代写-PMGM7019
时间:2021-03-17
1
ECON6006_PMGM7019
Due Date: 11:59pm, March 19th





Franchising at yogurt bars inc













2
You are the in-house strategist for “EuroFoods” a large, publicly traded company that owns
several restaurant chains and other food-related businesses. Their shareholders are mostly well-
diversified institutional investors. EuroFoods recently bought “yogurt bars inc,” a small but
rapidly growing chain of frozen yogurt restaurants located all across Germany. Hans Meyer,
yogurt bar inc’s Vice-President of Operations, has mailed you a memo asking for your advice.

Prepare a short presentation with no more than five PowerPoint slides in which you advise Hans
and his team on the issue described in the memo. You can use the “notes” section of PowerPoint
to add explanations for each slide. These explanations cannot exceed 100 words per slide and
should be in the form of bullet points. The slides (together with the notes) should be self-
explanatory so that someone else (who is familiar with the situation but not with your analysis)
could give the presentation on your behalf.

Note that the memo might include more information than you need. Focus on the relevant factors
we identified in class and base your analysis on the class discussion.

Finally, don’t submit a PowerPoint file. Instead, submit your five pages of slides/notes as a PDF
document.

































你是一家大公司“EuroFoods” 的策划师, 最近你们公司收购了一个新公司“yogurt bars inc”
Yogurt 的VP email you for advice
解释容易读懂
3


From: Hans Meyer
Sent: Monday, March 1, 2021 23:51 PM
To: strategist@eurofoods.co.uk


Dear Strategist,

It was good talking to you earlier today. I wanted to put in writing some of the issues we talked
about and to provide you with some more information for the meeting next week.

As you know, we bought yogurt bars inc two months ago from Silke Radler. Silke founded the
company in 2004 and managed its growth from just one to 144 yogurt bars spread all across
Germany. To manage this rapid growth Silke relied on franchising. With a few exceptions all
the yogurt bars were (and still are) owned by local franchisees who pay yogurt bars inc for the
right to run a yogurt bar in an exclusive territory.

Silke and her team relied heavily on market research to decide on the location of new yogurt bars.
Once they had decided on a new market, they would invite submissions from local entrepreneurs.
After screening those submissions they would then invite a select group to submit a bid (i.e. the
annual franchise fee that the bidder was willing to pay). If the bid was high enough, they would
sell the local franchise to the highest bidder. Typically, the initial franchise agreement ran for
three years after which it could be renewed. The average winning bid was around Euro 30,000
per year.

A new franchisee would sign a franchise agreement that specified how the yogurt bar should be
run. A key part of the agreement was of course the revenue sharing rule: the local franchisee got
85% of the revenue that he/she generated and the remaining 15% would go to yogurt bars inc.

As I told you, we are not planning to make any radical changes to the business model. And
obviously we can’t make any changes to existing franchise agreements. We are, however,
thinking about revising the franchise agreement for new franchisees (we are planning to franchise
out almost 100 new yogurt bars in the next twelve months). For this reason I want to better
understand your point that we might be able to increase profits by adapting the 15/85 rule to the
“demand conditions” in our four operating regions (Northwest, Northeast, Southwest, Southeast).
As I told you, on average demand/revenue is significantly higher if a yogurt bar is located in the
NW or SW (basically the old West Germany) than if it is located in the NE or SE; but it also
tends to be significantly more volatile if it is located in the NW or NE than if it is located in the
SW or SE (the weather is just terribly unpredictable up there). I don’t understand though why
you think that these differences may allow us to improve our bottom line by demanding more/less
than 15% in different regions. Why should we demand a higher revenue share from new
franchisees up north just because their revenue stream is more volatile (or was it the other way
around)? Also, I don’t follow your point that we would get more “bang for our buck” in regions
with more demand and therefore should give the franchisee there a higher revenue share (or did
you say lower?).

Anyway, I really need you to clarify these issues when you are meeting our team next week so
please make sure to include a few slides on this in your presentation. At this point I’m not asking
for specific numbers. Basically what I want to know is (i.) in each operating region should we
change the revenue share that we demand from new franchisee above/below 15%; (ii.) in which
4
regions should we demand the highest/lowest revenue share; (iii.) your reasoning for how this
might increase yogurt bar inc’s bottom line.

Finally, I asked Franz to put together answers to the questions you mailed after we talked:

• We believe that the key determinants of local revenue are weather conditions, per capita
income in the local population, and the franchisee’s initiative.

• There are no significant cost differences across yogurt bars.

• We don’t think that changes in the revenue sharing rule are going to affect the pool of
applicants.

• Financing is not a major concern for local franchisees. Given the relatively small size of
a yogurt bar, there are plenty of qualified people who can raise the necessary funds.

• Most franchisees are in their late thirties/early forties and their yogurt bar is their primary
source of income (this is one of the dimensions we screen applicants on since we want
them to be fully focused on making the most out of their yogurt bar).

• Yogurt bars don’t compete with each other. They tend to be located in pedestrian zones;
conditional on being in the same city, average distance between yogurt bars is around
5km.

If there is anything else you need, please get in touch with Franz. I look forward to your
presentation next week.

Best,

Hans



__________________________
Hans Meyer
Vice-President of Operations
yogurt bars inc








5








Compensation at Sunshine Farms











6
This question is based on the experience of one of the largest industrial farms in the United
Kingdom. Some of the details have been changed to preserve the firm’s anonymity and its
proprietary productivity data. After you have handed in your answers I will post an article that
describes this case in more detail.

Keep your answers short. None of the questions call for long and elaborate answers.

