Domino Pizza Demand Analysis and Forecasting Research Paper:
Domino`s Pizza has a large market presence in the US and has successfully franchised numerous units. From a family owned business, the company has grown to become a world renowned corporation. The bulk of the company`s sales revenue comes from Pizza sales while the rest is attributed to chicken wing, sandwiches, an array of dessert items and soft drinks. A demand analysis will provide useful information on whether the venture will be viable and worthwhile for the company, because a failed venture is a businesses` worst nightmare. The location of the new venture has been proposed to be in San Bruno.
A variety of variables are undeniably useful when conducting a demand analysis. The company will compile data concerning projected sales volume, unit price, and population size advertising expenditures per month and the average disposable income per household for each month. This information will assist Domino`s in formulating an business effective strategy to take the market.
The average disposable household income will be an important factor when conducting the demand analysis. The demand for restaurant meals will be highly dependent on the amount of disposable income available to the potential customers. People will on most occasions choose to prepare a home cooked meal when they do not have much money to spend on restaurant meals and take outs. The amount of disposable income also affects how much people are willing and able spend on the company’s products and this will affect the pricing decision.
Domino Pizza Demographic data analysis:
Domino`s also needs to analyze the population size. There has to be enough people in the location for the venture to be sustainable. According to the data from the 2010 census, San Bruno`s population stands at 41,114 (Long, 2011).This is the resource that the company seeks to tap into. A very low population will be will be a potential threat to the company`s success because of the potentially low sales turnover (“Census Bureau Releases 2009-2011 American Community Survey Estimates,” 2010).
Advertising is a great tool for creating demand. Although many people will be aware of the company from its operations in other areas, it is important for Domino`s to focus its efforts on making the people of San Bruno feel its presence. An appropriate channel needs to be selected so that news of the company`s proposed entry into the market can be communicated effectively but at a reasonable cost because advertising tends to be very expensive and eats into the company`s revenue .Many companies make their advertising budget by analyzing how much money will be used to convince each potential customer to buy a company`s products (Hassur, 2008).
In order to determine whether Domino`s Pizza should establish a restaurant in San Bruno, that majorly focuses on pizza sales, it is wise to carry out the market analysis of the area as this will be a new venture for this company. In this case, tools like Ms. Office become important in carrying out regression analysis on the collected pizza sales data. In this analysis, the data to be used is the monthly data for the last 7 months of pizza consumption and sales. To arrive at correct demand analysis information, the data will be regressed in two ways. In the first case, the dependent variable will be the units of pizza sold, while the independent variables will be the; population size, price per unit of pizza, and disposable income. This will be used to investigate the effect of price, advertising and income on pizza sales. In the second case, the dependent variable will be the costs of advertising while the independent variables will be the; population size, number of pizzas sold, disposable household income, and the price of one unit of pizza.
According to the coefficient of determination, almost 98.3% of the units sold can be accounted for or are directly affected by the independent variables. When testing using the 95% level of significance, it is worth to note that since the population is constant, it doesn’t have any influence of the number of units sold in any given month. Though this might be true statistically, in economics it might not be. This is because if the population size was varying, the quantity demanded is expected to respond to the same. This is because any change in the target population, must have a change in the product sold in the market.
In this scenario, the coefficient of determination is 0.9644. This means that 96.44% of the advertising expenses can be traced to have a linear relationship with its independent variables. The analysis also shows strong correlation between the advertising costs and the number of units sold over the months. From the two cases, Domino’s should focus on balancing the advertising costs based on the sales that they generate. Else, a good advertising strategy must be adopted as from the analysis; too much advertising would be unnecessary and might be not of great significance to the number of sales realized. This analysis seems to follow the law of demand that states that higher prices have adverse effects on the price of some commodities. Incase Domino’s increase their expenses, they will pass the costs to the customer who might opt to got for other companies which sells the same commodity at lower prices.
Domino Pizza Forecasting:
The four months projection of pizza sales is not very promising for a new business. In the next four months, the sales are projected to decrease gradually in the order: 91089, 83059, 75029, and 66999. If these projections were to be used, Domino’s would be discouraged to enter into the market. But since it is a large company, it will enjoy economies of scale and hence there are higher chances that it might do well in this region compared to the local and small pizzerias.