Rosa Dominguez, the owner of Elegant Dining in San Jose, California, is pondering whether to buy electronic menu technology and tablets for her five-star restaurant. Prices for a typical four course dinner average \($125\) per person with an average priced bottle of wine. Several of her high-end customers complained about not having such technology to view wine and beverage selections, and see pictures of menu items that other restaurants use. She did a web search of electronic menu tablets and found many suppliers of menu tablets and accompanying software. But one supplier, Celebrity Electronics, Inc., stood out to her as fitting their high-end patronage. Advantages of Celebrity’s technology, according to their marketing information, include:

● easy-to-use interface with employees and patrons

● seamless and secure payment options

● large color display screens in a lightweight, silver, and aluminum tablet frame

● automated sales, inventory, and accounting systems by store, employee, and customer 

● embed ads into the menu as a source of revenue 

● the data are the basis for a customer loyalty program 

● direct commercial call center technical support 24/7 

● online ordering and delivery by third party delivery firms 

● targeted ads to each individual customer 

● customer profiles as to their menu likes and dislikes and their preferred service-providers, and 

● cloud-based data management and backup systems.
As the owner of a single restaurant, Rosa also thought the “automatic menu data analyses” might provide her insights into what menu items and employees keep bringing patrons back. In other words, what were the order winners?
Disadvantages of electronic menus include:
● the high cost of the tablets and electronic system 

● hiring employees that can operate such equipment and training them 

● customers need a direct line-of-sight to digital menu 

● increase in energy costs 

● device sanitation issues 

● customers and employees have difficulty operating the touch display tablets 

● due diligence and extra cost to update menus, software, licensing, advertisements, and other agreements with customers and suppliers, and 

● dependency on the technology and Internet to be available 24/7 with no outages or disruptions of service.
The salesperson for Celebrity Electronics also explained to Rosa that they had a recycling process to take back all tablets and electronics, provide a credit for future purchases, and recycle the materials. She thought this approach was much better than cutting down trees and making paper menus out of tree pulp. Rosa created the decision tree shown in Exhibit 4.7 with an expected net present value profit over three years. The net profit includes the cost of the electronic menu tablets and system if installed by Celebrity Electronics, Inc.v 

 Case Questions for Discussion:

1. What probability (p) of high demand is necessary for Rosa to be indifferent between doing nothing and buying the electronic menu tablets and system? (Develop an equation for the expected profit of the electronic menu option and set it equal to the expected profit of the do nothing option.)

2. Based solely on your decision tree analysis, what decision should Rosa make if high demand is greater than or less than p?

3. What decisions would Rosa make if she used maximax, maximin, and minimax-regret criteria?

4. How would you classify this electronic menu tablet and system on the low-high scalability continuum? Explain your reasoning.

5. What should she do? Justify your conclusion.

Transcribed Image Text:

EXHIBIT 4.7 Elegant Dining Decision Tree High Demand Forecast Annual Net Present Value of Profit Over 3 Years $1,200,000 Buy Electronic Menu System Low Demand (1-pl -$150,000 High Demand $780,000 Do Nothing P Low Demand (1-pl $30,000