Institute of Quantitative Pricing, LLC Pizza Delivery Business Report

About the Institute The Institute of Quantitative Pricing is a group of experienced pricing professionals working to help small business owners. Located in Syracuse, New York the Institute partners with business owners from around the nation. The research and report summaries are performed by marketing and mathematics university students. Professional pricing experts oversee the training and account management of every student. This service is performed free of charge to each locally owned small business. Executive Summary The number one problem that small businesses have difficulty with is how to set up the right prices. Small business owners tend to look at their competitor’s prices when they supposed to set up their prices with actual cost and the characteristics of their products. Price directly affects the profit and image of your business, therefore it is crucial to set up the right prices for your business to success. To have a better understanding of the industry, the Institute has conducted three research methods: market research, competitive price analysis, and online survey. The purpose of each research is to determine industry-based pricing strategies and preference of potential customers. This research will help you to answer two important questions, what do customers consider the most when they order delivery? and how to strategize a plan based on potential profitable customers? If this interest you, then see what we prepared for you! Pricing Strategy Overview 1. Market Research The Institute have done the research of the pizza delivery industry by analyzing the latest pricing articles, and found some of the most effective pricing strategies for small businesses. Such strategies include price bundling, punch card system and group pricing. When reading these strategies, business owners should keep in mind that although these strategies are widely used in the industry and have made some significant good effects, they are not applicable to every business in the world. Before deploying any of these pricing strategies or making any changes to the business, the owner should take his/her business’s individual situation into consideration.

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2. Competitive Price Analysis The Institute identified top two popular items in pizza delivery businesses, Pizza and wings and collected 60 groups of price data of pizza and wings. The data is collected between February 2014 and April 2014, from online menus of 60 pizza delivery businesses’ websites. We then analyzed the average and standard deviation of the prices. The 60 businesses consist of:

● 10 local pizza delivery in Syracuse ● 20 regional pizza delivery near Syracuse ● 30 national pizza delivery in states other than New York states

3. Online Preference Survey To have insights of customers’ preference of pizza or wings delivery, we conducted online surveys consists of two parts: demographic and attributes of pizza and wings. The first part of our online survey has 5 basic demographic questions:

● Days of the week that they order delivery ● Frequency of ordering ● Number of items they order in a single delivery ● Age ● Gender

In the second part, we have 9 questions for pizza survey and 10 questions for wings survey about attributes that shows what your customers make decisions on. For attributes of pizza and wings are: 1) Pizza

● Price ● Online Ordering Capability ● Crust ● Delivery Time ● Availability of Coupon or Deal ● Size ● Variety of Toppings ● Whether comes with dipping sauce(Garlic butter, Mariana, etc.) ● Special Features(Gluten free, Vegetarian, etc.)

2) Wings

● Price ● Size ● Availability of Coupon or deal ● Online Ordering Capability ● Delivery Time ● Wing’s Features (Boneless, Char-grilled, Breaded)

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● Special Features (Kosher, vegetarian, Gluten free, etc.) ● Flavor (Hot, BBQ, Teriyaki, etc.) ● Dipping sauce (Blue Cheese, Ranch, etc.)

We got 76 responses for the pizza survey and 47 for the wings survey in total. Using statistical analysis, we’ve uncovered the true preferences of the potential customers and the reasonable standards for businesses to price their products. Both of the results and suggestions are detailed in the following sections. Industry Specific Pricing Techniques 1. Price Bundling- Combo deals Many big-chain pizza companies, such as Domino’s or Pizza Hut has price bundling strategy. For customers, ordering combo meals is getting a good deal. This method helps owners to increase their business margins, sales, and customers. There are many way to offer combo deals to consumers. Here are some examples.

Ex 1) You can offer mix-and-match combo meals such as ‘Build your own combo meals’ with choice of items. For example, with a 2-topping of medium size

pizza, you can pick 10 pc of wings or any bread side for $14.99. Another way is 2- medium pizza and 2 sides or skip side and get third medium pizza for $19.99.

