Merritt Hookah Lounge: Market Plan

Executive summary

The marketing plan belongs to Merritt Hookah Lounge which operates in the hookah industry. The firm intends to establish a new hookah lounge in Marietta. A comprehensive situational analysis of the hookah industry is conducted by considering a number of components. Some of the components considered include a market summary, market trends, market demographics, market needs, market growth, and competitive environment. A SWOT analysis, key success factors, and the critical issues are also analyzed to determine the probability of the firm succeeding. The marketing strategy is illustrated which entails the firm’s mission statement, marketing objectives, and target market. In addition, the firm’s marketing mix strategies are analyzed by considering the pricing, product, promotion, and distributional strategies. The plan also entails market research with reference to competitors and consumers as the key market elements. The firm’s financial forecasts are also shown by conducting a sales forecast, break-even analysis, and contribution margin. To ensure that the plan is successful, control and implementation plans are illustrated. The control plan also integrates a number of milestones and a contingency plan.

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Company profile

Merritt Hookah Lounge is a firm that has been in operation within the Hookah Industry for the last 8 years. The firm is located in Madison in Georgia. In its operation, the firm’s management team is committed to ensuring that the firm attains sustainable growth. This will contribute towards the firm survival in the long term as a going concern entity. To attain this goal, the management of the firm intends to increase its scale of operation within the next five to three years. This will enable the firm to attain a high competitive advantage compared to other players in the industry. The management team of the firm intends to attain the growth objective through the establishment of new hookah lounges in various cities in Georgia. In its initial expansion phase, the management of the firm has considered opening a hookah lounge at Marietta. The new hookah lounge will retain the firm’s name. By opening a hookah lounge in Marietta, the management of the firm intends to increase its sales revenue from the sale of a variety of hookah lounge products.

Situational analysis

Market Summary

In the 21st century, Hookah Lounges are becoming a new business phenomenon in various countries including the US. The United States has over the past few years witnessed rampant growth in the hookah industry (‘About hookah’ Para. 1). This results from an increment in the popularity of the hookah lounges. In addition, a change in lifestyle has enabled a large number of citizens to incorporate smoking tobacco in hookah lounges. A large number of individuals perceive hookah smoking to be of relatively low health consequences compared to ordinary cigarette. As a result, they are turning into hookah smoking. Demographic changes have also played a significant role towards an increment in hookah smoking in US. For example, US have witnessed an increment in Arab-Americans population which has made hookah smoking to be common within the society. Most of the hookah lounges have been established close to educational institutions such as colleges and universities. This presents a high probability of growth for the hookah lounges. In addition, hookah smoking is currently being perceived as social activity in US (‘About hookah 5).

The legal environment has also contributed the popularity of hookah lounges. For example, the US government has formulated a legislation which prohibits smoking in public places such as bars and restaurants. The legislation has been implemented in all the states which present a viable business opportunity for establishment of hookah lounges (Brandice 1). As a result, establishment of hookah lounge businesses is not restricted by such legislations. According to a report by Hookah-bars.com, it is estimated that 470 new hookah bars were opened in US during 2008. This means that on average, 5 new hookah bars are established in US every month. This translates into an average of 2 to 5 million individuals who are hookah smokers.

Market demographics

The new hookah lounge will be aimed at providing new hookah lounge experience to both Asia American citizens and the American youth. This is due to the fact that these individuals form a significant proportion of the population within Georgia. Patronizing hookah lounges has become a common phenomenon for both the young and elderly in US.

Market needs

A large number of youths and college age students are increasingly seeking a new form of socializing where there are minimal risks associated with patronizing ordinary bars. In addition, due to changes in tastes and preferences, hookah smokers are seeking a new experience from the industry. This results from their need to maximize the level of utility they receive from the industry. This has necessitated the need for firms in the hookah industry to consider offering other products.

