#1 Pizza Hut Restaurants of all kinds have scrambled to keep customers coming in during recent difficult economic times. Pizza Hut is in an unusual spot. It isn't exactly fast food, but it isn't quite full-service fare either. Pizza Hut has never been perceived as being on the low end of pizza prices. As the economy sagged, all these factors cooled down business for the red-roofed purveyor of pies. So Pizza Hut did what many companies did. It cut prices. At first, it shocked the pizza category with its "$10 any" promotionany pizza, any size, any crust, any toppings, for just $10. Customers really responded to the limited time offer. But as soon as the price deal ended, Pizza Hut's incremental promotional revenues disappeared. So the company has made more permanent adjustments to the new frugality reality. To increase customer loyalty, it has introduced everyday low prices. Most medium pizzas cost $8, most large pizzas cost $10, and most specialty pizzas cost $12; these price cuts represent up to 50 percent reductions from previous pricing. Under this new pricing, Pizza Hut expects that revenues will increase significantly. But the new pricing mechanism will require some time before it proves itself. 1. What are the implications of Pizza Hut's big price cuts for its brand image? 2. Can customer loyalty be generated through low prices? 3. Can Pizza Hut sustain such dramatically lower prices and still remain profitable? Case study #2 You'd think that the farther you fly, the more expensive your airfare would be. According to U.S. Department of Transportation data, however, that's not the case. For example, the average cost of a 280-mile flight from Boston to Philadelphia was $342, which is $1.22 per mile. A 2,602-mile flight from Boston to Long Beach, California, cost $169, or $0.06 per mile! That's the average cost; fliers sitting next to each other likely paid different prices. Many factors influence the pricing of airfares; distance has minor impact, even though two major expensesfuel and laborincrease the longer the flight. In this example, one factor might be that the Boston-Philadelphia route averages 484 passengers per day, while the Boston-Long Beach route averages only 330 passengers per day. Airlines claim they are just charging what the market will bear. 1. Should airlines be required to charge standard prices based on distance and equal airfares for passengers seated in the same class (such as coach or business class) on the same flight? What will likely happen to prices if the government requires airlines to base fares only on distance and passenger class? 2. What factors account for the variation in airfares? Should airlines be permitted to get as much as they can for a seat