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Alok's Posts / Startup

The Genius of Impulsive, Irrational Pricing!

 

Check out this Domino’s menu (Peddar Road, Mumbai):

 

Do you see what I see??

 

No?? Got an eye problem?? ( I was told this is RUDE!! )

 

Go back to the image again. Stare at it, PLEASE!!!

 

Do you see it now??

 

Well, this is what I see:

 

What I see is a brilliant, amazing implementation of irrational pricing, basis pure impulse.

 

Look at the top of the menu where a 7″ Margherita costs Rs. 75.

 

If you go for the 10″ Margherita, it costs Rs. 170!!

 

Huh??

 

(Oh, the Strikeouts represent a mistake in my calculations). See the note and the end of the post.

 

Technically, a 10 inch pizza in size is 43 % more than the 7 inch pizza.

 

But cost-wise, Rs. 170 is 126% more than Rs. 75 !!!!

 

In fact, if I buy 2 Domino’s pizzas of 7 inches each, I get 14 inches of pizza and pay Rs. 150; but I need to pay Rs. 170 to get only 10 inches!!

 

Look further – If I buy 3 pizzas of 7 inches each, I get 21 inches to enjoy and pay Rs. 225; whereas 13 inches as a single pizza costs me Rs. 315!!!

 

WOW!!

 

This proves that:

 

– Consumers are completely irrational when it comes to making pricing decisions when they see choices.

 

– The choose the size they want, not the price.

 

– Then, they just ‘accept’ the price presented to them!

 

Lessons:

 

– Create a ‘need based’ pricing matrix – not a volume or input based pricing structure. Notice how the Inches (“) printed, is the smallest font on the menu!

 

– By presenting lots of variations and choices, the human mind migrates to what it wants. It does not look at alternative options when one choice seems logical:

 

To elaborate – if the 2 of us are eating a pizza, we may call for a medium pizza and share it.

 

Instead, we should call for 2 separate pizzas and also give away a few extra inches to some friends!

 

We would’ve saved money and made someone happy too!

 

– Don’t get too scientific about pricing. Get fuzzy, irrational and emotional. It works!!!

 

Hope I have whetted your brain’s appetite!!

 

********

 

Correction and additional note

 

So, I erred when I assumed that the Pizza size as 7″ without considering the area of a pizza and how its size should really be calculated.

 

I was STUPID, SILLY, AN IGNORAMUS and got beaten to death on facebook 🙁

 

Having said that, I calculated the ‘cost per pizza inch’ of all the sizes and all the varieties, and guess what??!!

 

The pricing is DEFINITELY Irrational, but may not be wildly so.

 

In the case of the Veg. pizzas, the cost goes UP as you buy larger sizes, whereas in the case of the Non. Veg pizzas, the cost comes DOWN (for bigger sizes)…

 

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27 Comments

  1. Profile photo of Mandar Joshi

    Aamazing !!! though I dont eat Pizza much but have been buying the same for others and have never noticed this. In fact when it comes to eating we never realise that its yet another transaction and we must measure the value we get at the cost of our hard earned money !!! Thanks for opening my eyes Rodinhood 🙂 next time I am going to order three seven inches !!!!

  2. Profile photo of Perzen Darukhanawalla

    Completely agree with your post on irrational pricing. It is the same thought process that goes when pricing things at $685 – customers think of the pricing as closer to $600 when it is in fact closer to $700 as that rationalises things. Another example of emotional pricing would be to remove the tax component to make the pricing more attractive – this can swing either ways as though I may be tempted to pick up a dress that is only $50 now instead of the previous $80 – once the tax is added in and the dress costs me $60 it turns me off and make me feel like it is a fake sale.

     Though for the sake of supporting Dominos I must say that the reason it makes more sense to go with the medium pizza than 2 smalls is that with the 2 smalls you may end up with 14inches but that would be more of bread than the topping while the medium pizza will equal more topping while the bread content only increases slightly.

  3. Profile photo of Lakshman Pillai

    Alok: You need to look at the area of the circle to compare not the diameter! 21 inch PIZZA is three times bigger than three 7 inch PIZZA. I assume the inch mentioned there is the diameter of the PIZZA.

