Frankenmuth Case

INDIAN INSTITUTE OF MANAGEMENT

INDORE

A Taste of Frankenmuth: A town in Michigan thinks About Word of Mouth Referral MARKETING OF SERVICES Submitted to - Prof. Prof. Jayasimha K.R. K.R.

Submitted by- Group 15; Section A Rahul Kumar Prasad (2012 PGP 286) Sudhanshu Ranjan (2012 PGP 377) Ashish Kumar Mallik (2012 PGP 070) Yogesh Shivdas (2012 PGP 354) Hitesh Kumar Chand (2012 PGP 137)

Index

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Introduction ..................................................................................................................... 3 Frankenmuth: .......................................................................................................................... 3 Reasons and implications of Word of Mouth Publicity: .............................................................. 3 Major Businesses in Frankenmuth: ........................................................................................... 3

Zehnder’s of Frankenmuth: ............................................................................................................ 3

Bavarian Inn restaurant: ................................................................................................................. 4 The Bavarian Inn Lodge:.................................................................................................................. 4 Bronner’s CHRISTmas Wonderland: ............................................................................................... 4

Measuring Customer Lifecycle Value (CLV) ........................................................................ 5 Zehnder’s ................................................................................................................................. 5

Bavarian Inn Restaurant ........................................................................................................... 5 Bavarian Inn Lodge ................................................................................................................... 6 Bronner’s Christmas World ....................................................................................................... 6

Other local businesses .............................................................................................................. 6

Estimation of word of Mouth ............................................................................................ 7 Zhender’s of Frankenmuth

....................................................................................................... 7

Bavarian Inn Restaurant ........................................................................................................... 8 The Bavarian Inn Lodge ............................................................................................................ 8 Bronner’s CHRISTmas Wonderland

........................................................................................... 8

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Introduction Frankenmuth: 

Known as ‘Michigan’s little Bravaria’ and it’s a number 1 tourist destination with 3

million visitors annually. 

‘Frankenmuth 2000’ was an initiative taken by Annette Rummel ( the president and

CEO of Chamber Of Commerce of Frankenmuth) to help stimulate new growth cycle by investing $20 million. 

The major part of economy dependent on restaurants, lodging facilities, retail shops and other attraction.



Business owners have customers who are loyal for their whole generations.

Reasons and implications of Word of Mouth Publicity: Reasons: Frankenmuth’s warm and friendly environment  

Safe and clean city



City has heritage as a 19 th century Bavarian Lutheran missionary settlement



A unique Germen-style fair (Bavarian Fest) is also a reason of attraction for certain tourists



The belief that customer satisfaction is the only way to grow the business is deeply rooted in Frankenmuth which intern made satisfied customer to talk about it with their friends.

Implications: Less advertising budget for businesses in Frankenmuth  

Relationship Marketing activities are mostly for targeting new customers



Customer is already in a assumption that the service will be the best in Frankenmuth; which is a big responsibility of service provider to provide the unique experience to consumer

Major Businesses in Frankenmuth: Zehnder’s of Frankenmuth: th 

6 largest independent restaurant in the country by vol of dinners sold (more than 90000 per year)



Capacity is 1500



650 employees during peak seasons (turnover rate 30%)



65-70% of customers visits back once a year in their life time

Promotion: ‘The birthday club’ and ‘frequent buyer program’ are most popular Initiatives for customer satisfaction:

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

To satisfy disgruntle customers ‘Comping’ meals (refunding the total price)

was prevalent  

Employees were given training to fix complains before they go worse Offers reasonable hrs to the employee of the restaurant so that they can spend time with the family; this makes them loyal towards the company and their work is in sync with company mission and vision



Company presidents teaches service class

Bavarian Inn restaurant: 

8th largest private restaurant in the country in terms of vol (800000 meals per year)



Capacity of 1200



Mostly German culture is ingrained in the restaurant environment



90% of business is general tourism in independent cars



Meeting place for family gatherings



Repeat purchase is 1-2 times a year for generations

Initiatives for customer satisfaction: More personalized service; owners talks with the customer to make the 

personalized service experience 

The complains must get solved quickly, so here the belief is that the quickness of solving an issue is directly proportional to the customer satisfaction

The Bavarian Inn Lodge: 

A hotel resort having 354 rooms plus 12 large banquet and convention rooms and 2 acre indoor family fun center



