Loyalty versus Lure - Rhea Khanna

Ramesh runs a local bakery in a Tier-II town in Madhya Pradesh. He has an established, loyal local clientele to whom he caters – both in terms of taste and pricing. He also enjoys a special personal relation with most of his customers.

Eventually the town attracts some multinational firms which open facilities there. A substantial section of top management in these branches comprises people who have lived and worked in big cities for most of their lives. Their families too follow and soon, there is a fairly large section of people who are used to frequenting fast food outlets and up-market food joints. At this point, Ramesh receives an offer from a big bakery chain with a huge presence in metros who want to buy out his shop. Financially, it’s a good deal for him but deep down he feels he will be letting his old customers down as the new chain is not likely to cater to their preferences or affordability. So, what could he do?

There are three alternatives ahead of Ramesh under the circumstances:

Keeping things intact

Ramesh may refuse to sell out his bakery to the new chain and continue to serve his old customers in the same way that he has done so far. In that case, his business remains intact and he retains his old clientele. If he is not looking to grow his business and is happy with how it is, this may be a hassle-free and acceptable solution for him. However, he does lose out on a huge amount of money in return for his shop, which he could have utilized in a number of ways, for example, to start a new business with the changing demographics of the town in mind.

Starting afresh

Ramesh may decide to sell off his bakery to the big bakery chain and get a huge amount of money in return for it. However, he may use this sum of money to start out his bakery business afresh in a better location and in a much bigger way. For example, Ramesh may buy a bigger shop in a better location. Being an established player in the region, he would have the advantage of better market insights. However, whether he would be able to attract his earlier loyal clientele to the new location is doubtful given the psychological impact that such sell-outs generally have on old customers.

Instead of restricting his business to a tier-II town, Ramesh may also consider shifting it to the main city. He may invest in good new-age décor for the shop and include a wider product range so as to cater to the customers at the new location. In this case, however, he does give up on the advantage afforded by his knowledge of the market and also the reputation that he had built in his earlier town. Here, he would be just another new comer who has to start from scratch to establish himself.

Reinventing the business

The final option ahead of Ramesh is to retain his bakery and not sell it out. However, keeping the newly emerging customer base in mind, Ramesh may include a new set of products targeting them. By doing this, he would not only keep his old customers happy but would also be able to create a new clientele for himself. While keeping his products and prices intact for his old customers, he may introduce a separate line of products that would appeal to the new customer base. The bakery could also offer products across a broad price range so that they would appeal to the affluent as well as the not so affluent. Also, in order to increase visibility and appeal to the new customers, he can take measures to make his shop more inviting by changing the décor and improving the display to match their tastes. Ramesh may also consider having an outlet at the cafeteria of the multinational firms in order to improve sales and visibility.

Conclusion

Under the present circumstances, it is apparent that Ramesh is caught in a dilemma. On one hand, he is greatly motivated by the customer satisfaction he has provided to his clientele over the years and is generally happy with the way his business has been running so far. However, on the other hand, the offer from the bakery chain makes him realize that selling off his shop altogether could benefit him financially like never before. What stops him from doing this is his attachment to his old customers and the thought of letting them down. Keeping all the above options in mind, it would perhaps be a good idea for Ramesh to retain the bakery for the sake of his old customers while including a new range of products catering to the newly emerging customer base. In that case, Ramesh would not be feeling guilty about letting his old customers down. At the same time, efforts at including a new line of products could help him acquire a new clientele for himself which would help his business grow. This attempt at increasing his customer base could help him create a name for himself and Ramesh’s bakery could possibly become the next chain to hit the towns and the cities in the future.