Market trends

Currently United State is experiencing a shift in relation to consumer behavior. A large number of individuals especially the college age students and young professionals are seeking for a new form of experience where in relation to leisure. One of the outlets where these customer categories are considering is the hookah lounges. In addition, United States is witnessing an increment in Asian immigrants. Considering the fact that hookah smoking is a part of the Asian culture, there is a high probability of the industry growing.

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Initially hookah smoking in United States was mainly reserved for the Sultans and Maharajas (Rothstein Para. 2). This shift presents a high probability of the industry witnessing a high rate of growth. Increase in hookah lounges is also being witnessed amongst the teens.

Market growth

From a market research conducted to determine the probability of market growth potential, the firm’s management team that there is a high probability of market growth. The findings revealed that hookah lounges are increasing their revenue by selling a variety of products such as snacks, coffee and tea beverages and other soft drinks. In addition, the probability of growth is enhanced by the fact that a large proportion of college and university students are increasing their interest in hookah lounges (Wendy Para. 3).

In addition, findings from a consumer market research revealed that a large number of cigarette smokers are turning to hookah smoking. This results from the fact that hookah is presenting a new experience to the smoker which is different from the traditional smoking methods. The findings also revealed that there is a high probability of hookah industry witnessing rampant growth in the future due to an increase in demand of hookah. On the other hand, the supply of hookah lounges is low in US (‘How to run a successful hookah bar Para. 2).This shows that industry is very promising.

Competitive analysis

Considering the lucrative nature of hookah industry, a large number of investors are venturing into the industry. In addition, the existing players are increasing their scale of operation. The competitors who pose a threat to the success of Merrit Hookah Lounge include Fuzion Hookah Lounge, Ibiza, The Shisha Lounge, Divan, Eagle Diner Café and Oasis Hookah Lounge. These firms are already established within Georgia and have attained extensive recognition. In addition, these firms have been in operation for a number of years and are well fitted with hookah lounge facilities. Merrit Hookah Lounge will also face intense indirect competition from other socializing joints such as bars which sell liquor, cigar stores, coffee shops and tobacconists. To cope with the challenging nature of the hookah industry, the management of the firm has formulated comprehensive competitive strategies aimed at increasing customer loyalty. To attain this, the management of the firm will ensure that the quality of the services offered in the market is high. This will contribute towards the firm being optimally positioned in the market.

SWOT analysis

Strengths

  • The Hookah bar will incorporate a variety of flavors in its hookah tobacco.
  • High level of hospitality by the staff. The firm’s staff is well trained to serve the customers to their satisfaction. In addition the hookah makers will be competent.
  • The lounge will be well furnished so as to create a cozy environment. For example various entertainment facilities will be included to ensure customer comfort.
  • Incorporation of multiculturalism in its operation. For example, different background music will be played to appeal customers of different cultural groups.
  • Incorporation of diversity by providing other products such as soft drinks, snacks and beverages. The lounge will also provide a variety of games such as pool, cards and backgammon. The services and products to be provided will be of both American and foreign origin. This means that the firm will attract diverse customer groups.
  • The hookah lounge will be located in the urban area. This will enhance ease of accessibility.

Weaknesses

  • Low level of financial stability. This results from the fact that the parent company has not been in operation for a long period of time.
  • The management of the firm does not have sufficient knowledge of the entire supply chain in Georgia’s hookah lounge industry.

Opportunities

  • Increased integration of hookah lounges as a new form of socializing in the society. This will contribute towards Merritt serving both the young and old customers (‘Hookah fact sheet 2).
  • Increase in population of Middle East citizens in US. Hookah smoking is a common phenomenon in Middle East. Introducing it in Marietta presents a high probability of growth.
  • Increase in disposable income due to economic growth. This has translated into an increment in consumers’ purchasing power.
  • Increase in disposable income due to economic growth. This has translated into an increment in consumers’ purchasing power.
  • A relatively low investment capital is required in the establishment of hookah lounges.
  • The hookah industry is highly fragmented. This increases the probability of success for the new establishment.

