Jim Jacobs has been hit hard by the competition, but he's fighting back with some pretty smart marketing techniques.
Jim Jacobs is like many independent pizza operators today. They started off in the business 20 or 30 years ago and rode the pizza industry's wave of prosperity and growth. Now they find it harder to make the kind of money they used to make.
Even though the general economy looks great, competition seems to be the main force working against profits. And this is certainly the case in Mt. Pleasant.
PMQ spent a weekend this last February with Jim and his wife Gae at his bustling pizza store to see if PMQ could use some basic marketing techniques to help Jim understand his situation better and help to develop a plan to regain lost sales. You may have noticed the note in a previous issue of PMQ looking for a volunteer pizza store to be the subject of a case study. We were looking for an average town USA for the pizza industry. And we found it in Michigan. Mt. Pleasant is Average Town USA. It has industry and a college. Each one of the national chains has one store here along with regional Hungry Howie's as well as 4 or 5 others. What you are about to read is a case study of how one pizza store plans to analyze it's sales, geography and customer to develop a plan that will help to create future profits.
Although there is a Pisanello's chain (Piz-a-nelloz), the Pisanello's in Mt. Pleasant is not a part of the Ohio based chain owned by founder Jerry Liss. However, there is a connection between the two men. Jim Jacobs worked for Jerry Liss all through high school at the Pisanello's back home in Bowling Green, Ohio. It was there that Liss saw potential in Jim and when Jerry found himself with a problem store in Mt. Pleasant, Michigan, far away from his other stores, he decided to make Jim Jacobs and his new bride Gae an offer they couldn't refuse.
Jerry Liss offered Jim the Mt. Pleasant store to manage and own if he would work it for 5 years. Jim took the offer and moved to Mt. Pleasant. The store was there because Central Michigan University was there. It wasn't much to look at but when they reopened the doors, the sales came rolling in and over the years the sales climbed and dipped. Jim spent many hard working months of pizza making, marketing and carpentry to create a store he was proud of. And so was Mt. Pleasant. Jim was able to spend time doing the things he loved….like hunting, fishing and flying airplanes. He still maintains the two planes he uses to find good fishing spots and to buzz an occasional herd or two.
Pisanello's was there before Domino's, before Little Caesar's, even before Mr. Tony's. He has seen all of the competition come and sometimes go. Through it all, Jim has managed to stay at or near the top of the market. Sales kept clicking along with record setting double digit increases over year to date sales. Then in May of 1994 his comfort zone began to evaporate. That's when Hungry Howie's came to town. They had an impact on his sales almost immediately and as the year progressed sales continued to be eaten away. What started off as a monster year for Pisanello's Pizza ended up with a net of only 8% for the whole year. And then … along came John. In August of 1995 Papa John's Pizza opened their doors and that's when sales really began to take a beating. For the next two years Pisanello's sales would continue to decline dramatically.
Jim responded to this decline by adding and promoting more items on his menu and improving the equality of his food. For example, he developed his own stuffed crust in response to Pizza Hut. He added breadsticks and more subs, salads & mozzarella sticks. When Littler Caesar's came out with the bigger pizza – so did Jim. The strategy began to work in that it reduced the decline is sales of non-pizza items, and this helped stop the bleeding some.
If you notice the graphic "Total Sales" you will see that the decline in average weekly sales is far less dramatic than when you just look at pizza. At the end of 1997 Jim could look back and really see the damage that had taken place. The sales for all of 1997 were only 90% of what they where in 1993, but pizza sales were a mere 71% of what had sold in 1993.
Enough is Enough
Jim decided that 1998 was not going to be another year of declining sales. He is doing several things that will have a impact on his sales. He got a POS Point of Sale computer system. He agreed to be a case study for PMQ magazine. He visited Big Dave Ostrender in Oscoda Michigan and came back with more ideas than he could ever use.
Since January, Jim has used his newly installed POS computer system to both run his store more efficiently and to mail thank-yous and reminders to his new and lazy customers. He uses "Goofpons". He also began doorhanging with Post-It Notes and he likes the results he's getting. These techniques provide a good starting point for regaining lost sales and the efforts are already showing promise.
But . . . before we allocate all of our money in this years budget for post-it notes, customer mailings and goofpons, let's do a little more analysis. Since a lot of money is going to be spent trying to convince people to buy Pisanello's pizza, a telephone survey needs to be done to find out what people think we want to tell them through advertising.
PMQ randomly selected 400 Mt. Pleasant residents and called them to ask them a series of questions designed to find out whose pizza they liked the best and which reasons for buying pizza (Taste, Service, or Price) were most important to them. Look at the Pisanello's Marketing Survey Report to find out what people honestly think about the pizza there. Remember that, as the owner of a pizza store, you are the least likely to know the truth about your store since you deal with many more customers than you do with people who are not your customers. Doing this survey is very easy and inexpensive. We'll show you how easy when we take you through the steps in the nest issue of PMQ. Retrospect of Memphis did this survey for us.
