Evaluate Cassidy's possible strategies for the Flint store's plant market. What should Cassidy do? Why? Suggest possible promotion plans for your preferred strategy.

In an effort to rebuild the plant delivery business, Cassidy is considering various methods to ensure prompt customer delivery. She thinks that potential demand during lunch breaks is significantly above Paglozzi's present capacity. Cassidy also knows that if she tries to satisfy all phone or fax orders on some peak days, she won't be able to provide prompt service and may lose more plant customers. Cassidy has outlined three alternatives that may win back some of the plant business for the Flint store. She has developed these alternatives to discuss with Paglozzi's owner. Each alternative is briefly described below: Alternative 1: Determine practical capacities during peak volume periods using existing equipment and personnel. Accept orders only up to that capacity and politely decline orders beyond. This approach will ensure prompt customer service and high product quality. It will also minimize losses resulting from customers' rejection of late deliveries. Financial analysis of this alternativeshown in Table 1indicates that a potential daily contribution to profit of $1 ,230 could result if this alternative is implemented successfully. This would be profit before promotion costs, overhead, and net profit (or loss). Note: Any alternative will require several thousand dollars to reinform potential plant customers that Paglozzi's has improved its service and \"wants your business." Table 1 Practical Capacities and Sales Potential of Current Equipment and Personnel 11 a.m.Break B p.m.Break 2:30 a.m.Break Daily Totals Current capacity (pizzas) 48 48 48 144 Average selling price per unit $ $ $ $ Sales potential $600 $600 $600 $1,800 Variable cost (approximately 40 percent of selling price): 240 240 240 720 Contribution margin of pizzas 360 360 360 1,080 Beverage sales (2 medium-sized beverages per pizza ordered at 75 a piece)1 72 72 72 216 Cost of beverages (30 percent per beverage) 22 22 22 66 Contribution margin of beverages m Q Q 150 Total contribution of pizza and beverages $410 $410 $410 $1,230 Alternative 2: Buy additional equipment (one oven and one delivery car) and hire additional staff to handle peak loads. This approach would ensure timely customer delivery and high product quality as well as orovide additional capacity to handle unmet demand. Table 2 is a conservative estimate of potential daily demand for plant orders compared to current capacity end proposed increased capacity. Table 3 gives the cost of acquiring the additional equipment and relevant information related to depreciation and fixed costs. Table 2 Capacity and Demand for Plant Customer Market Estimated Daily Demand Current Daily Capacity Proposed Daily Capacity Pizza units (1 pizza) 320 144 300 Table 3 Cost of Required Additional Assets Cost Estimated Useful Life Salvage Value Annual Depreciation* Daily DepreciationT Delivery car (equipped with pizza warmer) $11,000 5 years $1,000 $2,000 $5.71 Table 3 Cost of Required Additional Assets Cost Estimated Useful Life Salvage Value Annual Depreciation* Daily Depreciation'r Delivery car (equipped with pizza warmer) $11,000 5 years $1,000 $2,000 $5.71 Pizza oven $20,000 8 years $2,000 $2,250 $6.43 Using this alternative, the following additional pizza delivery and preparation personnel costs would be required: Hours Required Cost per Hour Total Additional Daily Cost Delivery personnel 6 6 $36.00 Preparation personnel 8 6 48.00 $84.00 The addition of even more equipment and personnel to handle all unmet demand was not considered in this alternative because the current store is not large enough. Alternative 3: Add additional equipment and personnel as described in alternative 2, but move to a new location that would reduce delivery lead times to 2 to 5 minutes. This move would probably allow Paglozzi's to handle all unmet demandbecause the reduction in delivery time will provide for additional oven time. In fact, Paglozzi's might have excess capacity using this approach. A suitable store is available near about the same number of residential customers (including many of the store's current residential customers). The available store is slightly larger than needed. And the rent is higher. Relevant cost information on the proposed store follows: Additional rental expense of proposed store over current store $1,600 per year Cost of moving to new store (one-time cost) $16,000 Cassidy presented the three alternatives to Paglozzi's owner, Skipper Kipnis. Skipper was pleased that Cassidy had done her homework. He decided that Cassidy should make the final decision on what to do (in part because she had a profit-sharing agreement with Skipper) and offered the following comments and concerns: - Skipper agreed that the plant market was extremely sensitive to delivery timing. Product quality and pricing, although important, were of less importance. - He agreed that plant demand estimates were conservative. \"In fact, they may be 10 to 30 percent low.