PIZZA PLAYERS, PIZZA PRICES For most of us, “pizza wars” suggest the fight over which toppings to put on a shared pie

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PIZZA PLAYERS, PIZZA PRICES For most of us, “pizza wars” suggest the fight over which toppings to put on a shared pie. But in truth, the pizza industry is in the midst of a battle, for which the weapons of choice are mainly pricing tactics. In addition to the small, local pizzerias that appear in nearly every town, there are four major chains that pursue pizza-loving consumers in the United States (see Exhibit 15.4), a massive market for pizza with $45.73 billion in annual sales. Running the gamut from a low-price promise to a higher price and higher-quality appeal, these four top chains all seek to price their offerings in ways that promise to increase their sales and market share.26 How exactly are they doing so? Let’s consider their pricing tactics in turn, moving in order from the smallest of the big four (in terms of market share) to the biggest. Papa John’s With its well-known spokespeople, from Peyton Manning and Shaquille O’Neal to the controversial founder himself, “Papa” John Schnatter, Papa John’s is a familiar name to many advertising viewers, even though it accounts for only about 7 percent of the national market. Along with these recognizable faces, Papa John’s has established a motto and tagline that most of its customers can repeat from memory: “Better Ingredients, Better Pizza.” In accordance with this focus on quality, Papa John’s rarely tries to offer the lowest price in a market. Constantly lowering prices means, according to Schnatter, that “you are either serving ingredients that are not high quality or you’re putting less on.”27 Although Schnatter is no longer at the firm,28 the company maintains its insistence that it will not make quality-related sacrifices, nor will Papa John’s seek to reach the $5 pizza threshold that many of its national competitors offer. Instead, to enhance its quality image, it tries to introduce new offerings and items, including new specialty pizzas and crusts.29 Furthermore, Papa John’s has a “gold standard” quality guarantee: Any consumers dissatisfied with the quality of the pie they receive may call the store within a half-hour to complain. That complaint automatically gives consumers the option of getting another delivery immediately or having their account credited, such that they may receive another pie for free in the future.30 But to gain ground, it cannot just ignore the price interests of its consumers. In response to promotions from competitors, Papa John’s is testing new $6 offerings in certain markets, including new sandwiches and two medium one-topping pizzas for $6 each. Papa John’s hopes to bring in value-seeking customers with $6 deals and then convince them to trade up to a $12 specialty pizza.31 Little Caesars Little Caesars also has a well-known tagline (“Pizza! Pizza!”), but its offer is premised almost completely on convenience. With a different business model than any of the other big players in the market, the restaurant chain promises that its food is “Hot-N-Ready,” thus eliminating the need to place an order. At the moment a consumer walks in to a store, the pizza will be ready for them to take for just about $5. For a little more, diners can upgrade their pie, such as selecting the cheese-stuffed crust or bacon-wrapped deep-dish versions.32 In parallel with this relatively simple sales model, Little Caesars embraces a sort of absurdist image. Its advertising often features unrealistic or fantastic sequences, such as when two disembodied heads floated above a pie in a campaign to introduce the new cheesestuffed crust.33 To promote the notion that avoiding ordering is more convenient—even though it requires consumers to go out and pick up their food rather than having it delivered to them at home—another advertising campaign shows a couple desperately trying to remember the password for an online ordering site, typing in name after name of the hundreds of cats who appear to be living in the house with them. It also likes to play with its “underdog,” overlooked status despite its prominence.34 In one promotion, it promised an even lower price—free—if any team that was seeded sixteenth in the men’s college basketball tournament won in the first round, which would mean that it would have unseated the top-ranked team in its division.35 The risk was relatively low, considering that no team had ever done so. Still, it put the idea in people’s minds and offered the chance of a free Hot-N-Ready lunch if the upset occurred. When in 2018, as Little Caesars put it, “Crazy Happened,” and the University of Maryland–Baltimore County beat the University of Virginia, Little Caesars honored its promotion, giving away free lunch combos shortly after the tournament wrapped up.36 Pizza Hut Pizza Hut started the most recent pizza war by creating a new pricing and promotional initiative. As long as consumers bought at least one other item (e.g., breadsticks, wings, another pizza), they could get a medium, one-topping pizza for just $5.37 The promotion was part of the launch of a wider $5 “flavor menu” that includes multiple options. Similar to single-price menus in other fast-food settings, this approach allows consumers to decide which items they prefer to purchase for their set budget. One consumer might want the variety of wings and pizza, another might need a couple of pizzas to feed