Threats

  • Increased competition from the existing firms and the new entrants. This will result into an increment in the degree of rivalry between firms culminating into a reduction in revenue levels.
  • Increase in health consciousness in relation to smoking poses a threat to the survival of hookah smoking.
  • Changes in legislation may affect hook lounge establishment.
  • Increase in competitive rivalry within the industry as new firms enter the industry. This results from the lucrative nature of the US hookah industry.
  • Change in consumer purchasing pattern due to a change in tastes and preferences the effects of the financial crisis.

Competition

The new hookah lounge will face both direct and indirect competition from both domestic and foreign firms. Indirect domestic competition will come from other outlets offering socializing facilities such as restaurants and bars. In addition, the firm will also face indirect competition from foreign firms which have entered the industry through foreign direct investment. On the other hand, direct competition will come from the already established firms and new entrants. Foreign firms expanding their operation into Georgia also pose a threat of intense competition to the new hookah lounge.

Services

The new hookah lounge will offer diverse services to its customers. Some of these services include entertainment. The firm will have a stage through which live performances can such as dramas, music performances can be staged. These services will act in increasing the level of customer service. The hookah lounge will also have well trained attendants to ensure quality service delivery.

Key Success Factors

According to Porters (35), there are a number of factors that affect the success of a firm in a given industry. These factors should be considered in the process of establishing new firms (‘How to run a successful hookah bar Para. 2-4). To ensure that the new hookah lounge penetrates effectively in the new market, the management of the firm has identified a number of key success factors. This will be achieved by ensuring that the new hookah lounge has a good atmosphere for all categories of customers. The management of the firm will also be committed at providing continuous high level of comfort to the customers. This will be achieved by ensuring that the premise is fitted with music which is not too loud and relatively dim lighting. This will contribute towards the customers attaining a high level of satisfaction. This will contribute towards the firm increasing its sales revenue. In addition, the firm’s management team will ensure that high quality drinks, foods and tobacco are served in the firm. To ensure a high rate of satisfaction, the current hookah equipments will be used hookah smoking.

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The management of the firm will also ensure that there is effective inventory management. For instance, Just-in-Time (JIT) inventory control will safeguard the hookah lounge from running out of or overstocking of inventory the firm. This means that the firm will be able to track the consumption rate and minimize ordering and stocking cost. Inventory control system will also help the firm’s management team to in identifying the bestsellers products and increase its focus on them. This will contribute towards the management team structuring its ordering process more efficiently. This will result from the fact that the management team will be able to identify the products which meet the customer’s demands (‘How to run a successful hookah bar Para. 6).

Through effective inventory management, it will be possible to minimize or eliminate theft of tobacco. This will minimize the firm’s cost of operation considering the fact that tobacco makes up the largest cost in preparing hookah. Inventory management will also assist the management in analyzing the customer trends.

Critical issues

The management of the firm has identified repeat business as a critical issue in the success of the new firm. To attain this, the management will ensure that it builds a strong foundation to attain a high level of core group. The core group will entail a number of satisfied customers who will patronize the premises consistently. Repeat business will be built on a strategic mix of high quality products and services and customer experience. In addition, the management will establish a follow through program for its core group.

Historical results

In analyzing the firm’s performance, the management team has considered the historical data. The analysis revealed that the firm represents a small proportion of the entire market. As a result, the management realized the importance of improving the firm’s market performance despite the fact that the firm has been profitable in its operation.

Macroeconomic environment

Changes in macroeconomic environment have culminated into a change in consumer behavior. For instance, US have witnessed an increment in economic growth over the past few years. As a result, there has been an improvement in the level of consumer income and hence their purchasing power. However, the current economic recession has negatively affected the consumer’s purchasing power. With the economy expected to recover during 2010, there is a high probability of this trend being reversed.

Socio-cultural environment has also undergone rampant changes with a large number of individuals across different income levels seeking for new forms of socializing.