\" I Skipper expressed concern that under alternative 2, and especially under alternative 3, much of the store's capacity would go unused more than 80 percent of the time. - He was also concerned that Paglozzi's store had a bad reputation with plant customers because the prior store manager was not sensitive to timely plant delivery. So Skipper suggested that Cassidy develop a promotion plan to improve Paglozzi's reputation in the plants and be sure that everyone knows that Paglozzi's has improved its delivery service. Evaluate Cassidy's possible strategies for the Flint store's plant market. What should Cassidy do? Why? Suggest possible promotion plans for your preferred strategy. 30. Paglozzi's Pizza Pies Cassidy Newman, manager of the Paglozzi's Pizza Pies store in Flint, Michigan, is trying to develop a plan for the \"sick\" store she just took over. Paglozzi's Pizza Pies is an owner-managed pizza take-out and delivery business with three stores located in Ann Arbor, Southfield, and Flint, Michigan. Paglozzi's business comes from telephone, fax, or walk-in orders. Each Paglozzi's store prepares its own pizzas. In addition to pizzas, Paglozzi's also sells and delivers a limited selection of soft drinks. Paglozzi's Ann Arbor store has been very successful. Much of the store's success may be due to being close to the University of Michigan campus. Most of these students live within 5 miles of Paglozzi's Ann Arbor store. The Southfield store has been moderately successful. It serves mostly residential customers in the Southfield area, a largely residential suburb of Detroit. Recently, the store advertisedusing direct-mail flyersto several office buildings within three miles of the store. The flyers described Paglozzi's willingness and ability to cater large orders for office parties, business luncheons, and so on. The promotion was quite successful. With this new program and Paglozzi's solid residential base of customers in Southfield, improved profitability at the Southfield location seems ensured. Paglozzi's Flint location has had mixed results during the last three years. The Flint store has been obtaining only about half of its orders from residential delivery requests. Cassidy, the Flint store's new manager, believes the problem with residential pizza delivery in Flint is due to the location of residential neighborhoods in the area. Flint has several large industrial plants (mostly auto industry related) located throughout the city. Small, mostly factory-worker neighborhoods are distributed in between the various plant sites. As a result, Paglozzi's store location can serve only two or three of these neighborhoods on one delivery run. Competition is also relevant. Paglozzi's has several aggressive competitors who advertise heavily, distribute cents-off coupons, and offer 2-for-1 deals. This aggressive competition is probably why Paglozzi's residential sales leveled off in the last year or so. And this competitive pressure seems likely to continue as some of this competition comes from aggressive national chains that are fighting for market share and squeezing little firms like Paglozzi's. For now, anyway, Cassidy feels she knows how to meet this competition and hold on to the present residential sales level. Most of the Flint store's u-side potential seems to be in serving the large industrial plants. Many of these plants work two or three shifts, five days a week. During each work shift, workers 'are allowed one half-hour lunch breakwhich usually occurs at 11 a.m., 8 p.m., or 2:30 a.m., depending on the shift. Customers can order by phone, fax, e-mail, or at the Paglozzi's website. About 30 minutes before a scheduled lunch break Paglozzi's can expect an order for several (5 to 10) pizzas for a work group. Paglozzi's may receive many orders of this size from the same plant (i.e., from different groups of workers). The plant business is very profitable for several reasons. First, a large number of pizzas can be delivered at the same time to the same location, saving transportation costs. Second, plant orders usually involve many different toppings (double cheese, pepperoni, mushrooms, hamburger) on each pizza. This results in $11 to $14 revenue per pizza. The delivery drivers also like delivering plant orders because the tips are usually $1 to $2 per pizza. Despite the profitability of the plant orders, several factors make it difficult to serve the plant market. Paglozzi's store is located 5 to 8 minutes from most of the plant sites, so Paglozzi's staff must prepare the orders within 20 to 25 minutes after it receives the telephone order. Often, inadequate staff and/or oven capacity means it is impossible to get all the orders heated at the same time. Generally, plant workers will wait as long as 10 minutes past the start of their lunch break before ordering from various vending trucks that arrive at the plant sites during lunch breaks. (Currently, no other pizza delivery stores are in good positions to serve the plant locations and have chosen not to compete.) But there have been a few instances when workers refused to pay for pizzas that were only 5 minutes late! Worse yet, if the same work group gets a couple of late orders, they are lost as future customers. Cassidy believes that the inconsistent profitability of the Flint store is partly the result of such lost customers