The following memorandum is from the business manager of Happy Pancake House restaurants.

“Butter has now been replaced by margarine in Happy Pancake House restaurants throughout the southwestern United States. Only about 2 percent of customers have complained, indicating that an average of 98 people out of 100 are happy with the change. Furthermore, many servers have reported that a number of customers who ask for butter do not complain when they are given margarine instead. Clearly, either these customers cannot distinguish butter from margarine or they use the term ‘butter’ to refer to either butter or margarine. Thus, we predict that Happy Pancake House will be able to increase profits dramatically if we extend this cost-saving change to all our restaurants in the southeast and northeast as well.”

Write a response in which you discuss what questions would need to be answered in order to decide whether the prediction and the argument on which it is based are reasonable. Be sure to explain how the answers to these questions would help to evaluate the prediction.

According to the general manager at Happy Pancake House, the substitution of butter with margarine is saving the company 2% on expenses. While I agree that cost-cutting measures are prudent, it does not necessarily follow that Happy Pancake House can reap increased profits by spreading this cost-saving measure throughout its chain. There must be a cost-benefit analysis performed, and this analysis should include the anticipated effects of reducing butter on all Happy Pancake House customers. Are customers unable to differentiate one from the other? If so, then Happy Pancake House must consider the cost of educating customers on the difference between the two. In addition, customers must be educated on the nutritional benefits of butter versus margarine. Otherwise, Happy Pancake House will be undermining the health of its customers and undermining its reputation as a healthy restaurant. The general manager should also consider whether the substitution will increase the earnings of Happy Pancake House’s competitors. If Happy Pancake House’s competitors are already using margarine, Happy Pancake House will have a difficult time differentiating itself from its competitors. The substitution of butter with margarine will cut into the profit margins of Happy Pancake House’s competitors, who will most likely pass this cost increase on to their customers in the form of increased prices. Moreover, if Happy Pancake House’s competitors are already using margarine, it seems unlikely that they will be willing to use butter at all. If Happy Pancake House’s competitors refuse to make a similar substitution, Happy Pancake House will be the only restaurant in their area that offers a butter substitute. The general manager should also consider whether the substitution of butter with margarine will negatively affect Happy Pancake House’s relationship with its customers. Happy Pancake House’s customers must be convinced that the substitution is in their best interest. Happy Pancake House should use market research to ascertain what its customers think about the substitution. After all, Happy Pancake House’s customers will be the ones that determine whether or not Happy Pancake House will reap increased profits by using the cost-saving measure.

Finally, the general manager should consider whether or not Happy Pancake House’s customers are loyal to the brand. Happy Pancake House’s customers are accustomed to eating pancakes with butter. The substitution of butter with margarine could be a bad move if Happy Pancake House does not inform its customers of the substitution. If Happy Pancake House does not alert its customers to the change, it could lose its customers and their custom. Moreover, Happy Pancake House’s customers might not buy the substitute, in which case Happy Pancake House will lose the opportunity to make an additional profit. If the substitution of butter with margarine negatively affects Happy Pancake House’s relationship with its customers, Happy Pancake House should consider whether or not it is worth the expenditure to educate customers on what butter is and what butter is not. Happy Pancake House could lose customers if it makes customers uncomfortable and upset by telling them that butter is being replaced by margarine. The general manager should consider whether or not the cost to educate customers on the substitution is worth the profit Happy Pancake House would make.

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