Ex 2) For customers who are price sensitive, you can offer small portions of combo meals at lower cost. Such as a small size pizza with one side for $12.99, medium size pizza with 2-topping and 10 pc of wings for $14.99. Also you can offer a combo deal to bigger group like family size. Such as 2 large of 2-topping pizzas with any bread side, 10 pc of wings, and 2 liter of soda for $29.99.

2. Price Bundling- Promotion Special days like Superbowl, NCAA March Madness, or school rival games, offering special deals to sports fan and couch surfing pizza/wing consumers, is a good opportunity to increase the sale. For example,

Ex 1) you can offer two medium one-topping pizzas, a 16-piece order of parmesan Bread Bites, an order of Cinna stix, and a 2-liter bottle of Coca-Cola for $19.99 like what Domino offers.

Ex 2) Another interesting promotion example is if Men’s NCAA Championship Team has “winged” Mascot then Pizza hut will give out free wings at participating region and on a specific date and time. We can corporate the idea and we can say free side or wings if “winged” Championship team’s mascot, if you order either any large size pizza with 2-liter soda during the game.

3. Coupons Customers feel that they have saved money with coupons. Coupons can be distributed out by posting at actually pizza business website or using another coupon websites, such as

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retailmenot.com or coupons.com, or it can be on your menus, flyers, doorhangers, and box-toppers. Offering coupons for purchasing a side order, such as side salad or a dish of pasta, at a discounted price on certain days of the week will encourage customers to buy additional items than a large pizza. We can design a coupon with anyway you want.

ex 1) A 25% off regular-price item coupon or online order coupon that gives a code for discounts.

ex 2) Family feast (one specialty, one large pizza, bread sticks) for $19.99. ex 3) Set up the limited time offer or restricted the date that you can use the coupon.

Such as, get 3 large cheese pizza for $8 by April 17th. ex 4) 50% off on breadsticks or garlic bread on Thursday

4. Loyalty system- Punch card system Loyalty program works best on customers who are already enjoying your services. To generate brand loyalty, it is a good idea to make customers feel privileged. For example, you can collaborate with mobile apps of ‘Punchcard’ and that customers can snap photos of their receipt instead of holding paper and having a risk of losing a punch card. In order to get the customers punch card filled, it will be better to set up some rules.

ex 1) Each time you dine in, take out, or order delivery, you will get one punched. ex 2) You can set up the minimum prices (each over $10 order) to get one punched. ex 3) After 10 stamps, customers will receive a 20% discount, free appetizer, desserts

or beverages. ex 4) You can employ reward program such as giving out free t-shirts or coffee mugs

after their punch cards are filled. 5. Group Pricing-Student Discount Group pricing is a strategy that divides the market into segments and charges different prices between different segments. For instance, a pizza place that locates near campus might take students as its main target customers. In this case, giving students some privileges such as discounts could make the place much more attractive to their target customers. For a business such that more than 50% customers are students, using a student discount strategy might bring significant improvements to their sales. For example, 10%-15% discount for customers who bring a student’s ID. However, the cost of such discounts must also be taken into consideration. 6. Third Party Cooperation For pizza places that don’t have a good location, cooperating with third party social media such as yelp might bring considerably more customers. For example, you can offer a 10% discount or a free ice cream for people who check in at your business on yelp or facebook. Such activities will gain more popularity for your business and could possibly neutral the defect of a bad location.

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Geographic Price Analysis Our geographic data consists of 60 pizza delivery businesses around the U.S. Among them, 10 are local businesses in Syracuse, NY; 20 are regional businesses in New York State except Syracuse; the rest 30 are national businesses from all the other states in the U.S. The diversity of the sample makes it representative of all the local, regional, and national pizza delivery businesses. We collected each business’s price for 1) a large 16’ one-topping pizza, and 2) ten pieces of wings. Our geographic data analysis focuses on the average price and variability in price among businesses in different areas. The goal is to provide an industrial average price level that your business can depend on while doing pricing. The following chart shows the statistics of our results.

