly increase on their desire to return (Wakefield & Blodgett, 1994). Prior research has shown that music can affect consumer behavior in retail environments (Yalch & Spangenberg, 1990) and influence their desire to affiliate in buyer-seller interactions (Dube et al., 1995). Consumers spent more time and money in a slow tempo retail environment, and also took more time to eat their meals compared to those in the fast-music condition. Beverage revenue was also higher in the slow-music condition (Milliman 1986). The Blue Ocean strategy is simply innovating for differentiation of the business to simultaneous give a higher value and lower cost for a certain product or service. Cost savings are making from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. The defining characteristics of blue ocean strategy are (1) create uncontested market space; (2) make the competition irrelevant; (3) create and capture new demand; (4) break the value/cost trade-off; (5) align the whole system of a company s activities in pursuit of differentiation and low cost (Kim & Mauborgne, 2004). The approach analyze with the step of constructing Blue Ocean strategy. Firstly, the study discusses the boundaries of reconstructing the market with a six paths framework (alternative vs. substitute, strategic group, purchaser-user-influencer, complementary service/products, functional vs. emotional orientation, and time and trends) and then analyzes a four actions framework (eliminate, reduce, raise, and create). Finally, value curve analysis is used to prove the influence of differential products with low-cost. In the different stages of market evolution, there is a need to choose different strategies and different ways of innovative value to enhance the rate of success. The Academic Bar (the name and identifying details have been changed to protect his privacy) located in Bergen, Norway is used for the example. The study is based on a qualitative research method of an in-depth interview, visits to organizations and document analysis of the Academic Bar. The strategic value of innovation theory coordinates with the product lifecycle to analyze the value curve of the innovation and then determine the direction of production and marketing. The Academic Bar had good business in the beginning five years but failed in the next two years because of climate deterioration and a ban on smoking. Owing to these changes, tourism is decreasing. However, the Bar constructed a new market strategy using value innovation to create new target customers, and new production and marketing to meet the changing market. The Bar is achieving this and is successful now. The objectives of the case study are (1).to realize the research and innovative strategy processes, (2).to prove the value of innovation in the constantly changing market environment. 26 The Journal of International Management Studies, Volume 4, Number 3, December 2009

3 RESEARCH METHODOLOGY The Academic Bar has achieving a good business. The study is based on a qualitative research method of an in-depth interview, discussion, and analyzing environment, internal, and competitors of the Academic Bar to realize the research and innovative strategy processes; and to prove the value of innovation in the constantly changing market environment. Environment analysis The factors of market environment analysis consist of population, the overall level, trend of demand, and the geographic location of demand composition. The research needs to understand not only the customer needs and preferences but also of how each perceives the competition. (I). Internal Analysis The identification of internal business is related about (1) organization s resources which include financial, human labor and know-how, and physical assets, (2) limitations and constraints, (3) goals which include profitability, growth, professional preference, (4) value curve, (5) potential target customer either new or existing now. This is key point for deciding target customer, integrating their desired position, and emphasizing benefits to customers. (II). Competitor s Analysis The identification and analysis of internal strengths and weaknesses is compared with of competitors for providing opportunities for differentiation. The insight examination is for finding viable opportunities and competitive advantage on which target customer is focused. The outcome of integrated analysis is (1) the statement of position, (2) the development of a specific plan of action, (3) profit and loss statement of the bar. Finally, this analysis is finding out differentiate strategy and its lay out. (III) The Academic Bar Marketing Strategy In the different stages of market evolution, different strategies and different ways of innovative values are decided to improve the rate of success. The Academic Bar marketing strategy is alternatives, strategic groups, chain of buyers, complementary offerings, and across functional and emotional appeal. (IV) Four Actions Framework Analysis The strategic value of innovation theory coordinates with the product lifecycle to analyze the value curve of the innovation and then determine the direction of production and marketing. Finally, value curve analysis is used to prove the influence of differential products with low-cost. FINDINGS AND DISCUSSION After conducting in-depth interviews with the key members, we understand company background, market environment, and organized our findings into three main themes: the environment, competitor s analysis, internal analysis. (I). The Environment Analysis of basic message of environment includes population data, market composition, tourist resources, location, and trends to realize the background of markets. Bergen which occupies the majority of the Bergen peninsula is located in mid-western Hordaland. The city covers area about 465 km² (Bergen, 2009). The population is 244,620 and the population density is 534 people per km². In 2002, the average gross income for men above the age of 17 years old is 426,000 NOK, the average gross income for women above the age of 17 years old is 238,000 NOK, with the total average gross income being 330,000 NOK. Because the city is surrounded by mountains that cause moist North Atlantic air to undergo orographic lift, which yields abundant rainfall, Bergen has been nicknamed the City of Rain for its The Journal of International Management Studies, Volume 4, Number 3, December

