Pickup Special: Pricing Hurdle On Pizza
This is a great example of how a hurdle can be used to selectively discount to only the customers that are really serious about saving money.
The pizza place knows it can sell a lot more pizza at a lower price (illustrating price elasticity of demand – as price goes down, demand goes up). They also know that if they discount then they will be making a lot less money on the pizzas they would have sold at full price anyway (cannibalization). Ideally they would only discount to the people that are really serious about saving money – price sensitive customers that would not pay full price.
But how? How do you sell the same product at two different prices?
One example is a hurdle, used here very effectively. They'll give you a discount, but you have to jump over a hurdle to get it. By jumping the hurdle you have effectively proven that you would not have paid full price.
In this case the hurdle is inconvenience – it is only available on walk-in orders. You can't order over the phone. That means that you have to walk in, place you order, and wait 20-30 minutes in a very inhospitable and uncomfortable environment. If you do all that you are rewarded with a pretty serious discount, and you deserve it. You have demonstrated that you are serious about saving money, and that you probably would not have purchased otherwise.
Meanwhile other customers, customers that are less price-sensitive and place a higher value on their time and convenience, happily pay a higher price for the convenience of phoning ahead or, better (and still more expensive) yet, having it delivered. The customers are effectively willing to pay a premium to not have to stand around for half an hour while their pizza is prepared.
This same tactic is used successfully by some florists, most effectively around the big holidays like Mother's Day and Valentine's Day. Price sensitive customers can save money by fighting the crowd and risking limited quantities, while those willing to spend more have the flowers delivered.