    Area wise, 13 inch piZZA is 3.45 times bigger than one 7 inch PIZZA. Ofcourse, weight and quantity is related to area. (Calculated based on the area of the circle – PI * R * R.)

  4. Profile photo of Aashish Gupta

    The size of a pizza is proportional to the square of it’s radius (area of a circle is pi*r*r) – so a 10 inch pizza is more than double a 7 inch pizza in area.

    Size of a 7 inch (diameter) pizza = 38.48 square inches

    Size of a 10 inch (diameter) pizza = 78.54 square inches

    Size of a 13 inch (diameter) pizza = 132.73 square inches

    Time for a geometry lesson.

  5. Profile photo of Braj Mohan Chaturvedi

    It is about area and hence medium is 2 times and large is 3 times of the regular .. still the pricing is not in line with the area of the pizza.

  6. Profile photo of Lakshman Pillai

    Braj: I agree. There is a slight difference in pricing (medium is 2.04 times, regular is 3.44 times) if we take the area based calculation. Not sure what reason Domio will give for this. To be sure 100%, we need to look at the weight as well to check if they add more toppings (thick layer) for the bigger ones.

  7. Profile photo of Anand Narayan

    Whenever i want one bowl of soup, I order “one-by-two”… I feel I get more quantity for the same price..

  8. Profile photo of Aashish Gupta

    Of course it isn’t exactly aligned to the area – that’s only because their costs and sales volumes for each size are different. It is not “irrational” at all as this article suggests (that too based on an extremely flawed calculation).

  9. Profile photo of himanshu chanda

    This was amazing ! I actually laughed thinking I always bought medium sized pizza 😀 You are a better Maru than me

  10. Profile photo of Alok Rodinhood Kejriwal

    Hats of to you to jump to your conclusion! Finger pointing is great fun, isn’t it???

    I made a mistake in the inches, but the logic of irrational pricing stands:

  11. Profile photo of Aashish Gupta

    The pricing isn’t irrational. It is simply non-linear (within a pizza-type) and non-uniform (across types). Without looking at their cost structures, sales volumes and profit margins for each of these, it is impossible to say what the price structure implies. But saying that it is irrational is “jumping to conclusions”.

  12. Profile photo of Jigar Shah

    Bhai…Understand the intent..! Irrational pricing he means not just sticking to numbers…adding emotional component too into it. If ‘rationally’ you calculate Bread+Cheese + toppings…price will be much lesser. Same content, similar cooking time , Pizza in regular hotel may cost much lesser. Audience is different. Product service might be same / similar.

  13. Profile photo of Neeraj B Bhai

    I protest. They are unfair to veggies. Barring one non-veg, other non-veg items are show correct trend (though not enough)

    Price reduction on higher diameters is either not there or if there is highly inadequate

  14. Profile photo of Vikrama Dhiman

    One point that the post misses completely is that most offers are generally associated with Medium and Large pizzas only (you can get one medium pizza free with one pizza or Garlic Bread and so on). So, its not irrational pricing after all 🙂

    Of course some customers won’t care and buy all — which is a bonus!

  15. Profile photo of Anirudh B Balotiaa

    Interesting..even after the revised one! 

    So the price per inch increases as you go higher in size. Ideally it should go down. 

    But I am not sure whether ordering 2 regular is more economical than one medium. By ordering two 7 inches are you really getting 4 inch extra if you ordered one 10 inches?

    Can anyone throw more light on this? 

  16. Profile photo of Nishant Agrawal

    You can add another element to your calculations to make it more ‘realistic’. The only reason I choose a medium-sized pizza over a small-sized pizza is that I can use the coupon ‘One pizza free with a mid-sized pizza of same or lesser value’; this coupon isn’t valid for small pizzas. For Veg 1, the price per inch is 3.25 (for a medium sized pizza), which falls to 1.625 after using the coupon. Nothing beats this price.

    There’s a reason why this coupon isn’t valid for the small-sized pizza.

    Also, there are certain add-ons (example the delicious cheeze-burst) that cannot be added onto a small pizza. 

