Pizza And Pi…Or Who Moved My Cheese(Pizza)
Today’s blog is about pizza! I love Pizza, you love pizza we ALL love Pizza. However; there is a lesson to be learned from Pizza and how most restaurants sell it. I recently got a deluxe pie at our favorite local shop and discovered something that I would like to share with you.
My lovely wife and I got a large, 16 inch pie this time and it was way too big so we had plenty of leftovers. The gigantic size of the 16 inch pizza got me thinking. “Why does this seem so much larger than a 12 inch size when it is only 33% larger? My mental math was as follows: 12 X 1.333 = 16. That math is in fact WRONG! Here is why: To determine how much pizza you are getting you must use Pi(e) in the calculation and I was not. What do I mean by that you ask? I need to consider the area of each pie to compare how much pizza I am buying. When I ran those numbers, I was shocked and here is the lesson we need to learn.
The area of a circle or a pizza pie must be determined using the following formula: πr2 This is where things can get a little too detailed for some people but stay with me it is going to be worth it. The calculation of the area for a 12 inch pie and a 16 inch pie are shown below and the result of the calculations reveals that there is about 78% more pizza in a 16 inch pie compared to the 12 inch pie. Here are the details:
Click here to see a website that calculates the area of a circle.
π = 3.14159 r = radius The radius of a 12 inch diameter pizza is 6 inches and the radius of a 16 inch pizza is 8
3.14159 X 62=113.09 = area of 12 inch pizza
3.14159 X 82=201.06 = area of 16 inch pizza
201.06 ÷ 113.09 = 1.78 or 1.78 X 113.09 = 201.06 approximately
If you assume the price of a 12 inch cheese pizza is $10 then based on area the 16 inch pizza should be $10 X 1.78 = $17.80 At my local shop that 16 inch cheese pizza is only $12.75 If you look at the deluxe pizza we bought the 12 inch was $14.95 and the 16 inch was $19.95 if you applied the same price to the 16 inch pizza it should be $14.95 X 1.78 = $26.61 We were getting a great deal with the large size at only $19.95 – right?
What is the lesson you ask? The first is that the area of a circle is not linear so you cannot apply a linear relationship to the price. A 16 inch line is 33% longer than 12 inch line. But it won’t work for pizza. Another lesson is the pizza shops are probably overcharging for 12 inch pizzas to subsidize the price of the 16 inch pizza. I think you would agree with this because it does seem expensive for a 12 inch cheese pizza to cost $10. Since they probably sell more 12 inch pizzas, they can overcharge a little and that will ease the beating they take on the large size and we are all happy. From now on I will always order the large size pizza as long as I am getting the greater value based on the math outlined above. Have you ever had to throw out pizza from the fridge that went bad? Me neither. The leftovers will be welcomed by members of the household for late night snacks or a quick snack any time of day. If you really want to get a headache, try to figure out how they price extra toppings for each size Pizza.
Another lesson we need to learn is how can we apply this pricing strategy to our advantage? Can we apply this in our business if all others in the industry are not? I think the pizza pricing strategy results from the incorrect perception that their customers have in assuming that the prices should have a linear relationship. In my industry, I believe there is a built in premium on standard rates but they are adjusted up or down based on the number of hours for an engagement.
I hope you enjoyed this topic as much as I enjoyed the pizza that inspired it. I also hope that you will always keep an open mind and take a different approach to your business. People who do that typically are successful. It is easy to do what everyone else is doing but it is genius when you discover a way to Turn Things On End To Achieve Results! The people who follow the same path as others are lost in the crowd of sameness but those who don’t go down in history. Some of those names are Steve Jobs, Thomas Edison, Ray Kroc, Sam Walton, Henry Ford and Bill Gates.
Have a great week finding a new way to use Pizza as your inspiration.
Happy Birthday to the love of my life, you are MY inspiration.