The survey uncovered some very valuable information. First of all, Pisanello's is in pretty good shape. Note that under the column "Pisanello's and on the row "Pizza Market Share" that 47 of the 214 respondents viewed themselves primarily as customers of Pisanello's. In other words, they have a 22% market share, which is a strong number two position, right behind Papa John's, which has a 23.8% share. This survey could be done again in three, six, or even twelve months. That's when you are able to see improvements or declines in your store reputation as a result of your marketing and other factors.
Mt. Pleasant is a sophisticated pizza market. To be successful here, a pizza store is going to need to offer real value. Note that under the Little Caesar's column in the second category, 49 participants rated Little Caesar's as having the best price in town, making them the acknowledged leader in this category. But so what . . . they only have a 8.9% share of the market. Pizza Hut is tied along with Pisanello's as having the best tasting pizza of the market . . . but so what . . . Pizza Hut has only 7.5% of this market. The real leaders in this market are those that offer the right combination of taste, service and price. Papa John's comes in third in taste, second in price, and first in service. As a result, they offer the winning combination and currently hold the number one position there.
Another discovery that will be helpful in developing Jim's marketing plan is that his non-customers are really not at all opinionated about him. It looks like his non-customers aren't angry or dissatisfied with Pisanello's. The good news is that simply raising awareness levels among his non-customers may work and this could be done by changing his regular routine of advertising options.
Market Penetration Analysis
A market penetration map/analysis is the closest thing you will ever see to a photograph of your pizza business. This analysis allows you to see where your customers are coming from and where you have the most influence. In military terms it tells you where your high ground is and where you should meet the competition in battle.
Although Jim only had one month of data stored in his computer, we took that data and formed it into the following report by running it through Group 1 Mailing Software. This marketing program corrected the database so that it could meet official postal standards. It also coded each address with it's proper carrier route and zip code. (A carrier route is the area for which one postal carrier mail). Next we counted the number of customer households that existed in each carrier route and compared it to the number of total households in each carrier route.
Look at the top row of the Market Penetration Analysis and see that Jim's customer count in carrier route "C005" is 42. This is very good when you consider that this carrier route only has 202 households in it. That mean that in "C005" Jim has a 20.79% market penetration rate. And these are only customers collected since the computer installation less than 6 weeks ago.
The number of customer households compared to the number of total known households gives you your market penetration rate for each carrier route. Note that the carrier route with the highest market penetration rate is at the top and that they descend in order to the lowest market penetration carrier route. For strategic purposes the above average carrier routes are shown in red (hot) on our map. The below average carrier routes are colored blue (cold) and the average carrier routes are colored yellow.
Why is this important to know? Because it allows you to sell more pizza.
Jim will find that when he doorhangs or uses direct mail in his red zones that his response rates will be higher then when he markets to his blue or yellow zones. Far more predictable than a static demographic or lifestyle models, a market penetration analysis automatically accounts for proximity, competition, traffic patterns, demographics or any other reasons why people buy pizza. This method simply uses your current customers as tracers to identify your best marketing geography.
Follow down to the last red row (Line 10) and note that when all of the customers are subtotaled from the red zones that nearly half (49.88%) of all customers come from just 27% of the marketing area. In fact the whole address population of the red zone is only 3869. Now that Jim knows where his customer bread basket is, he needs to protect and nurture this area more intensively.
The map can be used to graphically determine your functional market reach and it allows you to focus you marketing efforts more surgically. Jim will be able to monitor progress and take action in the same way that a general would want to command his forces while engaged in battle.
If Jim refers to the battle map each month when reviewing future Market Penetration Reports, he will witness geographic victories and losses depending on marketing efforts. He can combine and focus marketing efforts by zone or by customer type. His manager will now be able to see the actual results of doorhanging and other local store marketing efforts and pursue customer wherever they live, but focus on non-customers in the red zones first. (His response rates will be higher.)
Without the measurability provided by reports, doorhanging results may not be noticeable, but now a manager realizes, "Hey, there are 20 new customers showing up this month in Carrier Route 2 over those we had last month. And that's where we did our doorhanging."
If you want to improve anything, it has been said, measure it! Jim Jacobs is now ready to develop a marketing plan of action that is much more likely to succeed because he introduced the concept of measurability. We now know how our customers feel about us and we have statistics to set goals on. We now know how many customers we have and where they are concentrated. And we now know how to reach them surgically through direct mail and doorhanging.
Aided with the information provided by the analytic tools we have just seen, we will now develop a long-term marketing plan. It will consist of some carefully considered selling points. (What do you think Jim's customers should know about him that would cause them to buy more pizza?) Answer this and you have the theme of the upcoming marketing campaign. The advertising messages will be delivered through a certain set of media choices, Jim will continue to take readings, take action, take readings, and like a heat-seeking missile that makes a series of small but efficient course corrections to stay on target, so will Pisanello's Pizza.
Since Jim and Gae shared with our readers the analytic part of the marketing process, it would be a bit much to share the rest of the marketing story. After all, we don't want to share too much with their competition.