Surely, most of you by now have seen the Domino’s commercial about “pizza insurance“. While most of you probably recognize it as a gimmick, I can’t help but take it more seriously. So, today I’m going to evaluate two things.
- Does pizza insurance provide value to the customer?
- Is Domino’s at risk of seeing an unexpectedly high number of insurance claims?
What Exactly Is Pizza Insurance?
Believe it or not, there are two types of pizza insurance: one for takeout and one for delivery. While you might dismiss the difference and think you’re buying the same coverage, a close read of the policy language reveals these are two very different products.
Carryout Insurance
First, let’s look at how Domino’s advertises the need for carryout insurance.
We guarantee your pizza looks and tastes great when you come to your favorite Domino’s location to pick it up. But we understand accidents happen. Domino’s Carryout Insurance program protects your order if it gets ruined after you leave the store.
https://www.dominos.com/en/about-pizza/carryout-insurance/
What’s Covered?
Now, technically, that sounds more like a warranty than insurance. It is more akin to something you buy for your cell phone or your car’s transmission than to protect against an act of God or a car crash.
They are trying to address the buyer’s concern that they may buy a low quality product they are not satisfied with so they offer a warranty as a signal of confidence. In fact, they even start the appeal above by referencing a guarantee.
On the other hand, the copy writers get a little confused and transition from the risk of getting a faulty product to a description of an accident after you take possession. They even describe such an event:
You place your pizza on the roof of your car, and while you’re distracted catching up on the latest family news, you forget about the pizza and drive off… Luckily, you have Domino’s Carryout Insurance Program.
https://www.dominos.com/en/about-pizza/carryout-insurance/
So, apparently it is insurance for user accidents that are not the fault of Domino’s. Yes, it is a no-fault indemnity policy in addition to a product warranty. This is a pretty novel product, even if it leaves the customer confused as to Domino’s motive. Wait, can I make a claim if I don’t have an accident but I just don’t like your pizza???
Apparently, not! Let’s keep reading…
What Do I Get If I Have a Claim?
Bring your damaged order in its original packaging to the store where you picked it up (with your receipt, of course) and we’ll replace it. No muss, no fuss…The Domino’s Carryout Insurance Program gives you peace of mind to know that even if your pizza gets damaged after you leave the store, you’re still going to get to enjoy your meal.
https://www.dominos.com/en/about-pizza/carryout-insurance/
Whoaaaa, hold on…what just happened? You started out telling me this was a product warranty but apparently I can only claim for an accident. So the whole “we guarantee your pizza looks and tastes great” was just a head fake to send a quality message with no actual guarantee behind it. What a con job!
The Fine Print…
So what’s the catch? Let’s read those terms a little more closely.
Bring your damaged, uneaten pizza back to the same location in its original packaging within two hours of pickup. Remember to bring your receipt, and we’ll re-create your pizza just the way your ordered it.
https://www.dominos.com/en/about-pizza/carryout-insurance/
OK, so they’re making this really easy…not! After I get home, I have to drive back to the store, wait for them to make another pizza, then drive that home. That could easily be an hour. Is that worth it? I guess it depends. But if they really wanted to make this valuable, they would deliver your replacement and take away the damaged pizza.
Carryout Conclusion
This product is almost worthless. It is more effort than the benefit in most situations and the event itself is very low probability (how many people are really damaging their pizza on the way home?).
The warranty appears to be false advertising and a pretense for them to confuse people that they are signaling confidence in the quality of their product. It’s all very disappointing.
Delivery Insurance
OK, let’s move on to delivery insurance. Given the company is transporting the product and not the customer, there no longer should be a need for no-fault coverage. So will we get a true warranty?
What’s Covered?
The ad suggests we do! Watch again. The narrator says pretty clearly “if your delivery isn’t what you expected, make a claim, and we’ll make it right“. It then shows people being delivered new pizzas. So if I’m not happy, I get a free replacement pizza? Well, that depends!
What Do I Get If I Have a Claim?
So what do I get? Let’s go the policy terms.
If your delivery experience is not what you expected or you receive the wrong order… Tell us what went wrong, then choose from one of two options: either a coupon for 20% off your next order or 60 Piece of the Pie Rewards® points
https://www.dominos.com/en/about-pizza/delivery-insurance/
The good news is this does appear to be a true warranty! If you’re not happy, you will get compensated.
The Fine Print…
But, your compensation is either a coupon or reward points. Now, I did check and 60 reward points does equal a medium pizza as the commercial suggests, so we don’t have false advertising this time.
However, there are some catches. First, you have to enroll in the rewards program. Second, you only have 30 days to cash in.
To receive the points, you must be a member of the Domino’s Piece of the Pie Rewards program…to receive your 60 points and redeem them within the next 30 days.
https://www.dominos.com/en/about-pizza/delivery-insurance/
So, it’s a little bit like the old gift cards that expired before you could use them. The good news is you don’t have to return your uneaten pizza or go back to the store.
Delivery Conclusion
This is a much better deal for the customer! It is a true warranty. I don’t have to return the unused product and I get a bonus for a bad experience rather than just a replacement. The one negative is they’re trying to steer you into their rewards program to capture your data but most people will tolerate that.
The fascinating issue though is there is nothing in the terms to prevent repeated claims. This leads us nicely into our next topic…
Will Domino’s See Adverse Selection?
Let’s say I’m a poor college student. In other words, Domino’s core customer. I can afford to order Domino’s once a week. I’m cheap so I go to the store to avoid the delivery fee.
Well, now I have carryout insurance, so if I’m drunk and on my walk back up to my apartment I trip on the stairs, I can get another pizza. Great.
Or…I now start ordering delivery. And I complain every time about my pizza and I get my 60 points. Now, I can get Domino’s twice a week! And I no longer have to walk to the store!
While the store manager will come to hate me, I will point out nothing in their contract bans repeat claims. I am now getting BOGO pizza with my only incremental cost being the delivery fee. I’m feeling good about life!
In normal circumstances, the percentage of the population who will abuse the delivery guarantee is small, but, as I mentioned, Domino’s core market is filled with an above average percentage of the type of person – smart, poor, and sometimes drunk or high – who will abuse the guarantee. This seems like a really bad idea!
How Can Domino’s Prevent Adverse Selection?
This is pretty simple. Currently, they claim the insurance is “free“, i.e. we all pay because it is hidden in the price of a pizza. They could instead make it an explicit option like travel insurance. “Do you want to pay $1 today for pizza insurance?” like that annoying travel insurance button you have to click no on to buy your plane ticket.
But that ruins the marketing gimmick so what will happen instead is they will raise the price of a pizza and let the honest people continue to subsidize the dishonest.
What Have We Learned?
1) Carryout Insurance is not very useful.
2) Delivery Insurance is a very rich benefit.
3) Domino’s will start missing earnings due to the “unexpected high number of delivery insurance claims within certain zip codes”
4) Domino’s will raise the price of pizza to offset rising insurance claims.