The Domino’s Pizza Mystery
I tried to order pizza from Domino’s Pizza (ASX: DMP) on the weekend – strictly for due diligence purposes, you understand. Eight Meats pizza, gluten free base, barbecue sauce. Price: $18.95. Plus $2.10 Sunday surcharge and a further $2.95 for the gluten free base.
Add a second pizza – the Godfather, from the same range (Traditional Range) as Eight Meats. Price: $21.95.
I’m not paying 45 dollars for two Domino’s pizzas, I sez.
I look at the online vouchers, see what deals there are.
OK, there’s some deals.
Close the website tab, start it again, choose my store, select my pizza (intending to apply the voucher afterwards).
Eight Meats pizza, gluten free base, barbecue sauce. Price: $13.95. Plus $1.60 Sunday surcharge and $2.95 for gluten free base.
Add a Godfather pizza, thin & crispy base, pizza sauce. Price: $13.95. Total price for the order around $32, pre-voucher.
Quit the website, close the browser, back to the beginning. Godfather pizza, thin & crispy. $13.95. Plus $1.35 Sunday surcharge. I tried a few more times and I could not replicate the $18.95 or the $21.95 pizza prices.
I can think of three broad possibilities:
A) Domino’s uses some sort of area based pricing, which is probable, although it should not give me these results because the first thing I did on signing into the Domino’s website was to select my store, clearly identifying my area.
B) Domino’s uses some sort of pricing algorithm to maximise dollars per customer. E.g. show me a higher price first off, if I reject that (by closing the browser – e.g. price too high) then offer me a lower price when I come back, because an immediate return to the site looks like I really want Domino’s, so this might suggest to the algorithm that it can get a sale at a lower price.
C) Domino’s is intentionally setting higher prices online to encourage customers to use vouchers & deals. This would probably strengthen the Domino’s local-store market share because delivered vouchers (or e-vouchers, pushed to mobile phones/email addresses) offer good prices that are otherwise unattainable, perhaps even encouraging repeat customers. However, this also should not deliver the results I got, because the price changed (sans voucher), and lower prices persisted even when restarting the website/ trying it in a different browser.
It could also be a combination of all three approaches.
The unintended consequences of this are potentially quite interesting as the less technologically sophisticated Pizza Hut, for example, in my local area offered a similar order at a price point that is 50% lower than the initial $45 quote I received from Domino’s, and still some 10-20% lower than Domino’s subsequent $13.95 per pizza price point.
I wonder if, had I paid $45 for two pizzas, would the benefits of this flowed largely to the franchisee? Or does Dominos keep that extra $ and just pay the franchisee the “standard” pizza price, given that DMP the company operates the order website – i.e., does this improve restaurant or corporate profitability?
It’s also potentially risky for a brand that has built its rep on quick service and low price to be fooling around with order prices like this. What does it do for customer trust if prices can vary so widely for the exact same order and the exact same customer in the exact same location at the exact same time? This is clearly an important issue for a company with a well-founded reputation for cheap pizza.
I imagine if you were ordering from Domino’s regularly, my results should not be hard to replicate, and thus the potential for customers discovering a “betrayal” is reasonably high. If I can replicate my results this week, I’ll take screenshots.
What does this mean for the stock? Probably nothing, I just found it interesting. If it is algorithmic, Domino’s is the clear leader in technology in this space – but whether that changes the economics of the business is a separate question entirely.
Food for thought.
I have no financial position in Domino’s, Pizza Hut, or any listed or unlisted pizza business or franchise. This is a disclosure and not a recommendation. For the record, I had turkey and vegetables for lunch.