Fun center includes 2 swimming pools,a waterfall and 18 hole ‘putt putt’ golf 

course 

1/3rd hotel visitors were referrals another 1/3 rd from advertising and remaining were repeat customers

Initiatives for customer satisfaction: Training to staff regarding how to talk to guests and smile  

Creating an unique experience for their customer which they could talk about; resulting in the word of mouth publicity

Bronner’s CHRISTmas Wonderland: 

Largest Christmas store in the world



Over 50000 items for sale



Decorations and display from 75 nations



2 million visitors per year

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

50000 ornaments sold per year



Repeat purchase is 50% and typical customers are families who have children with them



Return visits are 3 per year

Initiatives for customer satisfaction: The brand equity of Bronner were one of the reason of the publicity and that 

association gave some amount of customer satisfaction 

Training employees by showing them videos of certain circumstances; and illustrating them which is the right way to handle any issue



They are empowered to solve the customer issues without talking to the manager

Measuring Customer Lifecycle Value (CLV) The value to Frankenmuth’s businesses that a typical customer will ever buy equals the amount that his/her purchase will contribute to the business’s operating margin minus the

cost of acquiring him/her. Zehnder’s

Average price per meal Percentage of return customers Length of return year Number of repeats per year

$14.5 65% to 75% 20 years 1.7 (exhibit 4:F)

Operating expense per dinner (17,712,369 – 543,559)/900,000 =$ 19.076 Average lifetime value of customer 14.5*0.7*20*1.7+14.5*0.3*1-19.076 = $ 330.374

Bavarian Inn Restaurant Average price per meal Percentage of return customers Length of return year Number of repeats per year

$12.5 90% 20 years 1.7 (exhibit 4:F)

Average lifetime value of customer 12.5*0.9*20*1.7+12.5*0.1-0.7*(12.5*0.9*20*1.7+12.5*0.1) = $ 115.125

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Bavarian Inn Lodge Average room rate Percentage of return customers Length of return year Number of repeats per year

$85 33% 20 years 1.7 (exhibit 4:F)

Variable cost = $ 28.50 Fixed Cost = $ 50.50 Average lifetime value of customer 85*0.33*1.73*20+85*0.66-28.50*20-50.50 = $ 407.25 Bronner’s Christmas World

Gross profit per customer Percentage of return customers Length of return year Number of repeats per year

$17.50 50% 20 years 3

Average lifetime value of customer 17.5*0.5*20*3+17.5*0.5 = $ 533.75

Other local businesses 1. McDonald

Average spend per trip Percentage of return customers Length of return year Number of repeats per year Variable cost 0.27*3.34+0.28*3.34+0.042 =$ 1.879 Gross profit 3.34-1.879 =$ 1.461 Average lifetime value of customer 1.461*0.8*1.7*20+1.461*0.2 =$ 40.03

$3.34 80% 20 years 1.7

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2. Jellystone

Trailer price pre day Percentage of return customers Length of return year Number of repeats per year Days of stay

$35 43.75 12 1 2.5

Variable cost = $12 Fixed cost = $ 3 Average lifetime value of customer 35*0.4375*12*2.5+35*0.5625*2.5-12*20-3 =$ 265

Estimation of word of Mouth

Word of Mouth value can be estimated by the following equation where Word of Mouth (WOM) equity = C * P * R * I * M

C : actual number of customers visiting P : Percentage of customers who recommend the service to their f riends (“evangelists”)

R : average number of recommendations given by your “evangelist” I : average probability that the potential customer will turn on M : average profit for a given period of time Zhender’s of Frankenmuth

Parameter

C P R I M WOM value = $ 7,24,183

Value

244565 86% 3 33% 850579

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Bavarian Inn Restaurant Parameter

C P R I M WOM Value = $ 6,94,076.09

Value

2,17,391 86% 3 33% $ 3.75

The Bavarian Inn Lodge Parameter Value C 1,27,877 P 86% R 3 I 33% M $ 28.5 WOM Value = $ 31,02,928.39 Bronner’s CHRISTmas Wonderland

Parameter

C P R I M WOM Value = $ 5,69,16,090

Value

2,000,000 95.5% 3 56.76% $ 17.5

Total WOM Value = $ 3,41,54,762.40

Enhancing word of Mouth 1. Exceed the expectations of customers

By providing the customers with improved service in terms of  2. Solicit Feedback