
Cheap and charitable pizza: The psychology of Rosa's Post-It program
Why are we subconsciously jerks about inexpensive stuff?

You might have heard some weeks back about the hundreds of Post-It Notes that line the walls at Rosa's Fresh Pizza, a relatively new pizzeria on 11th and Chestnut streets offering slices for just a buck.
Rosa’s made news for these sticky notes, each with something written on it. Some are prayers, others inspirational quotes, but most just say something simple, like "enjoy."
Each Post-It represents a slice that’s been prepaid for a homeless person. To date, over 3,000 slices have been given away under the “Little Rosa” program. Yet despite the positive press, business at Rosa’s remains “slow,” according to Mason Wartman, Rosa’s owner.
Maybe that’s just the Philly summer doldrums, or the challenge of launching a new business in a town where customer loyalties are inherited like Bednarik jerseys and houses down the Jersey Shore. Or maybe Rosa’s problem lies in the very thing that sets it apart.
“You get what you pay for” is a cliché, but it also describes the price-quality heuristic, which explains how we judge the quality of a large portion of the goods and services we purchase.
The price-quality heuristic means that an item’s price influences its perceived quality.
“You can think of it as a placebo effect,” said Deborah Small, a marketing professor at Wharton. Small described a study wherein participants were given the same energy drink, but one group was told their drink was full price, whereas the other heard their drink was more than half off. While the full price group performed about as well as a control group (no drink) in solving puzzles, the discount group performed significantly worse. When prices are set lower, we really expect to get crap.
Worse still for kind-hearted entrepreneurs everywhere, simply offering products to the lower classes can make those products seem lower quality.
Professors Eric Anderson of the University of Chicago and Duncan Simester of the Sloan School of Management sold the same set of goods via catalog, with one group of customers getting the option to pay in installments (i.e. just five low payments of $19.99!) and the other only allowed to pay all at once. Installment options suggest that the product is being marketed to credit-constrained, i.e. poorer, customers. As a result, demand dropped when customers were given the option to pay in installments, and those customers were more likely to express concern about product quality.
As the study’s author’s put it: “introduction of installment billing may prompt an unfavorable inference that quality is low and reduce demand among quality-sensitive customers.”
According to Professor David Bell, a colleague of Professor Small’s in Wharton’s marketing department, this very same thing might be happening to Rosa’s. When Wartman claims his pizza is pretty good on one hand, and then gives it away for free to the homeless — even though those slices were still paid for — it makes our elitist Id call bullshit. As Bell put it, potential customers “might, at the subconscious level, think the product isn’t that good, [because] its going to people who are really more misfortunate than they are.”
On the other hand, both professors noted that Rosa’s should be benefitting from an uptick in socially conscious customers. Companies like Warby Parker and Tom’s Shoes both have similar “pay it forward” type programs as Rosa’s, only both those programs are mandatory: When you buy a pair of shoes from Tom’s, or a pair of glasses from Warby, you also buy a pair for an impoverished child somewhere.
But it’s harder to enjoy that business boost from socially conscious consumers in a brick-and-mortar business that’s limited to reaching the grumbling stomachs in the immediate area than an online format that can market to bleeding hearts everywhere. And neither online company’s products are particularly cheap, which helps prevent folks from thinking their products are cheaply made.
According to Wartman, Rosa’s needs to sell over 500 slices a day to break even and this summer he’s just barely reaching that most days.
Which is a true shame. Rosa’s has good pizza. Rosa’s gets 4 out of 5 stars on Yelp, putting it on par with such other pizza joints as Francoluigi’s, Slice, Pizza Brain and Santucci’s. And when you break down the numbers (as Wartman has), Rosa’s Fresh Pizza beats out every other slice spot in the city except for La Rosa’s Pizza. (Unfortunately, no Wharton marketing professors were willing to opine on the effect “Rosa” has on online pizza reviews.)
Both of the marketing professors suggested that Rosa’s should increase prices to obviate the price-quality heuristic and signal higher quality pizza via higher prices, but Wartman says he is doubling down on his strategy.
“The more I think about selling pizza for a dollar, the more I love the business.” He said. “I’m thinking about going the opposite way – I want to lower the price, if anything.” Wartman said he’s interesting in selling ads in his shop to help “subsidize” the cost of everyone’s pizza so he could charge even less than $1. “I like helping the homeless, but… what I really like is when we save money for our paying customers.” If he can find a way to increase efficiency, or increase revenues, without sacrificing quality, Wartman says he will do it.
Rosa’s only opened this year, in a small stretch of Center City with more storefronts empty than not. As word continues to spread, and an expected boost once students at Jefferson University and a local charter return, