Terra Byte Case Analysis - A new Location, A new beginning

Terra Byte is a Kirkland, Washington based Coffee shop that operates on a business model wherein customers are given the liberty to decide on the price they pay for food and drinks. They believe in trusting their customers and relying on their judgment and honesty. In this way they were able to create loyalty among frequent customers toward the brand. Also, since customers can decide on the value of the products, their satisfaction quotient always remains high. Moreover, their target audience largely comprises of an affluent, well-educated and diverse demographic. On an average, Terra Byte makes $3 per customer and has an average of 80 customers a day. In order to break even, 200 customers per day are required. The business model largely depends on a few patron customers to pay a greater amount of money to make up for those that pay smaller sums or none at all. One of the co-founders, Ervin Peretz wants to start a new café at another promising location. It was important that the new location have a customer base that would at least allow them to break even. Even though the original café was in an affluent neighborhood, Ervin believed different types of neighborhoods would also be appropriate. It is essential that the new location resemble the dynamics of Kirkland in a manner that would allow Terra Byte to cater to their current class of customers in the same way.  

The following problems are related to the central problem of choosing a new location:

• Competition from established Coffee Shops in the area.
• Identifying a location that has customer characteristics conducive to a voluntary payment business.
• The consumer perception of an individual café or restaurant is very different from that of a chain. In a way, Tera Bite risks losing its sense of exclusivity and distinction in the minds of many of its current and prospective customers.
• Influencing customer perceptions in a negative way i.e. creating an impression that Tera Bite is a mere gimmick started by Peretz for the sole purpose of gaining tax benefits.  
• The current business model i.e. operating as a for-profit, seems less likely to convince people to donate more as would operating as a not for profit. Perhaps, Tera Bite should consider a change to a not-for –profit in order to revamp its image.
• As Tera Bite’s model relies heavily on individuals from the high-income groups to become its prime patrons, it is imminent that they target high-rent districts or cities to set up their next store. However, as the name suggests, setting up shop in such places will come at a significantly high cost along with a lurking risk of complete failure on account of the high uncertainty surrounding the model. Whether or not Tera Bite with merely break-even in this new location is also questionable taking into consideration the increased variable costs.  
• An Uneven & Anonymous distribution of customer payments make it difficult to identify true and loyal customers from the rest. This may lead to a degree of customer dissatisfaction as the true customers of the brand may begin to feel that their contributions are not being recognized. Moreover, this business model is at a high risk of being easily exploited by dishonest customers and staff.

Situation analysis.

Based on an in-depth analysis of Tera Bite and its internal & external environment, the following SWOT Analysis was compiled:

STRENGTHS	WEAKNESSES	OPPORTUNITIES	THREATS
Unique Model. Customer determined Pricing – Customers can decide on the value of the products meaning their satisfaction quotient always remains high. Highly Competitive Pricing. A legion of dedicated patrons. Low operating costs.	Financially Unstable model with a high risk factor. Uneven & Anonymous distribution of customer payments making it difficult to identify loyal customers. Low market penetration. A very small and niche target market. Potentially unsustainable model.	The business model can evolve into a dynamic phenomenon that can possibly revolutionize the manner in which consumers pay for products. If the feeling of trust can create a feeling of guilt in the minds of people, then the average payment per customer can increase immensly. Potential to evolve into a one-of-its-kind niche household Café chain.	Skepticism of business operations – Risks being perceived as a fraud undertaking. The business model is at a high risk of being easily exploited by dishonest customers and staff. High uncertainty for growth in the future.

Google Trends Research:

As Tera Bite operates in Kirkland WA, for the purpose of consideration of Statewide-competition and in part, with relevance to selection of the City of Seattle as the location to open the next shop, the following competitors were identified as the most potent in the entire State of Washington. (In-depth Analysis for selection of this location is provided in the last section):

1.  Starbucks
2. Caribou Coffee
3. Tim Horton's
4. Seattle's best

      Using the Google Trends tool, the daily searches for Tera Bite Cofee and its competitors in the State of Washington only in the past month i.e September 4^th to October 4^th were determined. The purpose of selecting this very brief period was to acquire the most recent estimates which in turn were very specific figures to gauge the current popularity of the brand and its competitors for the Location Analysis. From the Trend analysis below, its evident that Starbucks is the most searched and hence most popular brand in the area, partly owing to its strong brand presence there and also globally. Because of low Brand Awareness and regional physical presence, all the others including terra bite returned no more than 5 searches on any particular day for the entire month.