Sunshine Farms (SF) was one of the largest industrial fruit farms in the United Kingdom. At the
beginning of each season SF hired a large number of seasonal workers from Eastern and Central
Europe. These workers got temporary work visa that allowed them to work on the farm for six
months. Workers lived together in temporary housing based on the farm. Over the course of a
season there was very little turnover since leaving the farm meant having to leave to country.

Traditionally SF had used an absolute incentive scheme that rewarded workers for their
individual performance. Recently, however, SF became interested in using a relative incentive
scheme in which each worker would be rewarded for his or her performance relative to that of his
or her co-workers. SF recorded each worker’s daily productivity and used this information to
determine their pay. Information about a worker’s productivity and pay was known to that work
and of course management but it was not shared with other workers.

To evaluate the effect of potential switch in compensation on productivity, SF ran an experiment
in the 2002 season. The experiment involved workers who worked on two types of fruit, Fruit 1
and Fruit 2. At the beginning of each day, a group of workers was assigned to a particular field.
Fruit plants were lined up in rows and each worker was assigned one or more rows to pick. The
productivity of each worker depended only on his or her own effort and not on that of his or her
co-workers. Fruit 1 grew close to the ground. Workers on the same field could therefore talk to
each other and interact in other ways. Fruit 2, in contrast, grew in dense shrubs that were six to
seven feet high on average. Workers on the same field had much less interaction since they
couldn’t see each other. The allocation of workers to fields was essentially random (basically
every morning management picked a random group of workers to work on each field). There
were on average roughly 40 workers on each field.

The experiment took the following form. For the first half of the season management paid
workers according to the absolute scheme. After the first half of the seasons was over, it
switched to the relative scheme and kept that scheme in place for the rest of the seasons. Each
half of the season was 54 days long. The switch was implemented on the same day it was
announced. At the end of the season management compared workers’ productivities under the
two schemes to evaluate the likely effect on productivity of a permanent switch to a relative
scheme.

To be more specific, consider compensation for a worker who, on a given day, was chosen to pick
Fruit 1 (compensation for Fruit 2 was analogous). In the first half of the season worker i’s daily
pay was given by

,

where w was the fixed wage and was the piece rate that determined how much money each
worker was paid for picking one extra kilo of fruit.


*kilos picked by w ia+
a
7




In the second half of the season, instead, worker i’s daily pay was given by



where was the new fixed wage and “avg” was the average kilos picked by all workers who
worked on the same field/day as worker i. The new fixed wage was set in such a way that the
average worker could expect roughly the same daily pay under the two schemes. Notice that the
piece rate was the same under the two schemes.

Why would management want to switch to a relative incentive scheme? According to an article
on SF’s change in compensation:

“Finally, interviews with management revealed that the relative incentive scheme was adopted
because it allowed them to difference out common productivity shocks, such as those derived
from weather and field conditions, that are a key determinant of productivity in this setting.”

A. Why would SF management want to make its workers’ pay less risky by differencing out
common productivity shocks? Offer an explanation based on our discussion in class.

Management had detailed information about the daily productivity of each worker and they used
this data to evaluate the effect of the switch in compensation on productivity. The enclosed
spreadsheet gives you the average daily productivity for workers picking Fruit 1 for each day of
the season.

B. What is the effect of the switch in compensation on average worker productivity? To answer
this question, work out average daily productivity in each half of the season and work out the
percentage change.

C. In the Safelite case we saw that half of the increase in productivity was due to “selection”
and half was due to “motivation.” In the case of SF, how much of the change in productivity
is due to “motivation” and how much is due to “selection”? Explain your answer.

Management was very surprised by how much the change in compensation affected productivity
of workers picking Fruit 1. They were especially surprised since they had deliberately kept the
piece rate α constant. Naturally, this made them think again about permanently moving to a
relative scheme. They were not yet, however, ready to give up. Instead, they first wanted to
understand why the move to the relative scheme had had such a large effect on productivity. For
this purpose, they collected the following additional facts:

• Having more friends in the same field reduced productivity significantly under the
relative scheme.1

1 Periodically throughout their time at SF workers had to fill out surveys that asked them about different
aspects of their experience at SF. One of those questions asked workers to identify their friends.
Management also knew who the workers were living with and therefore had a good sense for the social
connections of their workforce.
ˆ *(kilos picked by avg),w ia+ -

a
8

• This effect was smaller, the larger the total number of workers in the field.

• The number of friends had no effect on productivity under the absolute scheme.

D. SF management has hired you to advice them on their incentive schemes. As a first step they
want you to help them understand why the switch to the relative scheme had such a large
effect on productivity. Provide different explanations that are consistent with the facts
provided above (and ignore for now the additional facts provided below). If possible, rank
your explanations in terms of how plausible they are. Hint: You may want to think about how
the switch in compensation changed: (i.) the effect of an increase in a worker’s effort on his
or her own pay (ii.) the effect of an increase in a worker’s effort on his or her co-workers’
pay. Think carefully about the different reasons for why it may matter how an increase in a
worker’s effort affects his or her co-worker’s pay.

What puzzled management even more was that the switch in compensation had a very different
effect on the productivity of those workers who were chosen to pick Fruit 2. Specifically, in their
case the switch from the absolute to the relative scheme did not have any effect on productivity at
all!

E. Provide an explanation for why the switch in compensation had such a large effect on the
productivity of workers picking Fruit 1 but did not affect the productivity of workers picking
Fruit 2. Does your answer allow you to distinguish between the explanations that you
offered in your answer to the previous question? If so how?

F. Finally, given your analysis above, how would you advise SF management on the use of
relative versus absolute incentive schemes?












































































































































































































































































































































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