Sixty Customers Said Yes
Mpho's Kitchen sells an average of 90 lunch plates a day at $4.50. Ingredients cost $1.80 a plate. Costs are rising and Mpho plans to charge $5.20. To test the idea he asked 60 customers during the 12:00–13:00 rush whether they would still buy at $5.20: 41 said yes, 14 said no and 5 were unsure. A competitor 200 m away charges $4.20 and always has a queue. About 22 of Mpho's daily customers are students whose parents give them exactly $5.00 for lunch. Mpho says: 'Sixty customers, 41 said yes - that is 68%, so I raise the price.'
1. Test Mpho's conclusion with numbers. Would the price rise actually increase his contribution (revenue minus ingredient cost)?
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Now: contribution per plate = $4.50 − $1.80 = $2.70. At 90 plates, total contribution = $243 a day.
After the rise: contribution per plate = $5.20 − $1.80 = $3.40.
Applying the survey: 41 of 60 = 68.3%. If that holds across all 90 customers, 90 × 0.683 = 61.5, so about 61 plates. 61 × $3.40 = $207.40.
Result: a fall of about $35.60 a day - roughly $700–$900 a month, assuming 20–25 trading days. The price rise destroys value, because the extra $0.70 does not make up for the 29 lost plates.
Break-even check: to keep contribution at $243 at the new price he needs 243 ÷ 3.40 = 71.5, about 72 plates. That is 80% of current customers staying, not 68%.
Conclusion: Mpho's arithmetic is right (41 ÷ 60 = 68%) but his conclusion is wrong. He looked at the percentage who said yes instead of asking whether the survivors would spend enough to cover the leavers' contribution. On his own evidence he should not raise the price as planned.
2. Identify two serious weaknesses in the survey and explain how each one could mislead Mpho.
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1. He only asked his own current customers. People who already left - because of price, waiting time or taste - were never surveyed, so the sample tells him nothing about the customers he has already lost or could win back. It also flatters him: people who choose to eat somewhere are the most loyal group available.
2. He asked about intention, not behaviour. Saying 'I would still pay $5.20' costs nothing; actually handing over $5.20 does. Stated intentions routinely overstate real purchases, so even the 68% is probably too high, not too low.
Two further problems worth noting:
- The student segment is impossible, not just unlikely. Twenty-two customers have exactly $5.00. At $5.20 they cannot buy at all unless Mpho offers change or a smaller portion - yet the survey lumped them in with everyone else.
- The timing is narrow. Asking only between 12:00 and 13:00 misses the later lunchers and any office workers who might pay more for speed or quality.
He also treated the 5 'unsure' answers as a decision left unmade. In planning he should assume they behave like the 'no' group, which pushes retention down to 68% at best and probably lower.
3. Suggest two alternatives to a straight price rise and say what evidence would show Mpho whether each is working.
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Alternative 1 - Keep $4.50 but create a higher-priced option. Sell the standard plate at $4.50 and a larger or 'with drink' plate at $5.50, and a smaller student plate at $4.80 so the $5.00 customers are not shut out. Customers choose their own price point instead of being forced up. Evidence: track the daily count of standard, large and student plates and total contribution per day. If the average contribution per customer rises above $2.70 without the total plate count falling below 90, it is working.
Alternative 2 - Attack the competitor's weakness instead of his price. The competitor at $4.20 always has a queue, so speed is the gap in the market. Offer pre-ordered plates collected in under two minutes, or a loyalty card (ten plates, one free). Evidence: count repeat customers, plates sold between 12:00 and 13:00, and how many loyalty cards are redeemed. If queue-time customers defect to Mpho, volume rises and fixed costs are spread over more plates.
The general test: for any change, record plates sold and contribution per day for two weeks before and two weeks after. Mpho's real problem is not price - it is that he ran one rushed survey and treated a friendly answer as a decision.