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1)Pizza As we can see, the average price for a large one-topping pizza in Syracuse is $13.91, which is 7% lower than the national average $14.89, and 12% lower than the New York State average $15.59. Moreover, the variability of price, which is $0.75 in Syracuse, is also the lowest compared with regional’s $2.78 (270% more variable) and national’s $2.31 (208% more variable). 2)Wings The average price for an order of ten pieces of wings in Syracuse is $8.41, which is 5% higher than regional average $7.98 and 10% lower than the national average $9.28. The variability of price, which is $0.78 in Syracuse, is 15.4% less variable than the New York State’s $0.90, and 128% less variable than the National’s $1.78. 3)Suggestions The ideal pricing strategy is to set the price near or equal to the average price in your area, with variability within one standard deviation. Also, try not to price your pizza and wings more than two standard deviations above or below the average price, unless you have perfect faith in your product’s uniqueness or can maintain extraordinary cost control to keep you in business. For example, suppose you are a pizza delivery business owner in Syracuse, the reasonable price you set for a large one-topping pizza should lie between $13.16 to $14.66. You’d better not set the price above $15.41 or below $12.41, unless you think your pizza has some unique attractions to customers, or you can handle the pressure from the low price.

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Results from Online Preference Survey 1. Pizza A) General Distribution The result of the pizza survey is shown by numbers, and here’s what they stand for: For Price, Size, Variety of Toppings, Coupon Availability, Special Features, Delivery Time, Online Order Capability, Crust and Dipping Sauce, the number of 1-5 represents the level of importance of each attributes to survey participants, with 1 for least important and 5 for most important. We got 76 responses in for the survey. The distributions based on different characteristics of the participants are shown in the following pie charts.

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The charts show the characteristics distribution of the pizza survey participants. As you can see, 89% of the participants are not older than 30, 58% are female, 63% are frequent customers who order delivery at least a few times per month, and the days at which people usually order delivery are Friday, Monday and Thursday. Based on this sample, a way to make the marketing strategy more effective is to deploy the strategy or promotion on Friday, Monday or Thursday, with descending priority. However, this distribution is for our sample only. You should decide the time of promotion based on your customers’ usual practice. B) Consumer’s Preference - Gender

This chart describes the average preferences of male and female customers. We can find significant differences between male and female customers’ preference in such attributes: size,

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variety of toppings, delivery time and online order capability. The most two significant differences take place on the size and variety of toppings. On average, men care 20% more about size than women do, and they care 10% more of variety of toppings. [Suggestions?] Such findings give us a general idea of the difference in preferences between male and female customers. Specifically, if females form the most part of your potential customers, you should try to take online orders. If you feel most of your potential customers are male, things you need to focus on are:

1. Either give customers more selections in size or provide larger size pizzas. 2. More selections in toppings. 3. Speed up the delivery.

C) Consumer’s Preference - Age For convenience, we divided all the participants by age into two groups, the ones under 21(35 participants), and the ones over 21(41 participants). And here’s the comparison between the two groups.

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We can see that younger customers have lower preference on 7 of the total 9 attributes. Significant differences are on size, variety of toppings and special features. People over 21 has 19% higher preference for size and 22% higher preference for variety of toppings. And they care about special features 16% more than younger customers. [Suggestions?] The differences in preference between age groups, are quite significant. It tells us that, if the main customers of your pizza business are older than 21, these are the improvements you want to make:

1. More selections in Size. 2. More selections in toppings. 3. Try to make pizza of special features such as vegetarian and Gluten free.

D) Customer Preference: Frequent vs. Rare We divided all the participants into two groups, rare customers who order pizza delivery only a few times per year, and frequent customers who order pizza delivery a few times per month or even per week. The sample sizes for the two groups are 28 and 48, respectively.