Marketing strategy

Mission statement

Merritt Hookah Lounge is dedicated at propagating the growing culture of hookah industry in United States. The firm’s management team also committed at ensuring that the firm provides a high level of customer experience and satisfaction by creating a superior hookah lounge environment. This will contribute towards ensuring that a large number of hookah smokers and the new converts come together. As a result the management team of the firm strives towards providing the best customer service and quality products and services so as to satisfy the hookah community.

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To survive in the long term, the management of the firm is committed at ensuring that the firm introduces new and unique functionality in the hookah lounge so as to improve on the customer’s hookah experience.

Marketing objectives

  • By establishing a new hookah lounge in Marietta, the management of the firm intends to attain a significant recognition in Marietta and its environments through development of a positive public image. The management team intends to achieve this by integrating the concept of brand management in its strategic management process. Various components of brand management will be considered in an effort to attain this goal. The key components considered includes brand identity, brand image and brand culture. This will ensure that the firm develops a high store loyalty.
  • To increase its profit potential, a variety of products and services will be offered in the new hookah lounge. This will help the firm attract a large number of potential customers.
  • The management of the firm intends to create extensive market awareness in Marietta and its environment in relation to the products and services provided by the hookah lounge.

Financial objectives

  • The firm’s management team intends to attain a market share of 20% within the first year of operation in Marrietta.
  • It is the objective of the management team that the firm will attain a mark up of 30% within its first financial year.
  • The management team intends the new hookah lounge to attain sales revenue of $ 1 million within its first year of operation.

Target markets

The success of a firm is influenced by how effective the firm’s management is in targeting the market. According to Art (143), target market refers to the specific category of potential customers that a particular firm’s management team intends to capture and supply its products or services to. Target market is identified through a market research conducted prior to designing and production of the desired products and services. Art (143) asserts the entire market should be divided into various segments for the firm to be successful in selecting a target market. In addition, selecting a target market should be conducted by determining the specific market needs. The management team of Merritt Hookah Lounge has also realized that selecting a target market will benefits both the firm and the customer. This is due to the fact that the management will be able to understand its customer’s product and services requirements. As a result, the new firm will be able to deliver products and services that contribute to a high level of customer satisfaction.

In establishing a new hookah lounge in Marietta, the management team of the new hookah lounge is focused at ensuring that the firm provides the market needs specific to the local customers. Two main categories of potential customers have been identified. To ensure that the firm attains a high level of customer satisfaction, the management of the firm has integrated demographic variables in targeting and segmenting its potential customers. These include the following.

Middle Eastern Americans

These consist of immigrants in US whose origin or that of their families is Middle East countries. Segmenting the market using this variable will ensure that the firm appeals to this market category. This is due to the fact that these individuals have placed a high value on hookah lounges in providing them with their tradition and culture. Considering the fact that Muslim is the major religion for individuals from Middle East countries, the lounge will attract a considerable number of these individuals. This is due to the fact that the lounge will not sell liquor which is against the religion of this potential customer category. In addition, the hookah lounge will provide an opportunity for Middle Eastern Americans to meet and socialize.

By targeting the Middle Eastern Americans, the firm will be able to improve on its credibility in the market. This is due the fact that these devotees will bring along with them their friends who are not Middle Eastern Americans. The result is that the hookah lounge will attract other non American college age students. To satisfy their demands, the management will segment its services to incorporate this customer category. This is due to the fact that the college age student customers are looking for various alternatives to bars with the objective of attaining a different experience. The hookah lounge will provide this experience to this category of customers due to its colorful atmosphere and ability to incorporate group dynamics. The presence of various games will attract large number of customers and eliminate the risk associated with patronizing ordinary bars by these customers.

Young professionals

The management team has also segmented its products and services to include young professionals aged between 22 to 35 years who are giving up the culture of patronizing bars. These individuals look for alternative methods of socializing. In addition, the young professionals are seeking joints where they can meet new friends and share new experiences.