  17. Profile photo of SanjoeTom Jose

    I think it has to do with number of people eating also. Generally when you are eating alone you are more cost conscious than when you are eating out with friends or family.

    Also based on my experience food outlets base their price on competition; in most of the cases this will be some other food item served by another kind of outlet- it could be a meal, a burger or dosa as very rarely there will be two different pizza brands having outlets closeby. 

  18. Profile photo of Milan Bavishi

    Overall, this is similar to what happens in US.
    buy a small glass of coke at $1.5 and a large one at $2.25.

    Unlimited refills. 🙂

    (rates given above are just illustrative).

  19. Profile photo of Shariq Merchant

    Adding another perspective, 2 small pizzas have a larger circumference of bread and less cheese/topping than the large. So if you assume that 0.62 (the break even) inches of pizza circumference is wasted as bread (that you normally do not enjoy in a pizza), you break even at the 0.62 inch mark for a simply veg pizza. 

  20. Profile photo of Aashish Gupta

    You’re confusing non-linearity and non-uniformity with irrationality. Maybe they have sales statistics that show larger pizzas are more popular among non-vegetarians, or that non-vegetarians are more likely to upgrade based on lower per-inch price, or party orders (generally for large pizzas) are most often for non-veg, or ….

    Whatever it may be, we can’t say it is irrational unless we see what research went behind this pricing model.

  21. Profile photo of Sriram Venk

    Very interesting. Forget price/inch

    75 Rs serves 1  , then with 300 I should be able to serve 4 (4*75) but if I go for a large pizza I need to shell out 315 Rs. You can include cost structure , revenue structure and whatever.. but from the consumer point of view it just plain does not make any sense.

  22. Profile photo of Jinesh Shah

    I totally agree Alok.Pricing decisions do not stem out of rational / logical thinking always. IMO it all depends on the needs / value proposition for the buyer. 

    Example: A shampoo sachet of 3 ml may cost as low as Rs. 1/- or 2/- . But the same brand bottle of 100ml cost around Rs. 60.

    Rationally, its double the price, but what the shampoo manufacturers do not tell us is the difference in viscosity and probably the quality that comes in sachet, in the same brand, under the same product range !!!

  23. Profile photo of Deepak Shenoy

    Just to add another dimension, a human one. two seven inchers will give you 8 slices. one 10 incher will give you 6. And one 13 incher gives you about 8-10 depending on who cuts it.

    When you share pizzas – who doesn’t – people eat by the slice, and count how much they ate by the slice. So it’s a little cheaper to order 7 inchers usually. (But mathematically this screws things up once you get beyond 8-9 people)

    The other problem is that relatively since the edges of pizzas puff up similarly you seem to get lesser toppings per slice in a smaller pizza than in a larger one. But this will differ from vendor to vendor – most now only put a process-controlled number of toppings on the pizza rather than make it look filled up. (I use smaller pizza outlets, the non-Dominos types – who don’t do that)

  24. Profile photo of sriharsha b

    Alok,

    We had an informative discussion in our MBA classes regarding the way consumers react.One of our profs had done a detailed analysis on the price variations between sachets(Mainly 1 re packs), medium packs( 10 to 20 bucks) and the bigger wholesale pack.The results were surprisingly contrary to what we have been told since ages that buying wholesale would be cheaper.This was there for all the products except 2 or 3. But I would say that there is more to the story than consumer irrationality. If you actually look at the chocolate packs etc they come in very weird sizes.Go check some bar rather than the regular 100,150 or 200 gms they come in weird figures of 98 gms etc. And since we are being served this surreptitiously since a long time we stop questioning them.Like the dominno’s case. We accept it because we have been seeing it since long. Questioning the existing principles is what is needed.And I see thats what you have ably done always.

    ~Harsha

  25. Profile photo of Alok Rodinhood Kejriwal

    yeah!!!!! thank you, thank you

  26. Profile photo of Venkatesh Ganesh

    Oh! Yeah..The Big Mac Index should be replaced by the Domino Index of Irrational Thinking…

  27. Profile photo of Amit Shroff

    Superb Alok! How did you get this!! I never noticed it!!!

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