multiple people, and yet another could want both a meal and a dessert. With its more than 15,000 stores, Pizza Hut enjoys vast reach and excellent brand awareness, and it had dominated the pizza market for years until Domino’s surpassed it in 2017. Pizza Hut asserts that it has been “serving the same great-tasting pizza, at a great value” for its entire history. Yet falling behind Domino’s also has inspired it to make some changes, including adding new delivery drivers, a delivery tracker, and a rewards program.38 Domino’s Domino’s has risen to the top of the market by relying on its delivery reputation and its head start in terms of mobile commerce capabilities to compete more effectively for orders. In the past, Domino’s was known for its promise to deliver pizzas in 30 minutes or less, though it ultimately removed the guarantee for safety reasons. Still, it built its reach throughout the market by promising to make it easy for people at home to get their pizza fix. That reputation continues to inform its approach to growth today. Domino’s restaurants make it easy for tech-savvy consumers to gain access to the offerings.39 For example, its well-developed Pizza Tracker app, which is available on all the major mobile platforms, gives users one-touch ordering functions. Then the app keeps consumers apprised of the progress of their pie, constantly updating the expected delivery times. It also has begun experimenting with other mobile channels, such as Snapchat, seeking to find ways to connect with consumers in unexpected, entertaining, and more appealing channels and manners.40 Customers can even get Domino’s delivered to places other than their homes or offices, like parks or beaches, using the company’s Hotspots. Establishing such Hotspots helped Domino’s achieve notable increases in sales.41 Its latest promotion involves a novel rewards system: Customers earn points for every pizza they eat—even if it isn’t from Domino’s. In the course of developing its mobile capabilities, Domino’s pricing strategy has not changed substantively. As one spokesperson noted, in response to new promotions by Pizza Hut, Domino’s does not “play the price or product-of-the-month gimmick game others seem to. The limited-time-only tactic is something we left behind years ago.”43 Instead, for about a decade, Domino’s has continued to offer the same baseline: medium cheese pizzas for around $5.99 each. Increasing the size or adding more toppings increases the price, but the pricing is clearly transparent and mostly consistent over time and geographic locations. The Rest of the Market Of course, local pizzerias also remain in play and offer greatly differentiated options. For consumers who want a basic meal, the large chains offer consistency at a reasonable price, but for those who want something unique and different on their plates, the local pizzeria generally represents a more appealing option. Patxi’s operates 21 restaurants in California, Colorado, and Washington. Unlike national competitors vying to be the least expensive, the local chain hosts full-service sit-down restaurants, serving up both Chicago-style deep dish and New York–style gourmet pizzas. It promises fresh, natural ingredients with no preservatives as well as prices that reflect these standards. Pizzas can run up to $28. An order of Brussels sprouts is $14, and salads can cost $15—a far cry from the basic $5 offering of the national chains. And there is no rushing these pizzas, which can take up to 40 minutes to serve.44 But in addition to their relatively low prices, national chains increase the convenience of ordering through online and mobile systems, which has cut into local pizzerias’ markets. The ordering systems are quick and easy. Consumers do not need to worry about having all their topping preferences ready to shout out quickly to a harried and possibly rude order taker. Nor do they need to be concerned that someone will mishear their desire for “pepperoncini” and load up their pizza with “pepperoni” instead. Once they plug in their credit card information, those data get stored, so ordering the next time around is even quicker and more convenient. Faced with customers’ preferences for such efficient systems, many small restaurants simply cannot compete sufficiently on price or fast service.45 Nor can most of these local pizzerias afford to establish their own online ordering systems, which would require significant investments in software, technology, and new staff. As an alternative, some restaurants turn to intermediaries like GrubHub or Seamless, which link hungry customers with various food purveyors on a single platform. Such platforms enable online ordering, but they also charge the restaurants a percentage of their sales. Therefore, their best bet for competing with the national chains and their standardized offerings is to differentiate themselves with high-quality, unique food coupled with an interesting dining experience. The Results Recent annual reports indicate that Papa John’s achieved a 2.6 percent growth rate, Little Caesars’ sales increased 2.1 percent, Domino’s enjoyed 11.1 percent revenue growth, and Pizza Hut’s sales fell 4.2 percent. Will the outcome of the pizza battle change these trends? (( Questions 1. Which pricing tactics does each company utilize? Evaluate the effectiveness of each of these tactics for the particular pizza chain. 2. How might the current price wars change the pricing tactics used by the major pizza chains? ))