Response to the following problem:
Non-financial quality measures, on-time delivery: Checkers Pizza promises to deliver pizzas in twenty-five 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 only gives 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.
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Store 1
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Store 2
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Store 3
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Store 4
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Percentage of deliveries that were late
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10%
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5%
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12%
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25%
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Average rating of deliver service
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4
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4.5
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3.8
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2
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Average rating of value received
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3.5
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4.1
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3.5
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1.5
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Average overall satisfaction with Checkers
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3.6
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4
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3
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2
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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 headquarters' concerns?
2. Using the high-low method, 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?