4 plentiful rainfall of annual precipitation 2250 mm (88 inches) on average. Moreover, it has been raining during 85 consecutive days in This was also caused the big lost of business. In the winter, Bergen is one of the warmest cities in Norway to attract tourist, thanks to the Gulf Stream. The main attraction of Norway is the varied landscapes that extend across the Arctic Circle. It is famous for its fjord-indented coastline and its mountains, ski resorts, lakes and woods. Bergen is one of main tourist cities in Norway. Fløibanen in Bergen is the most visited tourist attractions both cultural and natural in In the cities, Bryggen in Bergen has rich historic and cultural buildings and areas which attract many visitors. Much of the nature of Norway remains unspoiled, and thus attracts numerous hikers and skiers. The fjords, mountains and waterfalls in Western and North Norway attract several hundred thousand foreign tourists each year. The culture of Norway evolved as a result of its sparse population, harsh climate, and relative isolation from the rest of Europe. Therefore, it is distinct from other countries in Europe in that it has fewer opulent palaces and castles, smaller agricultural areas, and longer travel distances. Regionally distinct architecture, crafts, and art are presented in the various folk museums, typically based on an ethnological perspective (Bergen, 2009). Smokers of Norwegian adults about 26% are higher than the World Health Organization s recommended maximum of 20%. Norway has introduced a nationwide ban on smoking in restaurants and bars from Jun (II). Internal Analysis Basic information of the academic bar analyzes including of resources, reputation, constraints, values, strengths, and weaknesses. All of these are important message to realize processing to form the managing strategy of Academic bar. The Academic Bar had good business in the beginning five years but failed in the next two years because of climate deterioration and a ban on smoking. Due to global warming, precipitation and winds have increased in the city. Since 2005, severe storms causing landslides and floods have caused more powerful in the area in coming years. The Academic Bar, which is located in Bergen, Norway, is used for this study. Bergen is the second largest city in Norway. Tourism is an important source of income for the city. The city has six colleges or universities with 25,000 students in total (Education in Norway, 2009). The Academic Bar is located near the schools, for convenient student access. There is not a bar in the city designed with a focus on the students (Bergen, 2009). Depending on student market, strengths of the strategy are the same language and same culture easier communication, understanding their needs and wants to supply better quality food and beverage and service, distance near to convenient approach, and with a powerful distribution supply chains. Weaknesses of the strategy are limited market channel, price lower for student consuming, new-brand for student, with no experience to service student market, and limited understand their need and wants. (III). Competitors Understanding competitors of its positioning, marketing, and organizing is to analyze opportunities and threats of market which is the key point for making different market. Bergen has much bars and pubs for us who want to have a good time after eight. But Bergen is not the right place for have a party at night longer because the nightclubs closes very early and the high prices on beer, wine, liquor, and admission fees. Due to climate deterioration and a ban on smoking, tourism is decreasing. According to analysis, companies traditionally compare with competitor to choose a low cost, and centralized this differential strategy. There is a different way to make the decision with an innovation to create a new market and value for both customers and firms. The strategy is able to achieve differentiation but not to increase costs 28 The Journal of International Management Studies, Volume 4, Number 3, December 2009

5 to the company. The bar business belong to a maturity market because of the slow growth rate and stabilized competition. Due to the character, new products need to interact with three innovations (procedures, experience and marketing). Depending on student market, opportunities for the strategy are supplying affordable price and quality food and beverage and service for student, approaching lifestyle of student, constructing a website stage for student on line communication and discussion, pleasant and relaxing servicescapes, making a sense of student family, smoking zone, and health drink. Threats of the strategy are raining caused tourist decreasing, ban of smoking, and over drinking alcohol caused health problem (Figure 1). Strengths Same language Same culture Better quality Distance near Distribution of supplier chain Opportunities Price Quality Lifestyle Website Servicescapes Smoking zone Family of student Healthy drink Weaknesses Limited market channel Price lower No-brand No-experience Limited understand Threats Raining Ban of smoking Alcoholic problem Figure 1. SWOT analysis bar business on student market The bar which is located near to university in Bergen has a tropical theme and a cozy atmosphere. Most guests are young people. Very friendly doormen, and very likeable bartenders, and is central to all the other hot clubs in town. Prices are quite average. This is a very nice place to spend the evening. After identifying and analyzing competitors provide us marketing sense of its strengths and weaknesses which corporate internal analysis in turn to give its opportunities for the differentiations and competitive advantage. Thereby, enable the bar to decide which benefits should be emphasized to which target segments. (IV). The Academic Bar Marketing Strategy The study finds that the bar business is belong to a maturity market because of the slow growth rate and stabilized competition. Due to the character, new products need to interact with three innovations (procedures, experiences and marketing). In the different stages of market evolution, there is a need to choose different strategies and different ways of innovative value to enhance the rate of success. The Academic Bar marketing strategy is: (1) alternative vs. substitute: to select students (age 20~35) as the new target customer, to supply simple food pairing with beverages, to create an outside bar with a smoking zone for people. The smoking utility with good facility to protect patrons from wind and rain and a heating system in winter; to create a sense of the third family of student, to supply non alcoholic The Journal of International Management Studies, Volume 4, Number 3, December