Findings of a market analysis conducted revealed a high potential of growth in its target market. From the analysis, the management made a forecast of the expected growth in its target markets as illustrated below.

Market analysis

Potential customer Expected growth (%) Year 1 Year 2 Year 3
Middle Eastern Americans 3 600 615 630
University and college age students 3 16,000 16, 450 16,914
Young professionals 3 29,000 30,900 31,827
Total 3 45,600 49,365 48,771

Positioning

According to Russell (7), effective positioning in the market plays a significant role towards the long term success of a firm. This is due to the fact that it acts as an effective defense mechanism to the competitive challenges. To position itself in the market, the management team of the firm has incorporated a high level of expertise in its operation. This means that the management of the firm will be more concerned with the quality of its product and service delivery. This will ensure that a high level of customer loyalty is achieved and maintained in the long term.

Marketing mix

Product and services

Merritt Hookah Lounge will specialize in dealing with a variety of products. The products will be of American and Middle East origin. This will enable the hookah lounge to appeal the target market. Some of the products that the firm will deal with include healthy appetizers, snacks and non-alcoholic drinks. To ensure that hookah smokers attain maximum satisfaction, various flavors will be incorporated in producing the hookah tobacco. Some of these flavors include cherry, apple, mixed fruit, licorice, banana, rose, grape, Lebanese blend, mint, orange, peach, cola, vanilla, jasmine, candy and pistachio. In addition, the hookah lounge will be designed similarly to a restaurant to ensure that individuals of different age patronize the hookah lounge. The hookah lounge will also consist of a well designed stage in which live performances, talks and films will be presented. To ensure increased customer satisfaction, the management will conduct continuous innovation to the hookah lounge so as to move with the industry trends.

Pricing strategy

Considering the fact that the firm is venturing into a new market, the management of the firm will conduct a competitor and a consumer market research. The objective of the competitor market analysis will be to identify the pricing strategy of other firms in the industry. This will aid the management in the process of formulating its price strategy. On the other hand, the consumer market research will aid the firm’s management in determining the price sensitive nature of the customers. From the research, the management will be able to formulate a good pricing strategy.

In its effort to enter the new market, the management of the firm will incorporate the concept of penetration pricing strategy. This will involve setting the price of its products and services at a relatively low level compared to its competitors. As a result, the hookah lounge will appeal to a wide range of customers considering the fact that consumers are price sensitive and their desire is to maximize their utility level.

Psychological pricing will also be integrated in the firm’s pricing strategy. This will involve setting price points that have psychological effects on the consumers purchasing process. For example, the price of hookah pipe smoking will be set at $ 13.99. These price points will play a significant role in ensuring that the firm’s products price appeals to the emotions of different customers in their purchasing process. As a result, individuals of different income groups will perceive the lounge pricing strategy being fair.

Promotion strategy

The success every business establishment depends on the degree of market awareness through effective communication. The US hookah industry is not mature. This means that firms venturing into this industry must conduct comprehensive market awareness (‘Hookah Lounge franchise information’ Para. 6). To attain this, the management team of the firm has formulated a comprehensive marketing communication. The management team will incorporate various market communication methods which include advertising, sales promotion, personal selling, public relations and advertising. Marketing communication through advertising will integrate various mediums. These include television, radio, outdoor advertising through use of billboards, print media such as newspapers and magazines.

The management team of the firm has realized that it can attain a high level of revenue through incorporation of the emerging Information Communication Technology (ICT). As a result, the team will integrate electronic commerce in communicating to the market. This will be attained through use of the internet. Use of internet advertising will enable the firm to reach to a wide range of customers in Marietta, Georgia and its surrounding regions. This is due to the fact that a wide range of customers access the internet daily. To achieve this, the firm will enter into contract with major search engines such as Google and Yahoo. The contract will enable the firm to post its wide range of hookah lounge products in these sites. The firm’s management will also

The management will also make use of the emerging social networking tools in creating market awareness. These tools include You Tube, wikis, blogs and Face book. In integrating these social networking tools, the management will make use of the most famous wikis and blogs in Marietta. You Tube will be an effective market awareness tool since the firm will post the pictures of the hookah lounge and its products on You Tube. This will ensure that potential customers see what the firm offers. In addition, use of You Tube is more cost effective and does not require expert knowledge.

