Bake ME a cake Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Bake ME a cake Case Study Solution

Introduction:

Amy Bourgon; an owner of a homemade cake business, wants to take some important decisions regarding the expansion that would increase the profitability and attract more customers. Basically, she started her business from her home and used to deliver cake because she had no idea of the business growth and space accommodation. She is deciding to take the company to next level to provide a space and increase the profitability.

Therefore, the case objective is to expand the business by considering the space challenges, increase the profitability by increasing the price, or to adopt a new advertising strategy to improve the profitability. For expansion of business, she has two options, (1) Renovate the family home (2) Leasing a location and profitability decision by increasing the price to 2.25 and 2.50 per cape cake. The decision is made on differential analysis and contribution analysis in order to make fair decision.

Competitive Analysis:

The major competitors of BMAC are Global Donuts, Sticky Fingers, and Junior Bakers. If we compare their strengths and weaknesses with that of BMAC, we can analyze how competition is increasing with commercial bakers.

BMAC: the business is in growing stage and the owner is experienced in food industry, she use to make cakes for immediate sale. The weakness is she has a few customizations as she works out of her home.
Global Donuts: They have huge variety in cake but limited stock of demanding products.
Sticky fingers: They make pre made cakes on which no customization is allowed.
Junior bakers: wide variety along with 3D cakes but most of designs are copied by BMAC and less attractive look.

Qualitative Analysis:

The differential Analysis:

Amy wanted to expand the business from her family’s kitchen, as she analyzed the increase in customers from last three years. Therefore, she has chosen two alternatives; one is to renovate the home location by creating a separate space for business, and other alternative is leasing the location that will provide a commercialize location for her bakery. Therefore, she has to decide that whether it is better to invest her money in business or to invest in market (due to ups and downs in Canadian market).

Alternative 1: Renovation

Pros:

Personal investment would be used that is $ 20,000
The business will stay at home no external interventions

Cons:

Limited growth opportunities unless heavy amount is spend on advertising
Limited space and uncertainty for business improvement

Alternative 2: Lease a location

Pros:

More space where labors can easily work
It will increase the ability to take more business by commercializing the market

Cons:

It would require more fund that is bank loan that will increase the interest cost
The competition increase is the biggest threat in commercializing the business, as it would be required to develop unique items to satisfy the customers.

After considering both alternatives and its differential analysis, results shows that the alternative one would be better option, as it is leading to higher total profits of $ 76,876, that is generating sales of $ 103,022 and paying all the expenses. On the other hand, the second alternative leads to profit of $ 35,983. Another selecting factor is an income statement forecast, which also favors the renovating option by its more profits that is $ 35,804 as compared to $ 33,226 of leasing a location. Therefore, to renovate the home business will lead to higher profit.

Contribution Analysis of pricing structure:

The contribution analysis is made on the basis of comparing existing price and cost to produce one cup cake. The direct cost of one cupcake is calculated as cost of ingredients, suppliers and labor cost. She wants to increase the price by means of increasing the profit, as there are two methods to increase the profit; one is increase the price and other is decrease the cost.

The direct cost is resulted in $ 0.817 to produce one cake. The existing contribution scenario of $ 2 per cupcake leads to profit of $ 10,648 by selling out 9000 cupcakes in 50 weeks. If price is increased to $ 2.25, then total profit generated is $ 11,608 by selling 8100 cupcakes and if it were increased to $ 2.50, then the profit would be $ 11,361. The quantity for selling the cupcakes is decreasing; Amy has estimated that by increasing the price, the customers may decrease the purchase by 10% and 25% in $ 2.25and $ 2.50 pricing structures respectively.

Therefore, the best pricing structure that will lead to high profit would be $ 2.25 after considering its profitability.

Conclusion:

Amy has a great experience in food industry and as she wants to increase her business either by renovating existing home business or by leasing a rented location in commercial industry. Through expansion she can avail many event opportunities, as it is observed that bakery revenues are leading $ 33 billion sales annually and she would provide the option of home cooked cup cakes. Along with this, it is estimated that the bakery industry‘s competition is in increasing trend if she use commercialize location and it costs more as per labor and retailer for delivery as well.

Therefore, in my opinion, Amy should renovate her family current space and should use $ 2.25 as pricing strategy to sell the cupcakes.........................

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