Checkers Pizza promises to deliver pizzas in 25 minutes or less. If pizzas are not delivered on time, then the customer receives $5 off the price of the order. Some store managers, who receive bonuses based on store profits, believe that the guarantee is a win-win situation for Checkers. Because the average pizza sells for $9 but has a marginal cost of $2.25, the store makes a profit no matter what the delivery time. If a pizza is delivered on time, then the store earns $6.75 ($9 $2.25) per pizza. If a pizza is delivered late, then the store still earns $1.75 ($9 $5 $2.25) per pizza. If more than one pizza is ordered, then Checkers makes even more money because it gives only one $5 discount per order. The head of the Checkers chain is worried that this perceived win-win situation may encourage a complacent attitude in store managers with respect to on-time deliveries. While short-run profits are still earned with late deliveries, repeated late deliveries could lead to annoyance on the part of customers and eventually to a loss of customers. Therefore, the Checkers corporate headquarters has decided to gather information about late deliveries and customer satisfaction. It has developed a survey that asks delivery customers to rate their satisfaction based on three attributes: delivery service, value for money, and overall satisfaction with Checkers. Responses can range from 1 to 5, where 1 is “Awful” and 5 is “Excellent.” The following responses were gathered from stores in a single city:
1. Examine the relationship between the percentage of deliveries that were late and average responses to the three survey questions. Do the data provide any support for Checkers head- quarters’ concerns?
2. Estimate the effect of changes in the late-delivery percentage on average overall satisfaction with Checkers. Use the customer satisfaction score as the dependent variable. Based on this analysis, compute the impact of a change from 5% late deliveries to 7% late deliveries on overall customer satisfaction.
3. What factors would Checkers need to consider when determining whether the delivery guarantee is actually beneficial for the company?