The management team will also design its own website through its information technology department. The website will enable potential customers to access information regarding the firm’s products and services. In addition, use of Wikis and Blogs will ensure that the firm creates an interactive environment between potential customers and the firm. This means that these tools will act as both informative and interactive tools. As a result the management will be able to know the customers views regarding the hookah lounge and supply the market demands.

To ensure that market awareness is well created, the management of the firm will also integrate outdoor advertising. This will be achieved by entering into contracts with local advertising companies which have their bill boards located in strategic locations. The firm will post pictures of the hookah lounge in these billboards. In addition, the advertisements in these bill boards will integrate catchy slogans that will appeal the customers. Use of print media will involve publication of the firm’s concept of the hookah lounge in the local dailies and magazines.

During the opening of the new hookah lounge, the management of the firm will integrate sales promotion in creating awareness. A grand opening will be conducted by organizing various events such as live music, door prices, offers on the various products of the hookah lounge such as food and drink. To ensure store loyalty after launching the hookah lounge, various promotional incentives will be incorporated. These include price discounts and free prizes for individuals who win through drawings conducted on business cards. This will serve in enhancing the young professional’s market.

Distribution strategy

The hookah lounge will be established in a central location to ensure ease of access by the customers. The management team of the firm has identified a strategic location in Marietta, city. The location is close to a number of colleges and universities and has a well established infrastructure. This will ensure that the firm is able to replenish its orders for the hookah more conveniently.

The management of the firm intends to establish other hookah lounge outlets within Georgia regions. The hookah lounge outlets will be established in strategic locations in Georgia cities. This will enable the firm to develop a high market share within the local industry. In addition, the management team intends to minimize the cost of operation by attaining economies of scale.

Marketing research

According to Porters (34), conducting a market research can enable a firm to develop competitive strength. Market research should be integrated in the firm’s strategic management (Shane 134).A comprehensive market research will be conducted before establishing the new hookah lounge. The research will incorporate both primary and secondary market research with reference to competitors and consumers as the key market variables. Primary market research will entail use of interviews and observation. On the other hand, secondary market research will involve conducting research through the internet.

Consumer market research

Primary consumer market research will be conducted to identify the demographic market variables that affect consumer purchasing behavior of the firm’s target market. The demographic variables to be considered include consumer’s level of income, age and occupation. The research will also focus on the customers’ consumption patterns, product and services preferences and their perception of hookah lounges. This will enable the firm to deliver the exact market demand to the potential customers. In addition, the consumer market research will contribute towards ensuring that the customers who patronize the hookah lounge attain a high level utility. This will also play a significant role in the process of the firm developing customer loyalty. The management of the firm will ensure that a continuous consumer market research is conducted. This will enable the firm’s management team to identify the trends in consumer behavior.

The consumer market research will also consider the changes in consumer’s lifestyle in relation to how they socialize. This will enable the management of the firm to determine the attractiveness of the selected market.

Competitor market research

To ensure that the firm positions itself effectively in the market, the management of the firm will conduct an industry analysis to identify the major competitors in Georgia hookah lounge industry. The research will be conducted by visiting the websites of its competitors. Through the company websites, it will be possible to identify the operational strategy of the competitors. The research will also be conducted to establish the nature (quality) and type of the products that the competitors deal with. In addition, competitor market research will help the management to identify key gaps and omissions left by the competitors. One of the variables that the research will consider is the competitor’s customer service. These gaps and omissions will present an opportunity for Merritt Hookah Lounge to exploit in an effort to position itself at a high more optimally. The competitor market research will also be aimed at identifying the competitor’s strengths and weaknesses.

