Case 2: Vending machine pizza

Case

Jacek was going to his classes as he did every Monday. The trip took him app. 20 min

by bus. When he was alone he usually listened to the radio or read a newspaper. This

time was totally different. While leaving his house he heard on the radio that some XEK

foundation is offering young people willing to start a business 50 thousand dollars for a

start. The lack of age conditionings and preferences in the field of education of future

entrepreneurs was significant. Jacek was a student of the second year but he has always

dreamt of his own business. He wanted to produce pizza machines which would work

just as beverage vending machines. Everybody willing to eat pizza would put a set sum

of money in and within a couple of minutes would get a ready product. In spite of having

a good product, he was still struggling with having insufficient funds. As soon as he

heard that XEK foundation will finance the best 45 ideas for a business he immediately

thought that this offer was cut out for him. Going to the university he decided that

during the very first break he would phone the foundation and ask about the details.

Impatiently he was waiting for a physics lecture to end. Suddenly the professor asked:

Are there any questions? He added after a while: if not thank you for your attention.

At this moment Jacek started dialing. After a short while he heard a voice in the speaker:

Good morning, XEK foundation, how can I help you?

Good morning, my name is Jacek Lech. This morning I heard on the radio that your

foundation is going to financially support people who have an interesting idea for creat-

ing their business. Please tell me what requirements should I meet for my application

to be taken for consideration?

The lady from the foundation replied.

First of all an innovative idea counts. It is supposed to be proven that the planned

business have chances of succeeding on the market. Thus you are supposed to show in

front of the assessment board the clients' adequate demands for the product or service,

which will generate income exceeding the costs related to the production of the offered

goods. Please, remember that the meeting with the experts has been scheduled for next

week, that is Monday at 4 p.m. Jacek was pleased to hear that because he finished

classes at 3 p.m. on Mondays so he would not have to skip lectures in order to go to

the presentation. I decided to ask about one more detail. Thank you for a very ex-

hausting answer but do you have a sample outline of a conversation with the assessment

board? I would be grateful if you could send it via email. The foundation represen-

tative confirmed that such a document existed and it was immediately sent on his e-mail.

In the afternoon Jacek opened his mailbox. Among many messages he spotted an e-

mail from the foundation with a presentation outline attached and decided to open it

at once. There were questions at the end of the message which were to be answered

be each participant. Having read them he sat at the computer and started looking for

the necessary information. At the beginning he decided to determine the clients profile.

A report produced by a research agency dealing with the food market analysis came in

handy. Reading the report, Jacek learnt that in Poland despite still growing consumer

awareness in the field of healthy nutrition in case of 76% of citizens pizza is still the

most popular meal delivered to home, and among people eating out 9% reports the very

pizzeria as the restaurant of their primary choice.

People aged 18-44 are mostly pizzeria patrons. Consumers aged more than 45 prefer to

prepare their pizza themselves at home. Additionally, the latter dislike buying frozen

pizza at all, whereas consumers aged 18-44 sometimes do it. Pizza eaten in the pizzeria,

followed by delivered pizza is most popular among the Polish consumers. It is probably

connected to active and fast lifestyle represented by these groups. The least popular

are frozen pizzas and pizza bottoms. It is important that the clients like getting a big

pizza for a small price. Unfortunately a low price of a product is usually correlated with

its low quality. Moreover, they prefer service in the shortest time possible. They find

waiting for the ready product an irritating experience. It is significant that a monthly

expenditure on pizza is statistically 12 PLN per capita annually. Additionally, the obser-

vation of the pizza market shows that the most important factor influencing the demand

is still the price of the product. Thereby clients change preferences to pizza producers

depending on the price. If the prices are high they switch to a cheaper producer. An in-

teresting aspect is that the material status of clients has no influence on pizza purchase.

Well off people buy the product in the same amounts as the rest. However, it can be

observed that more pizzas are bought in Autumn and Winter than in Spring or Summer.

Tomek asked: Jacek, but who will be your client. Jacek replied - People aged 18-44,

preferring to have their product ready with a couple of minutes. My offer is addressed

both to the people earning more than the national average income and the people who

earn minimum wage. The price will be suited to clientele capabilities. Then Tomek

asked - What about the competition? Jacek retorted - I have none. My only threat

are pizzerias and restaurants serving other dishes besides pizza. However, I think that

my pizza will be exceptional, because I want the machine producing it to be made from

best quality materials and semi-finished products. Moreover, my company will use the

most modern technology at the production. Tomek smiled and kept asking: Jacek, how

many pizzas a day will your machine produce? What will be the demand for the offered

products. Jacek showed market tendencies on his laptop, which represented market

demand and vending machine pizza production trends.

Daily demand Price Daily supply

30 4 13

26 6 26

24 8 28

20 11 43

Tomek looked at the table and asked: Do you know what other factors, besides the price

and the cost of production should you include?

Jacek replied: Yes I do. In addition to all that I must consider the perspectives of the

pizza market development in Poland. Moreover, it's important to determine the number

of specialists who will be needed to manufacture a given number of the machines. Is

there anything else I should include. . . ?

Questions

1. Calculate the supply and demand determinants for the pizza market and explain

how they can influence the demand and the vending machine pizza production.

2. What other demand and supply conditions apart from the above mentioned could

be pointed out?

3. Determine the law of supply regarding the vending machine pizza.

4. Do you think that the production at the given daily demand of 20 pieces makes

sense? Justify your opinion.