6 drinks such as fresh juice, organic drinks and functional drinks (the health conscious drinks), (2) strategic group: to sign a specific discount with university and college student unions, to use website and posters for advertising, to running a weekly special day for ladies or schools, (3) purchaser- user-influencer: to compare distribution suppliers to lower costs and get good quality materials to supply the best product for the customer, (4) complementary service/products: to weekly operate different theme parties, pub quizzes and student parties for students, to attract students, to follow the current world trends of such as offering lower alcohol drinks or nonalcoholic drinks, lower sugar beverages, to supply fruit juices and functional food and/or drinks, (5) functional vs. emotional orientation: to create a place with the sense of a third family for the students, to play live music, to renew sports news, to set up a place for a photo gallery, to provide free access to the internet, and to construct a website for customers to keep in touch with the business. Student is used to get on line of internet. The website is one of good way to attract student getting on line for advertisements. The web with rich contents including introduces rich knowledge of food and beverage, searching engine, and routine activities; by the way, this plays as a net to connect all customers and staffs together. In advance of, business collects the useful data bases of customers for using these data to customer relationship management (CRM) (Winer, 2001). The students are interested getting on line communication and discussion together and the numbers of group are growing, finally, they are turning into customers and forming an interpersonal network. The CRM is a valuable way to improve the business and is supplying the principle message for business making marketing strategy. (V). Four Actions Framework of the Academic Bar Analysis four actions framework found the new value of the Bar: (1).eliminate: To eliminate the ban of smoking, to decrease seats in inner bar instead of adding seats outside of the bar; to shorten the space between customers and bar staff so the customer can see the bar staff making their drinks; (2).reduce: to lower sugar, to lower the cost of food; to decrease the number of full time staff; to reduce price; to decrease the luxury decorations in the bar; (3). raise: to focus joyful ambient; to show social responsibility towards drinking; to increase the concept of health; to build up a common sense for the Academic Bar; to enhance the taste and quality of drinks; to have standard operation procedures which the job can be replaced by part time staff also proof quality of service, food and beverage; to control costs and quality; to sign up strategic groups; to improve marketing channels; to compare distribution suppliers to supply the best products to the customer; (4). create: to create pleasant and relaxing servicescapes; to create a smoking zone; to create a sense of a third family for the student; to follow world drinking trends; to construct a website for keeping customers in touch with the business; to sell a good priced coffee; to supply a service of nonstop coffee (Figure 2). Servicescapes of the Bar create pleasant and relaxing atmosphere which produce a sense of student family making student to prefer meeting friends in the bar. Important factors which affect on behavior of customers are customers motivational orientation, physical surrounds, social surrounds and temporal perspective. Facility aesthetics of the Bar are included renovation of the architectural design, paintings/pictures, plants/flowers, furniture, color, and wall décor. All these are likely differentiate the bar from the competition in part because of atmosphere (Menon & Kahn, 2002). Marketing needs to create an environment that enhances customer attitudes and beliefs about the Bar, and consequently, their perception of physical environment, their satisfaction, and their behavioral intentions. The Bar with ample space is provided to upscale restaurants by facilitate exploration and stimulation within the servicescape (Wakefield & Blodgett, 1994). The social factor is an important dimension of an upscale bar s image. The right style of employees maintain important role to complete the service delivery process which is 30 The Journal of International Management Studies, Volume 4, Number 3, December 2009

7 influence on a customer s pleasure and arousal. Anyway, the style of the employees which is achieved in ways of professional appearance and attractiveness is completely congruent with the Academic Bar image to maximize the effect on customer perceptions. The physical ambient elements, which are music, aroma, temperature, and bright light, can be controlled to a large extent by management. 1. Eliminate Ban of smoking Distance among customers and staff 2.Reduce Price Inner space Lower sugar Cost of food Full time staff Luxury decorations Value 4.Create A smoking zone Non stop coffee Healthy drinking Sense of family for the student Website to link with customers keeping touch with the business 3.Raise Outside space Joyful ambient Strategic groups Concept of health Social responsibility Marketing channels Taste and quality of drinks Distribution supplier s chain Standard operation procedures (SOP) Figure 2. Four actions framework of Academic Bar From the value curve analysis of the Academic Bar (Figure 3), the performance of Academic Bar is supplying lower cost and price as soon as quality food and beverage with quality service by ways of distribution supplier s chain, standard operation procedures (SOP), lower sugar and less staff, limited luxury decoration, less inner space, and shorten the distance between customers and staff. Because these alternative ways are not needed to cost much money, there are creating values for both customers and company. Regarding on climate deterioration and a ban on smoking, innovations for the Academic Bar are keeping the place for smoking people as soon as providing a free smoking space to consider individual customer needs and wants,. Except these, even the Bar tries to promote selling alcohol drinking, it still takes social responsibilities when customer drinks alcohol and teaching customer about health drink. Another important strategy is to rebuild the target market on student and to construct website to network student market. From the CRM realizes customer needs and wants. It is also useful tool to strong connecting the sense of family together. All of these processions are forming the value chain of the The Journal of International Management Studies, Volume 4, Number 3, December

