An Analysis of Burger King Dollar Double Cheeseburgers

Burger King is a fast-food chain that is known for so many years and has
branches all over the world. Its typical menu is varieties of burgers, appetizers
such as french fries and onion rings and desserts. The fast food chain is initially
known as Insta-Burger King. It was established by Keith Kramer and Matthew
Burns in 1953 in Florida. In 1955, Keith Kramer and Matthew Burns had
experienced financial difficulties and sold the company to its Miami based
franchise, James McLamore, and David Edgerton and changed its name to Burger
King. Burger King is said to be the second-largest hamburger chain in the United
States, after McDonald’s. In the early 21st century, Burger King claimed to have
about 14,000 stores in nearly 100 countries. Recently, Burger King justified that
the dollar double cheeseburgers is just a move to state that the company needs to
remain competitive in a tough economic environment.

1. As “experts in managerial economics”, do you support the idea that

Burger King franchises are losing money by selling $1 double cheeseburgers?

Successful businessmen are known to be smart and wise in the business field. As
experts in Managerial Economics, it is true that for a businessman to be
successful, he must know the Do's and Do's in the corporate world. Businessmen
should know that they enter into business to earn profit or money. It is automatic
already that the products which the enterprise is selling should have at least
30%-50% mark-up rate to cover the cost of production and other related expenses
for them to be profit-oriented. If the enterprise sold their products lower than the
cost of production and the expenses itself, it will result in a loss. This can be
related to Burger King. Burger King is known for being the second-largest
fast-food burger chain that has a strong market position in the food industry.
However, the enterprise has a marketing strategy that has a poor sales pricing
strategy. The said marketing strategy is good since it has benefits mostly on the
part of the consumers since it is budget friendly and they will be able to purchase
the double cheeseburger for only $1. This results in the increase of sales and it
will be known because it is being patronized by many consumers. On the other
hand, from the point of view of Finance, there is a poor sales pricing strategy
because it is inappropriate to sell the product just for the sake of selling. Burger
King is an enterprise that is profit-oriented which aims to earn money and not a
charity. If they market and sell the double cheeseburger lower than its costs, it will
result in a loss that may be the cause of the closing of the franchise in the future.
Furthermore, Burger King has cannibalized its existing sales by putting too much
emphasis on its value meals. Cannibalization refers to the loss of a product's sales
due to the release of a newly created product. In other words, a newly introduced
product line might take away market share from an existing product line instead
of gaining overall market share for the company. It is unfair because they sell
their said to be product “value meals” at a much lower price compared to its
production cost causing them to lose revenue since the consumers would
patronize more the value meals compared to the products that are being sold
separately since it is more cheaper. With all of the information being said, we do
support the idea that Burger King franchises are losing money by selling $1
double cheeseburgers.

2. What are the relevant costs to a franchise of selling a double

cheeseburger?

In selling double cheeseburgers, a franchise would also cover relevant costs

other than the sunk cost they incurred when they first started up their franchise.
When talking about relevant costs of a franchise, the first cost to be considered is
the royalty to be paid to franchisors that is typically equal to 4.5% of the revenues
of the store. Next, it would be the cost of rent and the wages of manpower which
are the main foundation in running the business. This should also include the cost
of building improvement, the remodeling buildings and the Deferred Remodel
Default Payments in case the franchisee failed to compromise with the
remodeling within the time agreement. Aside from the relevant cost with regards
to structures, this should also include the cost of the training of new employees
plus their application fees, the cost of accounting services, marketing strategies
such as advertising and the coupons for their promos.

3. What other factors need to be considered in making this decision?

Decision making is a vital component in the success of any businesses. Each

decision has its own impact in addressing a specific problem which may result in
either positive and negative effects on the company, but all decisions can affect
the main goal of any company – profitability.

