by Victor Ferrante
This year marked the second straight year Denny’s has given away free grand slam breakfasts the Tuesday after the Super Bowl. Denny’s even ran a 30 second Super Bowl ad in order to advertise for the free grand slam which ran from 6 am to 2 pm. Denny’s estimated that approximately 1.5 million people were served a free breakfast. The first two questions to come to my mind were how can Denny’s afford to give away free breakfast and how do this many people not have to be at work.
Many people mistake something as being free when it really is not. People forget about the opportunity cost of this so called free breakfast. You must think about what you are giving up in order to get the breakfast. These can be broken down into implicit costs such as time, wages that could have been earned, or even catching up on some sleep. There are also some explicit costs involved in the free breakfast. Only the grand slam is free. If you order a beverage, a side of toast, or hash browns you must pay for those. Simply stated the time you spent going to Denny’s makes the breakfast not free.
As for how Denny’s can afford to do this, Denny’s CEO Nelson Marchioli actually thinks Denny’s will break even. He claims the low cost of breakfast items mixed with people buying beverages allows Denny’s to do this. The only real cost was the 30 second Super Bowl ad which cost around $3 million. CEO Nelson Marchioli saw this as an opportunity to gain business. Marchioli said "The economy's tough and people are jumping all the way to fast food to try to figure it out. We all use fast food, whether it's for time or convenience or for money, but you can go to Denny's and you don't have to give up a real breakfast and that was the whole focus of our commercial." Denny’s was looking to do more than just give out a free breakfast. In return they will gain more business and loyal customers.
Denny’s often uses this technique to draw in a lot of customers while also making money. Things such as kids eat free night help bring large crowds. Denny’s is willing to sacrifice the cost of a kid’s meal to gain more customers. Denny’s is also now offering free refills on french fries and pancakes. While to the consumer this looks like a great deal they must weigh the additional extra costs and the additional benefits associated with the free refill. A marginal cost- benefit analysis can be used for the consumer to figure out if it is really worth it to get the free refill. Eventually the marginal costs of eating pancakes will out weigh the marginal benefits. Denny’s management knows exactly what they are doing with these deals in order to make a profit while catering to their customers needs.
http://money.cnn.com/2009/02/03/news/companies/dennys_breakfast.fortune/
http://articles.moneycentral.msn.com/SmartSpending/blog/page.aspx?post=1605571&_blg=1,1605571
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3 comments:
My husband has made it to each of the "Free Grand Slam" events. Since he usually takes at least one of our children and they always sucker him into hot chocolate or chocolate milk and since my husband feels compelled to usually leave a huge tip, I assure you, from our view point...the Grand Slam was not free! But it was still a lot of fun and that counts for something, right? Nice job...I enjoyed your blog.
--robyn
While I have unfortunately never had a free grand slam from Denny’s, I think it is a great business move from an economic standpoint. The meal is not entirely free (drinks and additional food items are not included). Denny’s definitely gains more business and loyal customers from their post-super bowl giveaway. Even though Denny’s is giving food away, they still are making a profit.
-Ryan Slaby
It is a good idea on Denny's part. They still make money even though the "breakfest is free" people do still pay for drinks like was mentioned. Plus, most people are over charged for drinks anyway. They say free refills but the refills are not really free. Refills are counted as a part of the drinks cost. Probably, Denny's gets even more customers than they ussually would due to the special. They sell more drinks.
- Caitlin Koceski
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