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From the chart we can see that frequent customers care more about price, variety of toppings, delivery time, online order capability, yet less about coupon, special features, and dipping sauce. The frequent customers’ preference for price is 5.5% higher than rare customers; and their preference for delivery time is 6.7% higher. The difference in online order capability is slightly lower, which is 3.5%. These numbers are somewhat self-explaining: people who order pizza delivery more frequently certainly spend more money on the order in total, which makes them more sensible to the price. Consider a person who orders pizza seven times a week and the other person who orders once a week, a $1 decrease in price per order saves the second person $1 per week, but saves the person who orders pizza seven times a week $7 per week. That’s 600% more. When it comes to the delivery time attribute, the idea is similar. Just replace the $1 to 10 minutes or whatever you want, you can get the idea. [Suggestions?] Frequent customers care more about the basic attributes of pizza delivery, like price, delivery time and online ordering capability, and less about the fancy features such as crust, special features(Gluten free, etc) and dipping sauce. They want low-price pizza delivery that is convenient to order and arrives quickly. So as a business owner who want to attract more frequent customers, the most important things you need to focus on are:

1. Set a reasonable price. 2. Make the delivery as quickly as possible. 3. Either take online orders on the your business website or collaborate with third-party

online order services such as Grubhub and Seamless. 2. Wings A) General distribution With total of 47 results, we have analyzed with basic demographics and wings attributes. We divided the results into three main groups, by gender, age, and frequency. We made bar and pie charts on each category to comprehend customers’ preferences and strategized plans to increase profits.

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The largest age group that orders delivery is age 21 to 30, 36%, and followed by age 41 to 65 and age 31 to 40, 26% and 25%. Lastly, the least age group is age group under 21,13%,

Female tend to order more delivery than man do. Female average score is recorded as 55% and man is 45%.

On frequency distribution, 49% people occasionally order delivery for few times per month, while people who order delivery often for few times per week consider as frequent customers is 28%. For rare customers, they order delivery 23% for few times per year.

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B) Customer's Preference: Gender

What do male and female consider when they order delivery? Female considers price and coupons the most. On average, female care about price 34% more than men do. It is apparent that female is more price sensitive than male. 20% more than men do. Overall, both female and male considers the delivery time as an important factor. [Suggestions?] We can say that female customers appraise in saving time and money than men do. So based on this analysis, we can make an adjustment towards female customers who are price sensitive with options:

1. Offer coupons with more selection in size 2. Have more combo meal promotion. (See ‘Pricing Strategy’ #1 and #2)

C) Customers’ Preference: Age

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Among the 8 attributes, the most attributes that under 30 value are price, size, and delivery time. Age under 30 appreciate price, size, and delivery time 5%, 11%, and 4% more than age over 30. Our survey shows that under 30 is more price and time sensitive than over 30.

a) Number of items by age

Furthermore, we analyzed on how many items that two age groups usually order in single delivery. Both under 30 and over 30 usually order one and two items in single delivery. [Suggestions?] Overall, if you look at the results, you can see that under 30 are focused on basic characteristic, such as price, size, online order capacity, delivery time, and flavor. If your customers are mostly under 30:

● Focus on basic characteristics of the business. a. Affordable price (See “Pricing Strategy” #1 and #2) b. Generous size

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c. Increase online order benefits d. Shorter delivery time e. More variety of flavor

D) Customer: Frequent vs. Rare The below chart tells us what frequent customers and the rare customers value when they order delivery. This result will give us an idea what we can do to make rare customers to become your regular customers.

What are the factors that frequent customers pay attention for pizza/wing delivery? Price, size, coupon, and variety of flavor are the factors that frequent customers rate highly. 8% on price, 12% on size, 28% on coupon, and 11% on variety of flavor are factors that frequent customers value more than rare customers do. On the other hand, rare customers value the elements of services, such as online order capacity and delivery time. They rate 14% more on online order capacity and 17% more on delivery time than frequent customers do.

a) Wing features- Frequent customers Under 30 & Over 30

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For younger frequent customers, they prefer char-grilled wings and younger rare customers prefer to order breaded wings.

