Executive Summary

This report will be only focusing on Mr. and Mrs. Herrera’s 30 year old Mexican restaurant in

Houston. We will be covering on the importance of service characteristics in restaurant

business, Mexicatessan’s product totality, the pricing concept and strategy the Herreras’ was

facing during its 1980’s period and has brought them to almost bankruptcy until they done a

market research to recover from it, and determine target market and brand positioning of

Mexicatessan.

Service Characteristics

The service highlights differences in the nature of services versus products which are believed

to create special challenges for services marketers and consumers buying services. To be able

to understand the differences, there are 4 characteristics of services to be concerned.

Intangibility in Services

Regan (1963) mentioned the idea of services being “activities, benefits or satisfactions which

are offered for sale, or are provided in connection with the sale of goods”.

In restaurant business costumers do not know what he/she will experience until they taste the

experience themselves. Measure of tangibility can be use as implication to ease the customers

evaluating services and products, thus performance is the key, in the case of Mr. and Mrs.

Herrera’s case is that they plastered their front entrance with business cards for over the last 30

years, placed a photograph of the owner from the World War II, wallpaper and ceiling filled with

Mexican traditional motifs and last but not least since its opening in the 50s’ Mexicatessan has

its stable customers who always crave for their Mexican delicacy. All these aspects have

prevented Mexicatessan from being intangible against its customers.

Inseparability of Services

Inseparability is taken to reflect the simultaneous delivery and consumption of services and it is

believed to enable consumers and service provider to affect the performance and quality of the

service.

Variability of Services

This is a particular problem for services with high labor level, as the service performance is

delivered by different people and the performance of people can vary from day to day. Onkvisit

and Shaw (1991) consider heterogeneity to offer the opportunity to provide a degree of flexibility

and customization of the service. Thus I assume that heterogeneity can be introduced as a

benefit and point to differentiation as well.

In spite of no indication whether Mexicatessan service quality is up to standard or no, there is

part mentioning due to new high price charges to its customer, Herrera now is able to recruit

more staff, hence I assume that at certain point of the service delivery process has occurred

lack of communication, lack of experienced staff that led the Herreras to hire additional staff.

Perishability of Services

In most cases services can not be stored or carried forward to future time of a period. Given that

services are very dependable to time, producer of services hence is the main concern. When

insufficient supply happens and customers have to wait for it and can walk away from it, then it

becomes perish. In restaurants this occurs many times therefore a well planned marketing

strategy required.

At the Mexicatessan, through its experience of 30 years, the main ingredient is the location and

excellent food that makes it survive from being perished.

The Augmented Product

Back in the day most of restaurants were set quite ordinary without any special vibrant to it,

however nowadays majority of restaurants are set with a theme that makes the atmosphere

different from others and built that way so it impact such as the sensation and the memorable

feeling to its customers while they are dining at that restaurant. According to Walker (2004) the

theme employs color, sound, lighting, décor, texture, and visual preparation to create special

effect for patrons.

Figure 1.1

Service offering for memorable dining experience at the Mexicatessan

Parking

F&B

Nature of
Decor Scheduling
Process
Core

Memorable
Location
dining

Service experience Customer

Level Role

Reservation
Delivery
Service
Service

In figure 1.1 illustrates that in business such as Mr. and Mrs. Herrera the relaxing and

memorable dining experience is the core product which consisting of scheduling that deals with
the matter of how long delivery lasts, nature of process is how each service is delivered to

customer, customer role is about nature role of customer in those processes, lastly is the

service level that is prescribed and style of service to be offered.

Pricing Concept

Before we discuss about pricing concept, we need to know what is price to consumer. From

consumer point of view price is the sum of all values that a consumer willing to pay in order to

gain the benefit of having or using the service or the product. On the other hand, price to the

producer is the sum of money charge which incurs cost of producing that unit and the profit

margin. Price also included in the marketing mix that entrepreneurs use to develop a marketing

plan.

In determine price of a product or service there are 3 considerations which is competitors’

prices, external factors, and internal factors. Some of the internal factors affecting pricing

decision are:

• Brand equity growth – how strong the brand perception towards its consumer. In

Mexicatessan case study shown that it have had been there for 30 years.

• Cost – cost of product and service consist of fixed and variable cost which will result in

total cost.