Google Ad Words/Insights Research:

The bubble chart depicts the 4 brand’s overall monthly search volume in the United States, shown by the Size of the Bubble. The X axis represents the customer ranking viz. 1-5, based on public voting in a survey of ‘Seattle’s Best Coffee Shops’. Therefore, a lower number means a higher rank, which in turn means greater popularity. The Y axis shows the average price per coffee purchased by a customer. This chart provides a good understanding of the various brands’ popularity, pricing and awareness that are crucial parameters for understanding the position of competitors, public opinion, acquiring an estimation of price versus quality and in determining the best possible areas for improvement & growth. 

Terra Bite’s value proposition (VP)

Tera Bite is a Coffee Shop with a unique business model that allows customers to pay what they please. This distinguishes them from their competition in the most unusual way. Their goal is to allow people the opportunity to unwind over coffee after a hard day’s work without having to go through the whole process of comparing prices of the various products. Instead, they rely on trusting their customer’s judgment and allowing them to pay whatever price they want for their purchases and whenever they want. In this way they reduce their operating costs and provide great value and convenience to customers. Their target audiences are well educated, urban, sophisticated and socially responsible individuals of varying age groups and demographics. They include teens, young adults and even middle aged people.

Where should the next location be?

In-order to identify a promising prospective and potentially succesfull market for Tera Bite, Research on the same led to confirmation that the Seattle region of Washington State turned out to be the most viable option. Since long, Seattle has been a Coffee haven that housed some of the best brands in the US including hosehold names like Starbucks that opened their first shop there. The selection of this location was based on the fact that since both Kirkland and Seattle fall under the same State, their demographics, legal structures, laws and public mindsets are relatively similar. This would give Tera Bite the opportunity to perform at a larger stage in the same State, without having to undertake too many unexpected risks. The ideology is that if Tera bite was successful in Kirkland, it will also be in Seattle. Moreover, managing both the café’s in the chain will be a lot more convenient on account of their close proximity of distance. Also, this gives Tera Bite another unique advantage and that is to leverage its resources if necessary which wouldn’t have been possible if the 2 café’s were located too far apart.

 One of the key criteria while determining the next location for Tera Bite was ensuring that the new location was similar in characteristics to the initial location inorder to maximize the potential for success. The Facebook Ad Creation tool identified 125,380 people who reside in Seattle, Washington only between the target age-group of 16 to 55 that have indicated an interest in Coffee. This raw data shows that Seattle has tremendous Market potential for Tera Bite to open their new Coffee Shop and the same was proven with the influx of several other café’s in the area that are successfully established today. Since Tera Bite largely caters to and wishes to focus its offering towards the elite high income group segment of the market, the following LMAA Research was used to identify 1,912,923 individuals that fall into the category of Affluentials in the Seattle-Tacoma, WA area. This number is significantly higher than most other afluent US Cities but what stands out is the fact that Seattle also has one of the greatest concentration of affluential groups per square mile area in the United States which form the primary target segment for Tera Bite.

The PRIZM Target Group Concentration Map is testament to the selection of a city within Washington State, which evidently falls into the much sought after first quintile. Only 5 other states fall into this group and their geographical dispersion makes them impractical locations to serve.

Other criteria for determining the next location for Tera Bite was selecting a place where citizens had high social responsibility. This was essential as it is a prerequisite for the implementation and smooth functioning of Tera Bite’s model which relies on trust. As the LMAA tool did not provide any direct parameter to filter the States on the basis of ‘Social Responsibility’ at large, similar Psychographic parameters such as ‘People that would pay more for environmentally friendly products’ were used to arrive at the same conclusion. The assumption made here is that individuals who care for the environment are naturally socially responsible since environmental protection and care are one of the primary traits of socially responsible people.

The State of Washington has more than proven that it is one of the more socially responsible states in the country by showing a concern for the environment, welfare of the needy & children and citing bans on products that pollute the environment. Moreover, the success of Tera Bite first stint in the State is vital evidence that it is certainly the most potent and viable candidate to house the next café, this time in one of its bigger cities.

Based on the above research, evidence, assumptions and conclusions, Seattle WA seems the most likely of places in the United States to open the new Tera Bite Café because of its affluent, coffee loving, diverse and socially responsible people as well as its geographical proximity to the other Café in Kirkland, making management a lot easier. While it will certainly pose more competition with established names such as Starbucks, it is one of the best places for Tera Bite to announce itself on the biggest of stages – The Coffee Capital of the United States.