Commerce Tavern Case Analysis  

COMMERCE TAVERN CASE ANALYSIS 9

CommerceTavern Case Analysis&nbsp&nbsp

(InstitutionalAffiliation)

TheCommerce Tavern case analysis

Thecase depicts one Franklin Nielson the owner of the ‘CommerceTavern’ pondering over the issue of transacting with credit cardsat his restaurant. Nielson states that the business ‘CommerceTavern’ had never used or accepted credit cards personal checks orhouse charges to conduct transactions since the establishment was setup in 1982. The Commerce Tavern had experienced great boomingbusiness throughout years through the cash-only transaction. However,one day Nielson was approached by Anne Hamlet of Virginia MerchantBank (VMB) who challenged Nielson over the use of credit cards aspart of increasing business. On numerous occasions the lady from theVMB had provided nelson with vast information with regard to the useif credit cards in his business. The bank through Anne Hamlet plannedto authorize the use of MasterCard and Visa Cards at Commerce Tavern. The case is that, Nielson has struggled with such decisions in thepast and this credit card issue seemed a challenging one.

The‘Commerce Tavern’

TheTavern is believed to have had great reputation within the businessand shopping districts near the Merchants Square. The ‘CommerceTavern restaurant offers colonial cuisines that are favorite amongthe local population and the prices ranged from $13.95 to $15.95. Inaddition, clients were offered with free choice drinks and barservices The Tavern restaurant environment and structure offeredclients with spacious, quiet and intimate environment. In addition,the restaurant was well lit and decorated with ‘alehouse artifacts’common during colonial era and this gave the locals that colonialcharm and ambience. This shows that the Tavern restaurant was wellpositioned to grow and expand especially y adopting diverse paymentmethods such as credit cards (Rysman and Julian, 2012).

Furthermore,the Tavern had well dressed and dedicated staffs that made clientshave great dining experience similar to the sophisticated restaurantsof that era. The Tavern restaurant was a conspicuous feature in mostlocal magazines thereby giving the restaurant more public exposure.The overall description of the Commerce Tavern indicates that indeedthe restaurant had vast publicity which was instrumental inincreasing the business sales volume. The case indicates that theTavern recorded maximum sittings all through the day and nights.Traven’s restaurant enjoyed strong base of local customers thoughit made little progress in attracting guests through diversifiedpayment method(Schneider, 2010).The business could tap on these loyal customers through credit cardsto improve business (Lowe, 2001). It is this fame and exposure thatthe Tavern restaurant had acquired had attracted the VirginiaMerchant Bank in offering Nielsen an opportunity to use Visa andMaster-Cards in his business.

Nieson’son whether to adopt the Visa and Master-Card at Tavern

TheVirginia Merchant had required that Nielson accept the use of creditcard transactions. The bank provided Nielson with basic instructions.Each credit transaction would be the business responsibility inassessing the expiry date of the card, card number, card’s banksigns and filling correctly all sales slips. The filled sales slipwould be verified y the bank and credit advanced to the restaurant asper the credit sales slips albeit less bank rates (Rysman and Julian,2012). In this agreement, the bank was to give a written notice incase of bank rate changes. At the start of the agreement Nielson wastold that the rates would be levied at 4 percent for a whole year andbe lowered after assessing total credit sales for the business. Salesamounting to the excess of $500000 would attract a 2 percent rateslevy per credit transaction, $200,000 to $ 500,000 at 3 percent.However, the rates were subject to constant reviews after a couple ofyears. To this agreement, Nielson was sent credit-card-usageinformation that would guide in selecting the preferred rates ofcredit transactions based on total annual sales.

Thebank encouraged Nielson that accepting the use of credit cardtransaction would significantly improve business as was the case withother similar restaurants in the area (Schneider,2010).Nielson reviewed the list of restaurants that had accepted creditcard transactions and discovered that they offered similar cuisinesand services such those of Tavern (Rysman and Julian, 2012). To thisend, Tavern was motivated in accepting the credit-cards to pre-emptpossible competition. However, Nielson did not find any consistencyin business improvement over the use of credit cards for the reviewedbusinesses. The performance ranged from 25 to 69 percent and onaverage 43 percent.

Nielsonfound the review on comparison of the performance of restaurantsusing credit card rather ambiguous. This prompted Nielson to makefurther investigations about the use of credit cards. To Nielsonsurprise, he found that accepting the use of credit card only led toincrease in customers but also significant to increased clientspending (Rysman and Julian, 2012). A further investigation fromfriends in the restaurant business encouraged Nielson that creditcards makes clients spend more than while using cash (Lowe, 2001).However, another friend hinted to Nielson that credit cards were‘fishy’ errors and hidden cuts were due. After, deliberating onresponses and investigation made, Nielson made decision to adopt theuse of credit cards but take precautions against errors on slips,tips for employees and sales tax. Nielson figured that he could notrely on information gathered from other restaurants transactingthrough credit cards as a number of factors distinguished hisrestaurant from the rest.