External factors affecting pricing decision are:

• Demand relationship

• Price elasticity of demand

In this case Mr. and Mrs. Herrera’s restaurant is price perfectly inelastic as we portray it in graph

below:
Figure 1.2

Qty

The change in quantity demanded is proportionately smaller than the change in price. An

increase in price would result in higher revenue, and a decrease in price would lead to decrease

in revenue. Since Mexicatessan 3 year period from 1982 to 1985 the menu prices increased by

40 to 70 percent that resulted in increased in revenue despite of the long decade of recession at

that time.

The quantity demanded of a good usually is a strong function of its price.

Shift in demand curve happens when there is a change in influencing factors other than price.

Factors in shifting in demand curve:

• Customer preference

• Numbers of potential buyers

• Prices of related goods: substitute and complementary goods

 Figure 1.3 demand curve
P

P2

P1

Qt
Q2 Q1

As Mr. Herrera’s restaurant has transformed from low prices Mexican restaurant to higher prices

restaurant, he should set a new pricing strategy such as Prestige Pricing. Because he had a

good high quality product and just hired new staff therefore his restaurant’s service is getting

better and he set up his restaurant with a prestigious Mexican theme. It will attract more to

Houston’s rich and famous society and create an even more focused market with high price.

Price as a Competitive Advantage

A competitive advantage is an advantage over competitors gained by offering consumers

greater value, either by means of lower prices or by providing greater benefits and service that

justifies higher prices. Mr. Herrera is unwilling to raise its restaurant price because he believe

that he wanted to sell his product and services comes with good value for money but at the

same time still in low prices in order to compete with the big chains restaurateurs and their big

budget advertising plan.

In Mexicatessan’s case, Mr. Herrera aim to drive his competitors out of business by sustaining

artificially low prices, thus creating a monopoly market position. Moreover he assume low prices

will generate sufficient sales to more than make up for smaller profits, what he lose in margins,
he will make up in volume, yet it is a very risky thing to do. Low prices mean narrow profit

margins and narrow profit margin mean less cash.

Target market & Positioning

Market Segmentation

Market segmentation is dividing a market into subgroups of consumers who are homogeneous

in their response to a particular marketing mix.

i. Segment Size and Growth

Using basic demographic based characteristics of age, gender, income, location, food

preferences, and ethnicity will get a restaurateur like Mr. and Mrs. Herrera an estimation of

potential customers. Furthermore, generally, demographic variables (age, gender, income,

family size or occuption) are the easiest to identify and consumer needs, wants and usage rates

often vary closely with them.

As for their restaurant, their main customer aims are the surrounding neighborhood and

Houston’s rich and famous.

ii. Segment Structural Attractiveness

Understanding of what the market needs. For instance that in the area where Mexicatessan

there wasl no Mexican food that offers with such ambience and low price as what Mexicatessan

has to offer back in the up until today.

Concentrated Marketing and Positioning

It is essential to thoroughly understand the positioning of competitive products, since the

objective of positioning is to find a way to differentiate the product form competition. Competitive

Benefits since the target market strategy results in greater satisfaction and hence more loyal
customers, and competitors would have more difficulty in taking these customers away. In the

maturity stage, it will be more appropriate in using differentiated marketing. Concentrated

marketing involves higher than normal risk, because the company's sales depend on a single

segment and if the segment's demand for the product declines then the company may suffer the

financial problem. In selecting a segmentation base, the marketer should realize that there is no

one best segmentation base that will result in effective segmentation in all cases. Positioning is

a fundamental element of the marketing planning process, since any decision on positioning has

direct and immediate implication for the whole of the marketing mix. Without knowing

competitive characteristics, it is hard to find out what are the attributes of your products that are

distinctive and superior form the competitors' Moreover, understanding competitive

characteristics can help in making position strategy decision. Thus, a thorough understanding of

the attributes of the product that is essential for the company, especially those offer competitive

superiority that is essential to positioning. Marketers frequently achieve competitive positioning

through comparative advertising, which is, naming competitors in ads.

References:

Onkvisit S. and Shaw J.J. (1991). “Is Service Marketing “Really” Different?”, Journal of

Professional Service Marketing, 7, 2, 3 – 17.

Regan W.J. (1963). “The Service Revolution”, Journal of Marketing, 47, 57 – 62.

Walker J.R. (2004). “The Restaurant”, From Concept to Operation. John Wiley and Sons. Pg

122.