Both frequent and rare customers of over 30 prefer boneless wings.

Overall, younger frequent customers prefer more char-grilled wings and older frequent customers order boneless wings.

b) Gender

From our survey, female order wings occasionally than male and male customers order wings often than female.

c) Age

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Overall, under 30 order wings occasionally when over 30 order occasionally and often.

(1) Under 30- Male and female

If we break down the frequency of age by gender, both under 30 male and female, usually order wings delivery occasionally.

(2) Over 30- Male and female

If you look at the pie chart, over 30 male order wings more often than over 30 female. [Suggestions?] In order to expand your business, following ideas might help you:

1. Since frequent customers value the basic elements, you can focus on basic element, such as making sure your customer will have:

a. Affordable price (See “Pricing Strategy” #1 and #2) b. More available coupon (See “Pricing Strategy” #3) c. Loyalty program (See “Pricing Strategy”#4) d. More variety of flavor

2. For rare customers, we can focus: a. Increasing online order benefits b. Shorter delivery time

3. For younger frequent customer:

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a. Offer promotion for char-grilled wings b. Offer more variety of flavor on char-grilled wings c. Loyalty program (See “Pricing Strategy” #4)

4. For older frequent customer: a. Offer promotion for boneless wings b. Offer more variety of flavor on boneless wings c. Loyalty program (See “Pricing Strategy” #4)

E) Day: by age, gender, and frequency There are 2 bar charts to explain what day customers order delivery: age, gender and frequent or rare customers.

a) Age and Gender

From our survey, we recognize that younger male and female order on Thursday, over 30 male orders on Tuesday, and lastly over 30 female usually orders on Friday.

b) Frequent vs. rare customers

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We also observed that both frequent and rare customers order on Thursday. [Suggestions?] Overall, for frequent or rare customers does not have difference in terms of which day they order delivery, but for age and gender, we can increase the sales by focusing on frequent customers:

1. Offer coupon on Thursday, such as half off breadsticks or garlic bread only on Thursday (See “Pricing Strategy” #3)

2. Offer loyalty program, after 10 stamps, free beverage or appetizer (See “Pricing Strategy” #4)

Conclusion Price is a key factor that directly affects the profitability of your pizza delivery business. When you price a product, not only should you consider the local, regional and national average price level, but the formation of your potential customers, the characteristics of your product and your operation costs. Suggestions for Pizza: For frequent customers of pizza, price, delivery time and online ordering capability is their top priorities. To attract more frequent customers of pizza, the most important things the owner needs to keep doing are: 1. setting a reasonable price for pizzas; 2. speeding up the delivery; and 3. taking online orders. Suggestions for Wings: The frequent customers of wings care most about: price, coupons availability, loyalty program, and variety of flavor. So the keys to attract or keep frequent customers are: 1. setting a reasonable price for wings; 2. offering more coupons; 3. offering loyalty programs; and 4. offering more flavor choices. Based on the Preference Analysis, whether for customers of pizza or wings, price is always the No.1 priority. So you should take more thoughts into setting a reasonable yet profitable price for your products. If you need some rules of thumb when setting the price, an industry price guidance is illustrated in the Geographic Price Analysis Section on page 5. If need to improve your business strategy, the Industry Specific Pricing Techniques Section is on page 3 to help. For a pizza delivery business, demand is the most important factor to success. All the strategies and rules that we provided aim at promoting the business and getting more customers. However, if you are not considering to expand your business to a larger scale, ‘the more customers, the better’ rule may not hold. Sometimes there’s a trade-off between the quantity of customers and the quality of service. Think of it this way, if there were hundreds of orders per day, will your business be able to handle that while providing the same quality of service as usual?(For example, the same delivery time?) Our suggestion is to think carefully

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before making any changes to your business, and if you really were to change, make it step by step in case the strategy doesn’t work well on your business or even brings bad effects. Moreover, if you want more customers, make sure you have the resources to provide at least the same quality of service to them.  

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