To ensure that the firm obtains extensive information about the competitors, the management of the firm will have some of its employees become customers to the competitors. Alternatively, the management will have a chat with the competitors’ customers. This will form a legitimate ground through which the management will obtain credible competitor information in relation to their culture, pricing and customer service.

Financials forecasts

The management of the firm intends to derive a significant proportion of its revenue from the flavored tobacco. This is due to the fact that low sales costs are incurred in merchandising tobacco. In addition, sale of food and drinks will form a secondary source of revenue for the firm. The management of the firm forecasts a rampant growth its sales revenue within a period of 3 years. This is due to the fact that the society will have integrated the hookah lounge products in their consumption patterns. This means that the firm will have succeeded in developing a significant degree of customer loyalty. As a result, the management expects that the customers will conduct a repeat purchase of 15 times per year. During these repeat purchases, the customers will participate in twenty rounds of hookah smoking. From these projections, it is expected that the firm will have established approximately 1000, 2500 and 3500 customer groups within the 1st, 2nd and 3rd year of its operation.

The graphs below illustrate the firm’s monthly and annual sales.

the firm’s monthly and annual sales

the firm’s monthly and annual sales

Sales forecast

Item
Unit sales
Year 1 Year 2 Year 3
Tobacco 19,790 49,000 71,000
Beverages 24,000 60,000 79,000
Food products 15,000 30,000 49,000
Total unit sales 58, 790 139,000 199,000
Price per unit in $ Year 1 Year 2 Year 3
Tobacco 13.99 13.99 13.99
Beverages 5.99 5.99 5.99
Food products 4.99 4.99 4.99
Sales
Tobacco 276,862.1 685,510 993,290
Beverages 143,760 359,400 473,210
Food products 74,850 149,700 244, 510
Total sales 495472.1 1,194,610 1,711,010
Direct unit cost in $ Year 1 Year 2 Year 3
Tobacco 4.1 4.1 4.1
Beverages 1.1 1.1 1.1
Food products 1.49 1.49 1.49
Cost of sales (Direct) (unit cost * number of units sold)
Tobacco 81,139 200,900 291,900
Beverages 26,400 66,000 86,900
Food products 22,350 44, 700 73, 010
Total direct sales cost 129,889 311,600 451,010

Break-even analysis

The table below illustrates a projection of the monthly fixed costs expected to be incurred during the first year. By using this fixed cost, the management of the firm expects the firm to break even within a period of 6 months from its inception.

Break-even analysis

Table on break-even analysis:

Description
Monthly units sold to break even 4,200
Break-even revenue $35, 280
Assumptions made
Average revenue per unit $8.39
Average variable cost per unit $2.29
Estimation of monthly fixed cost $25, 700

Marketing budget expense

The management team of the firm expects to incur a significant cost in its marketing process. To cater for these costs, the firm’s management team has allocated $ 550,000 in its marketing budget. The management expects that the marketing budget will increase from year one through to year 3.The table below illustrates a forecast of the monthly cost that the management of firm expects to incur.

Item Year 1
Amount in $
Year 2
Amount in $
Year 3
Amount in $
Cost of promotion
Advertising cost (TV, print media, radio television, social networking tools) 57, 000 85,000 75,000
Sales promotion 30,000 35,000 45,000
Cost of consumer market research 40,000 44,000 50,000
Cost of competitor market research 20,000 25,000 30,000
Total expected marketing and sales cost 127,000 189,000 200,000

Contribution margin

A steady increment in the firm’s contribution margin is expected within the first 3 years of its operation. This will result from a stabilization of the firm’s sales and marketing costs. In addition, the firm’s cost of sales will decrease as the firm grows in its operation. The management will not reduce its marketing expenses but expects it to decline as the firm’s sales increases. Considering these factors, the management expects the firm’s contribution margin to be 20% during its first year. This is expected to increase to 30% and 45% during the second and third year respectively.

