Fred’s Pets R Friends recently celebrated its 5th anniversary as a specialty pet

Question

Fred’s Pets R Friends recently celebrated its 5th anniversary as a specialty pet store in Scottsdale, AZ..

The company was founded by Fred who worked for many years at Pets R Us. Fred is more of a people person and is always looking for the next new business venture to take on. Admittedly, Fred had no experience in running a business when he decided to go out on his own and enlisted the help of his long-time friend, Horatio. Horatio has spent his career working for larger corporations in finance and had no experience in pet stores, but was looking for a change.

Over the 5 years since the company's founding, the business struggled at first but slowly grew over the last two years when Fred began marketing on the Internet. The more Internet marketing that the business has done, the more the business has grown. Fred’s Pets R Friends currently has six employees and two managers that run the store in Scottsdale 7 days a week.

Fred is really interested in expanding the business to other cities in Arizona, believing that "there are only so many pets in Scottsdale." He feels that if they've grown quickly the last two years, then they should continue to focus on growing the business. Horatio, on the other hand, feels that expansion will put the company at risk as it takes time to develop a decent client base at a new location. They opened a second location in Phoenix several years back but eventually closed it when it didn't generate enough revenue to cover expenses. He's worried the expansion may bankrupt the company.

Even though the two are business partners, Fred is the president and Horatio the vice president. Fred asked Horatio to evaluate three options to further expand the business. From Fred's perspective, he has concluded that three objectives are important in this decision. First, is to find a city with strong projected pet sales, low start-up costs, and a city that is in a reasonable distance from Scottsdale as he and Horatio would be spending a lot of time in the new location at first and they both have families with young children. Fred feels that the driving distance is twice as important as each of the other two objectives.

Here is the summary of Clydes' research for three locations in AZ.

1. Yuma, AZ: Projected pet sales: $5000/month; Start-up costs: $40000; Driving Distance: 184 miles

2. Sedona, AZ: Projected pet sales: $3500/month; Start-up costs: $30000; Driving Distance: 144 miles

3. Oral Valley, AZ: Projected pet sales: $2500/month; Start-up costs: $50000; Driving Distance: 116 miles

1. a) Describe the general nature of the problem

     b) What is the decision to be made

Explanation / Answer

From Fred's perspective, they had three objectives are important in this decision.

Observation from the past experience:

Go for second option (Sedona, AZ) because of following reasons:

Fred still can enter other markets through online and still improve sales in those regions without physical presence. Locating in the middle is very important to cater to those remaining two markets through online sales.

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