8 Academic Bar (Figure 4). The core value of the Academic Bar is sense of family for college students, supply them healthy food and beverage, and quality service, and responsibility for their drink. Academic Bar Traditional bar Price Sugar Supplier s chain Joyful Staff Sense of family Taste quality Responsibility Smoking zone Ban of smoking Inner space Cost Decoration Strategic groups Outside space Health Distance SOP Non stop coffee Website Figure 3. Value curve analysis of the Academic Bar (VI). Profit and Loss Statement of Academic Bar The profit and loss statement shows that the Academic Bar had a contribution margin ratio about 78 percent per dollar of revenue (Table 1); fixed costs are at a monthly average of euro per month. The breakeven point was at about euro per month, or approximately 3857 covers. Profit margins were approximately 22 percent of total revenues. This profit performance is confirmed with the value curve of the Academic Bar. It is a proof that distribution supplier s chain, standard operation procedures (SOP), lower sugar and less staff, limited luxury decoration, less inner space, and shorten the distance between customers and staff produce lower cost and price as soon as getting higher profit, thereby, it is also prove to supply good taste and quality food and beverage. Table 1. Profit and loss statement for a typical month Items Month (euro) % Sales (b) Cost of sales Labor cost Overhead cost Gross profit Average check The Journal of International Management Studies, Volume 4, Number 3, December 2009

9 Limited decoration Less full time staff Supplier s chain Lower sugar SOP Cost down Price down Core value Website Joyful ambient Space smoking Space free smoking Quality service Quality food and beverage Top down Health Quality Responsibility Sense of family Bottom up Figure 4. Value chain of the Academic Bar CONCLUSIONS Overall, the research and innovative strategy processes of the Academic Bar is realized by the step of constructing Blue Ocean strategy. The boundaries of the market firstly reconstructs with a six paths framework and then analyzes a four actions framework (eliminate, reduce, raise and create). Finally, value curve analysis is used to prove the influence of differential products with low-cost. Testing the value of innovations, the Academic Bar has reduced its costs and enhanced value to the customer at the same time. The Academic Bar has proven consistent with the logic of value innovation strategy. The innovative value has agreed with the four elements: to meet commonality of the majority of customers, to create a different product and service to attract customers but not to increase prices, to increase customer value through demand innovation, to the design of a special series of activities according to targets. Finally, the research and innovative strategy processes were realized and proved the value of innovation in the constantly changing market environment. The core value of the Academic Bar is sense of family for college students, supply them healthy food and beverage, and quality service, and responsibility for their drink. The Journal of International Management Studies, Volume 4, Number 3, December

10 REFERENCES Bergen 2009, AUG 3. (Online). Available Dube, L., Chebat, J.C., Morin, S., The effects of background music on consumers desire to affiliate in buyer seller interactions. Psychology and Marketing, 12, Education in Norway 2009, July 3. (Online). Available Kim, W. C., & Mauborgne, R. A Blue ocean strategy, Harvard Business Review, 82 (10), Kotler, P Store atmospherics as a marketing tool. Journal of Retailing, 49 (Winter), Menon, S. & Kahn, B. E., Cross-category effects of induced arousal and pleasure on the internet shopping experience. Journal of Retailing, 78, Milliman, R.E., The influence of background music on the behavior of restaurant patrons. Journal of Consumer Research1, 3 (11), Wakefield, K. L., & Blodgett, J. G., The Importance of servicescapes in leisure service settings. Journal of Service Marketing, 8 (3), Wakefield, K.L., & Blodgett, J.G., The effect of the servicescape on customerss behavioral intentions in leisure settings. The Journal of Services Matketing, 10(6), Winer, S. R., Customer relationship management: a framework, research directions, and the future. 2009, AUG 3. (Online). Available Yalch, R.F., & Spangenberg, E., Effects of store music on shopping behavior. Journal of Consumer Marketing 7, The Journal of International Management Studies, Volume 4, Number 3, December 2009