Control and implementation

The success of a firm is influenced by the efficiency of the management in controlling and implementing the various strategies formulated. Merritt Hookah Lounge plan entails attaining sustainable growth in the hookah lounge industry. As a result, the plan will not be of any importance if it is not implemented. The management of the firm has formulated a comprehensive implementation and control program detailing what it takes to implement the plan. In planning the implementation program, the management has integrated the concept of Gantt chart. The Gantt chart illustrates the various activities to be undertaken and their expected duration.

Control and implementation

Upon establishment of the hookah lounge, a continuous control will be conducted. Various variables will be considered in the process of controlling the establishment of the new firm. The management will keep track of the marketing plan with the actual results. For instance, the firm’s management will evaluate the firm’s revenue over time. This will enable the management to determine whether the firm is operating efficiently by determining the trend in its profitability. In addition, the management will also evaluate the change in its market share. This means that it will be possible for the management to determine whether the firm is developing its competitive advantage. Determination of the firm’s market share will be conducted by establishing the change in its customer base compared to the entire market. Any deviations identified will be discussed during the firm’s monthly marketing meetings.

Milestones

After the official launch of the new hookah lounge, the management of the firm will conduct a number of promotional activities such as business card drawing and other events. This will initiate the operation of the firm. The table below illustrates the promotional activities to be conducted.

Mile stone Date Budget amount in $ Department to undertake the event
Start End
Public relations campaign 1/2/2010 28/2/2010 1,000 Marketing
Advertising in downtown Marietta 4/2/2010 28/2/2010 4,000 Marketing
Lounge grand opening 6/2/2010 6/2/2010 10,000 Marketing
Events incentives 7/2/2010 9/2/2010 6,000 Marketing
Business card drawing 10/2/2010 10/2/2010 5,000 Marketing
Totals 31,000

Marketing organization

The new firm’s marketing department will be managed by a full time marketing professional who will be recruited externally. The manager will be responsible of controlling all the firm’s marketing activities. He will also ensure that the firm’s marketing department maintains a high degree of integrity compared its competitors. In addition, the marketing manager will be responsible of evaluating the firms’ goals to determine their relevancy. The marketing manager will also be charged with the responsibility of ensuring that the marketing programs implemented are congruent with the firm’s strategy. In his operation, the marketing manager will work in cooperation with other marketing department staff.

Contingency planning

To ensure that the operations of the firm are profitable in the long run, the firm’s management team will conduct a continuous industry analysis. This will aid in identification of the developments in the hookah lounge industry. The analysis will also contribute towards the firm developing a high competitive advantage. This is due to the fact that the management will be proactive in its decision making process. The ultimate result is that the firm will be able to develop its niche market.

Works Cited

Armstrong, Brandice. “Ok hookah bars make changes to comply with new smoking laws.” Business service industry. 2006. Web.

HookahBusiness.com. “Hookah Lounge franchise information.” 2007. Web.

Hospitality Industry. “How to run a successful hookah bar.”2009. Web.

Jackson County Substance Abuse Prevention Coalition. “Hookah fact sheet.” 2008. Web.

Koch, Wendy. “Hookah trend is puffing along.” USA Today. 2005. Web.

Porter, Michael. “Industry structure and competitive strategy: keys to profitability. New York: The Free Press, 1980. Print.

Rothstein, Ethan. Hookah lounges are growing in Baltimore area. 2009. Web.

Russell, Transtod. “Product positioning.” 1995. Web.

Shane, Scott. “A general theory of entrepreneurship: the individual-opportunity nexus” Northampton: Edward Elgar Publishing Incorporation. 2003. Web.

South Smoke.com. “About hookah.” 2010. Web.

Weisten, Art. “Handbook of market segmentation: strategic targeting for business and technology firms.” New York: Haworth Press Incorporation. 2004.

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