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Osteria de Medici Case Solution

Solution Id Length Case Author Case Publisher
1172 1029 Words (3 Pages) Christopher K Anderson, Mike Terrigno Ivey Publishing : 9B03E007
This solution includes: A Word File A Word File and An Excel File An Excel File

Maurizio should allow overbooking because not all costumers actually show after booking, due to which the restaurant has to bear the costs of empty seats. The case shows that revenue in excess of $400 is lost for just one four-seat table if it remains empty for one particular time slot. This loss in revenue does not just translate into lost profit, but also adds to the loss of the restaurant because of the fixed costs associated with the empty seats. Since Maurizio does not believe in calling his costumers or imposing any penalty for not showing up, he has to do overbooking up to a certain limit to make sure the optimum use of the number of seats in the restaurant. The past practice of the costumers showed that a big chunk of the costumers, with prior booking, do not actually show up, due to which the restaurant has to lose revenue. Therefore, Maurizio should do overbooking to a certain limit to ensure the full use of the restaurant capacity. Moreover, Maurizio should also make sure to keep a balance in the bookings regarding different time slots i.e. overbooking of one slot while low booking for another slot should be avoided.

Following questions are answered in this case study solution

  1. Should Osteria allow overbooking?

  2. What are the implications?

  3. Develop a model to determine a reservation schedule.

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Case Analysis for Osteria de Medici

What are the implications?

The implications of overbooking are huge for the restaurant, both from a financial and marketing point of view. On one hand, Maurizio has to ensure the optimum use of the available seating capacity; on the other hand, he has to keep the number of disappointed costumers (costumers who had a booking but could not get any seat) to a minimum. Since the restaurant deals with high profile people, for whom time matters a lot, there was a high probability that is costumers had returned without any seat repeatedly, they would never come again. This could be very dangerous for the survival of the restaurant in the long run as the satisfaction of costumers was the top priority. Therefore, Maurizio should be extra careful in deciding the number of bookings to make sure that the number of disappointed costumers is kept to a minimum. Maurizio was leady reluctant to displease costumers by asking them to give a deposit or to ask for the reason for not showing up. So, a careful cost and benefit analysis are needed for the restaurant to determine the number of bookings that will maximize the profit, without any loss of costumers in the long run.

Develop a model to determine a reservation schedule.

The number of bookings that Maurizio should do depends on a complete set of estimates. The maximum seating capacity of the restaurant is for 123 people, therefore, Maurizio should make sure that for each particular time, the number of people coming to the restaurant should be enough only to occupy the seating capacity of the restaurant. A simple mode can be made to find out the optimum number of people that should be booked for a particular time. The model works on the basis of a set of assumptions that are critical for the determination of the optimum number of bookings for the restaurant. The following four are the key assumptions that will be used to determine the optimum number of bookings for a particular time slot in the restaurant.

  • The Profit generated by each customer on average for the restaurant.

  • The cost incurred by the restaurant by an empty seat.

  • The estimated loss to the revenue of the restaurant if a customer gets disappointed i.e. he had the reservation but he could not sit due to the non-availability of the seats.

  • The expected percentage of costumers who will actually come at the required time.

Out of all these assumptions, the third and the fourth are the most critical and difficult ones to measure to the level of subjectivity involved. The average Profit per customer can be easily estimated from the past Profit data. Similarly, the cost incurred by the restaurant for empty seats essentially consists of fixed costs incurred by the restaurant. The greatest concern for Maurizio is the determination of the estimated loss in profit that should be incorporated in the model to find out the optimum number of bookings. This loss essentially means the loss in business if disappointed costumers decide not to come again.

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