Ahan Analytics, LLC Thought Blog - Thoughts on making practical use of analytics
Dec
10

Why Can’t I Have the Brownie Instead of the Muffin with My Box Lunch Special?

written by Dr. Duru

I maintain a relatively regular lunch rotation that features essentially the same main item at each eating establishment. Today, I was delivered a shock to my comfortable culinary routine: I was told that I could not substitute a brownie for the muffin that comes with the chicken salad sandwich box meal at, what I will call, “Establishment X.” (Note that the woman at the cash register was not the same woman I have seen for all these many months to-date. I can only assume that THIS time, I got the manager/owner!)

As I did my best to conceal my complete and utter shock and dismay, I casually observed that the brownie is the same price as the muffin ($1.99 vs $2.00). I was summarily informed that “the ingredients are different. They just use different ingredients. And the muffin is really good.” My overt protest shut down at that point, but my inner pricing analyst began gnashing away on the logic of this tragic situation.

Eating establishments typically use bundling to entice consumers to buy additional food that they otherwise would not have purchased separately, either because of price or (temporary) appetite constraints “at the moment or at the margin.” This technique is profitable when the complementary product has a high enough margin such that the effective discount applied to the extra food item still results in a positive overall margin.

In the case of the brownie vs. the muffin, I can only assume that the cost of the ingredients of the brownie are higher than those of the muffin (assuming no difference in labor and spoilage costs, etc..). If so, then all my earlier substitutions have caused Establishment X to lose some untold amount of profit (likely very small).

It was not in my interest to provide unsolicited pricing advice in this case since I am the consumer. However, if Establishment X hired Ahan Analytics, LLC for pricing consultations, I would likely recommend increasing the price of the brownie. Let’s assume a 25 cent increase still leaves the muffins with higher margins. This price increase would serve multiple purposes which should lead to higher overall profits:

  1. Drive consumers who are indifferent between muffins and brownies to buy the more profitable muffins.
  2. Extract more money out of consumers who strongly prefer the brownie and are willing to pay accordingly. I am biased on this point because I believe the brownie is at least ten times better than the muffin, and the slightly higher price would not discourage my purchase of the brownie by itself.
  3. Eliminate confusion about the relative value of the brownies vs. the muffins in the sandwich meal.
  4. Provide an opportunity to offer a brownie option for the sandwich meal at a slightly higher price.

Given I have plenty of other eating options in my lunch routine, I will not likely miss the chicken salad sandwich meal. I will just have to find solace in the “satisfaction” that on future visits, I will be purchasing the brownie at some discount to its, let’s say, “true price.”

5 Responses to “Why Can’t I Have the Brownie Instead of the Muffin with My Box Lunch Special?”

  1. I love this post and your marginal economics approach. But I wonder if prior pricing experience has shown them that the price elasticity of brownies results is less total profit if brownies are priced higher? Your point #2 assumes that consumers are price inelastic. It’s clear that you are, but others may not be.

    Maybe they could take a page out of the airlines play book. They could figure out the hours you are most likely to dine and raise brownie prices during that window. Then the rest of the time charge the same. That would price discriminate in such a way to maximize the local phenomenon that is your personal price elasticity. 😉

  2. Ah ha, JD! You are too clever. Good thing Establishment X will never find out about your brilliant scheme!
    And yes, I am definitely extrapolating my prefernces onto the local population. I like to think my tastes are at least represetative, if not superb.

  3. Ms. Charts

    Dr. Duru, Love your website. The key to your dilemma could be as simple as the lack of personnel to effectuate the change in your lunch box. Also, the compartmentalization of service jobs in America. Simply put, the boxes are probably prepared in a different establishment. The lady at the cash register: 1/knows nothing and doesn’t care about the profit picture of her employer, 2/ only handles money and cannot touch the food because of hygenic reasons. So because there was nobody to make the substitution in an acceptable way it could not be done. If you have any way to contact the management, they would probably be interested in your ideas, but the cashier is too compartmentalized in her job to care about your needs. Anyway, it is amazing that in these infaltionary times one can still get a decent brownie for inly $1.99 🙂

  4. Yes, Ms. Charts, I do consider the $1.99 brownie a unique steal…especially given how good it is! I will miss it as a part of the box lunch. Perhaps I can find the properly constructed combo in another country. 🙂

  5. 1. Those are adorable! 2. I’ve never seen that bwrnoie mix before! Interesting! 3. I can’t believe I don’t have a football-shaped cookie cutter! I need one! 4. You should come link those up at the College Football Tailgate Party! 5. Game on this weekend!! Go Huskers!

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