Sep
06

At Lollapalooza 2011, a weekend-long music festival in the heart of Chicago, I saw one of the best small-business plays I’ve seen in a very long time — a perfectly timed and perfectly executed micro-pivot by the legendary Chicago deep dish pizza restaurant Lou Malnati’s.

Lollapalooza is famous for their high-quality food. Many of Chicago’s top restaurants and chefs are on hand at the festival, providing concert goers with anything from Lobster Bisque to gourmet hamburgers, and among them were two of Chicago’s top pizzerias. To be honest, I don’t even remember the name of the first one (Sarah’s, Sally’s, Sage’s…something like that) — I only remember Lou Malnati’s, and there’s probably another 250,000 people who would say the same.

On day one of the festival, both pizza stands were offering their slices of deep dish pizza for $5. Lou Malnati’s is widely considered to be the best pizza in Chicago, so their line was usually a bit longer than the other stand (as you would expect), but not by much. However, when I arrived on the morning of day two, I noticed that Lou Malnati’s signage indicated a pricing change — where the “$5” used to be, there was now a large sticker that read “$3.” I immediately realized what they were doing, and it was pure genius. By the afternoon of day two, the Lou Malnati’s line was consistently twice or three times as long as the other pizza shop. And by day three, Lou Malnati’s might as well have been the only pizza stand at Lollapalooza.

Lou Malnati’s executed a ingenious “micro-pivot.” (I can’t find this term anywhere on the web, but it seems to be the best way to describe what happened, so I’ll coin it here.) Some manager realized that if they cut their prices by 40%, they would instantly become the no brainer pizza choice at Lollapalooza. They already had the better product. They were already the market leader. They were already priced competitively. But they weren’t the no brainer.

This $2/slice price drop certainly eradicated a significant portion of their margins, and though I haven’t seen any of their numbers from Lollapalooza, I would be willing to bet it was one of the better decisions they’ve ever made. Why? Because by day three of the festival, no one cared about the other pizza place. Lou Malnati’s became the only option for pizza at Lollapalooza. They became the no brainer.

Lou Malnati’s was willing to micro-pivot. They found a way to quickly and significantly increase the value of their offering. The decision was made overnight. There was no hesitation. They were ready to go with the new pricing first thing in the morning. As a result, they became the premier and (essentially) sole pizza option for 250,000 people.

Alot of companies couldn’t do that. Cutting your prices by 40% overnight? That’s a scary gamble, but one they were willing to take. Lou Malnati’s refused to rest on their laurels. They were already the best, but they became better — all because of their willingness to make a small decision, a micro-pivot, that allowed them to become the no brainer.

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  • Kevin

    Ryan, great thoughts.  I would submit there are questions you could ask which may reveal that Lou’s profits increased with the price change and that statistical analysis will empirically support it.  Consider the increase in the amount of pizza they sold.  Whatever thinner margin existed is partially offset by that increase in units sold.  Also, look at complimentary products.  Did they increase the amount of drinks sold without taking a price reduction on them?  For every dollar lost in pizza price, did they offset a portion by the increased total margin in drink sales?  Did they offer a desert course of any type, perhaps a brownie or cookie?  Again, their increased sales will make a difference.  Finally, for any local who never experience Lou’s pizza and for any tourist on a 7-day vacation in Chicago they may be more inclined to patronize Lou’s Chicago location(s).  There is enough information available today, thanks to information technology, that the right people (Operations Scientists) with the right tools (Analytic tools like SAS) can evaluate “micro-pivots” quickly and adjust.  Maybe $3 was not necessary at the end of the analysis.  Perhaps at the next festival they only need to adjust to $4.  Keep up the great work.