N230UA
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- Sep 24, 2002
- 114
- 0
‘Airline Pizza’ by N230UA
Here’s the problem.
Our product is fresh-baked pepperoni pizza. It can be found nearly anywhere. In 70% of the stores where our product is sold, our product is marginally profitable or breaking even. In the other 30% of stores, our product is unprofitable. We are losing money hand over fist sending pizzas to those stores, and we can’t just start making fewer pepperoni pizzas… because we’ll become terribly unprofitable for a number of reasons.
Unlike a typical, modern firm, our pepperoni pizza production is hamstrung by labor contracts that permit only certain workers to place the pepperoni on the pizza, at a wage premium to other pizza companies. We can’t just start making fewer pizzas because each “pepperoner†has to produce X pizzas under contract. Also, our pizza is perishable, unless bought immediately after production. So it cannot be remarketed. Much pepperoni pizza goes to waste.
A major part of the appeal of our pepperoni pizza product is the fact that a consumer can count on it to be nearly everywhere. The people who buy our pizza most, tend to buy it from many different stores. If we pull our product out of 30% of the stores, our best customers will become disappointed and shop for a pepperoni pizza that can be more available than ours. That means there’s a good chance we would start losing money in the other 70% of stores.
We also differentiate our product through a costly frequent buyer program. We give those who buy the most pepperoni pizza coupons for each incremental pizza they buy. These coupons can be redeemed for two-for-one certificates, or can simply be used to get a discount on our pizzas, at 100% of the stores where they are sold. People will become angry if they cannot get rewarded at 30% of the stores where our pepperoni pizza is currently sold.
We’ve done much research and have determined that the reason why our fresh-baked pepperoni pizzas are lacking in sales at 30% of the stores is that more and more people want fresh-baked cheese pizza instead. People are tired of the pepperoni and want something simpler. Because the pepperoni adds a lot towards the cost of making a fresh-baked pizza, the firms who make cheese pizza can sell their pizzas for a much lower price. Also, cheese pizza bakers are fairly new and operate without burdensome labor contracts, so they are free to make their pizza however they like. Another big plus for new cheese pizza makers is that they use hip new packaging.
Since cheese pizza is what consumers want, and it is more affordable, more and more people prefer cheese pizza. And because demand is growing, fresh-baked cheese pizza is becoming almost as widely available as our pepperoni pizza product.
How do we stop losing money in 30% of the stores our pepperoni pizza is sold at while still pleasing our existing customers in the remaining 70%?
Here’s the problem.
Our product is fresh-baked pepperoni pizza. It can be found nearly anywhere. In 70% of the stores where our product is sold, our product is marginally profitable or breaking even. In the other 30% of stores, our product is unprofitable. We are losing money hand over fist sending pizzas to those stores, and we can’t just start making fewer pepperoni pizzas… because we’ll become terribly unprofitable for a number of reasons.
Unlike a typical, modern firm, our pepperoni pizza production is hamstrung by labor contracts that permit only certain workers to place the pepperoni on the pizza, at a wage premium to other pizza companies. We can’t just start making fewer pizzas because each “pepperoner†has to produce X pizzas under contract. Also, our pizza is perishable, unless bought immediately after production. So it cannot be remarketed. Much pepperoni pizza goes to waste.
A major part of the appeal of our pepperoni pizza product is the fact that a consumer can count on it to be nearly everywhere. The people who buy our pizza most, tend to buy it from many different stores. If we pull our product out of 30% of the stores, our best customers will become disappointed and shop for a pepperoni pizza that can be more available than ours. That means there’s a good chance we would start losing money in the other 70% of stores.
We also differentiate our product through a costly frequent buyer program. We give those who buy the most pepperoni pizza coupons for each incremental pizza they buy. These coupons can be redeemed for two-for-one certificates, or can simply be used to get a discount on our pizzas, at 100% of the stores where they are sold. People will become angry if they cannot get rewarded at 30% of the stores where our pepperoni pizza is currently sold.
We’ve done much research and have determined that the reason why our fresh-baked pepperoni pizzas are lacking in sales at 30% of the stores is that more and more people want fresh-baked cheese pizza instead. People are tired of the pepperoni and want something simpler. Because the pepperoni adds a lot towards the cost of making a fresh-baked pizza, the firms who make cheese pizza can sell their pizzas for a much lower price. Also, cheese pizza bakers are fairly new and operate without burdensome labor contracts, so they are free to make their pizza however they like. Another big plus for new cheese pizza makers is that they use hip new packaging.
Since cheese pizza is what consumers want, and it is more affordable, more and more people prefer cheese pizza. And because demand is growing, fresh-baked cheese pizza is becoming almost as widely available as our pepperoni pizza product.
How do we stop losing money in 30% of the stores our pepperoni pizza is sold at while still pleasing our existing customers in the remaining 70%?