Accordingto Nielson, using credit card would only result in 5 percent salesincrease compared to those made in cash (Takala and Matti, 2007).Further introspection on his business, Nielson figured that only a 1percent annual sales increase would surface but not over 5 percent.To this end, Nielson believed that the adoption of credit cards wouldonly lead to minimal sales increase. Overall, Nielson figure that thedecision to accept the use of credit cards at Tavern would be hingedon trade off between increasing sales and the discount promised bythe bank.

Theuse of credit cards as promised y the bank was an importantopportunity for Nielson considering the popularity and customer base.In addition, the deal given by the bank was considerate given thatthe percentage levied for every credit transaction was minimalcompared to the benefits of an added client on daily sales volumes(Lowe, 2001). Far from this, spending is high for customers usingcredit cards than those who rely on cash and this would significantlyincrease business sales. However, just as Nielson received frominvestigations the use of credit transactions requires properunderstanding on all minor aspects. In part, it was important toinquire about the unused credit sales slips, changes in bank ratesand pother hidden charges such as sales tax (Cohen and Marc, 2013).To this end, Nielson decision would not have been based solely onother performance of credit cards in other restaurants but ratherbased on Traven’s unique cuisine, environment and customer base.

Inthis case, Nielson decision on credit card adoption would have beenbased on how to increase annual sales and in turn get bank discounts.Given the customer base, nature of clients who frequented ‘TheCommerce Tavern’ it was possible for Nielsen to convince clientswho use cash to result to credit-cards. Given the loyalty and theservices offered at Tavern it was likely that most customers wouldaccept the use of credit card and this would increase annual creditsales (Takala and Matti, 2007). Nielson decision on the adoption ofcredit card was influenced by his years of experience with his loyalcustomers, the possible returns from the use of credit cards and theprevailing business environment. Although, ‘The Commerce Tavern’is a great restaurant, offering unique cuisines, there was a possiblethreat on losing clients especially the travelers, tourists andlocals who would prefer using credit cards. Combining cash and credittransaction would safeguard the business against loss as well assatisfying all categories of customers. Furthermore, Nielson wouldmake a decision to publicize the use of credit cards throughmagazines and employee referrals as a way of increasing businessreturns for credit cards (Cohen and Marc, 2013).

DecisionTree

Existing means business of transaction: CASH

CASH

Adopting the use of Visa and MasterCard

Win

Loss

Cash-payis

preferredby

mostclients

Bank rates at 4%

Sales tax

4 %

at Tavern

Cashpay is

Profitableas

M

Profitable over three years at 20% credit sales?

ore sales are

Madein cash

Nocosts or

Bankrates

Diversify cash payment with credit card payment

Proceed

With credit cards and cash payment: more convenient and profitable

Solutionfor the ‘Commerce Tavern’ based on the Decision Tree

Accordingto the information provided by Virginia Merchant bank, investigationsmade by Nielson on the use of credit cards the Nielson would settlefor the following solution. Most clients at the ‘Tavern’ are usedto cash transactions and it is important that Nielson maintain thismode of transaction to avoid inconveniencing some clients who prefercash payment. However, the credit transaction through seems a viableidea that would significantly improve sales if well implemented. Thecosts involved in adopting credit cards are minimal compared topossible profits that would be accrued from the same. In this case,Nielson should consider using credit cards to attract visitors andlocal clients to his business. Clients with credit cards spend morethan those using cash.

IfNielsen adopts credit cards there will be a possible 5-8% increase insales volume and if well publicized increase in credit sales wouldlead to discount by the bank on credit charges. This means thatNielson business would benefit more and thus the need to adopt creditcards. it is imperative that Nielson diversify the mode of paymentthrough cash and credit to satisfy all clients. However, Nielsonfocus should be transforming the business into a full credittransaction enterprise. Enterprises that transact through creditsales encourage client loyalty, more sales and good support frombanks. To this end, Nielson should adopt credit cards throughincremental basis as he assesses the impact of credit cards on hisbusiness returns. Although cash transactions are easy to implement,there is danger in shutting out individuals who may not have readycash but are willing to buy. On the other hand, it is not advisableto implement credit cards at one ‘Tavern’ as this may lead toclients’ confusion and possible customer inconvenience. To thisend, diversifying cash and credit cards for the first three yearswould help Nielson assess the effectiveness of credit cards onclients and the business.

References

Cohen,Michael and Marc Rysman, (2013). Payment Choice with Consumer PanelData (2013), Working Paper, available at:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2308121.

Lowe,Frederick H., (2001). “CardsMake the Fast-Food Menu,Credit Card Management,” available athttp://business.highbeam.com/137021/article-1G1-73624095/cards-make-fastfood-menu.

Rysman,Marc and Julian Wright, (2012). “TheEconomics of Payment Cards,Working Paper,” available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=2183420.

Schneider,Gary (2010). ElectronicCommerce.Cambridge: Course Technology. p.&nbsp497.

Takala,Kari and Matti Viren, (2007). “Efficiencyand Costs of Payments: Some New Evidence,”Bankof Finland Discussion Paper.