Stephanie Ricardo has recently taken over her family’s restaurant business. For twenty-five years the Ricardo Family Restaurant has served fine family fare—nothing exotic, just good basic American food. Business has been satisfactory, but it has never been heavy enough to justify an expansion of the facilities. Now the kitchen is somewhat antiquated, the tables and chairs need replacing, the interior needs renovating, and the outside needs sprucing up. The sign outside no longer lights up at night and cannot be repaired.

Now that Stephanie is in charge she is considering the various options open to her. Since the restaurant needs refurbishing it could be reborn as any kind of restaurant, catering to any kind of clientele. Her parents would be happy if she turned it into a fine Italian restaurant—this was always her father’s dream. But she is also considering the lunch and supper business of business executives from local industry. A more restricted menu would hurt her chances of cap¬ turing a sizable share of that business. Rather than a linen-tablecloth restaurant, she could alternatively pursue the breakfast and fast-food market. A franchise from a national chain of family restaurants is currently available. This chain specializes in family dining at low prices. Other options abound, and therefore Stephanie has sought your help.

(a) Outline the various strategies that are available to Stephanie.

(b) What strategy do you suggest, and what product, price, and advertising decisions should be made in pursuit of this strategy?

(c) Outline the cost and revenue implications of your proposed strategy.