The most important factor to be considered in making this decision is the ROI
or the return on investment or the amount of benefit that the Burger King’s
franchisor and franchisee would gain or lose by undertaking this activity. The
main goal of every business is to earn profit, that is why in making decisions the
first thing to keep in mind is if the activity to be implemented is profitable and if
not why consider the activity when the purpose is to earn in the first place.
Following this factor is Image and Brand Impact, every activity that a business
undertakes should be carefully discussed and made sure that it would be of great
help to the image and brand name of the business. From where to advertise and
sell, to what price charge and charities the business sponsor, has an impact on the
image of the business. Cutting the value of the double cheeseburger to $1 may
temporarily increase sales but it may send a message that you can’t sell your
product at full price or the product is not selling well. Adding a new product to
your line that doesn’t fit in with your other products can send a message to
consumers that you no longer specialize in what you sell and this could damage
the brand.

In making this kind of decision it is a must to take in consideration of what

effect it will do to the business resources. Consider the overall effect of the
activity to the sales, human resources, accounting, production and information
technology staff of the business. If undertaking such activity will affect the
performance of staff, the business might lose other profit opportunities. In
addition in looking for the cost for making and selling a product, review the
impact it will have on your operations.

Aside from the factors that were already mentioned, they should also consider the
forecasts and previous performances in making this decision. Forecasts are very
significant to an enterprise because they serve as an aid to solve such inevitable
problems in the future. Burger King should consider doing forecasting to see if
the product, in this case the $1 double cheeseburger, will be profitable and bring
other positive effects to the company in the future. It aims to know if the said
decision is the right thing to do or it still needs improvement before its launch or
performance. More so, the previous performances that can be assessed with the
help of the financial statements and other financial information and documents
will be very helpful as the management can further improve their products which
will be beneficial to Burger King's present and future performances

Burger King has also shown a lack of flexibility in changes in its market strategy
therefore, weak marketing strategy, target market, and product innovation should
be addressed. The value meal that was created did not help much in the growth of
their company. Fast-food chains are often associated with low prices.
Furthermore, premium items need to be continuously advertised than unnecessary
ones. Its menu development did not do well on its company and too much
emphasis on its value meals, causing dissatisfaction among the franchises. The
inflexibility of its marketing strategies has led to making unnecessary menu
development and the wrong target market. Product development should take into
account the current market demand and whether their decisions could have a
significant impact on their company and the community. They should be able to
make effective business decisions and create products that cater to community
concerns and needs while setting goals for their own.

4. There an opportunity cost that needs to be factored in?

When you make a choice, you lose the opportunity to make another. If one
has to choose between two choices, it is either a correct choice wherein it benefits
you or an opportunity cost / a choice wherein you failed to grab the opportunity.

Burger King has the opportunity to widen its product menu by adding new
product lines to attract more customers. However, their plan to make and develop
a new menu which consists of a ‘value meal’ and sell it to a much cheaper price.
Thinking that Burger King needs to remain competitive in a tough environment
and decide to produce quality products that are affordable at the same time, still
reaches the needs of the community wherein the cutting of the prices of their
products will be of help in increasing the sale with as much as 20%.

Another opportunity cost is the Burger King should have market the double
cheeseburger considering its total costs is $ 1.10 resulting in the accurate price of
$ 1.20-1.50, where the expenses could be covered. It is a win-win situation for
both Marketing and Finance since they can market cheeseburger that is still
budget friendly for the consumers and at the same time, without incurring any
losses since the said price is not less than its costs.
5. What is the goal of a Burger King franchise? What is the goal of Burger
King Corporate?

Essentially, the goal of any franchisee is to duplicate the franchisor’s

successful business model in order to help it expand into a regional or national
market. As per Burger King franchise, its goal is to deliver a consistent,
sustainable, and replicable quality of products and services to consumers and
mainly to independently manage and operate their business to the brand standards
established by the franchisor.

The goal of the Burger King Corporate is to earn profit through Burger King
franchises. They aim to sell their various products to consumers while
maintaining the flavors and taste of the food, loyal customers and also their brand
name and recognition while generating new customers. As a licensor, the Burger
King Corporate’s goal as a franchisor is to develop, license, support, and expand
an indirect system of distribution of its branded products and services. Their main
goal is for the system to grow, expand where they attract potential investors to
invest in them, prosper, make profits, and achieve a solid return on investment at
every level and to achieve what they design for their systems so that franchisees
can easily execute to their brand standards.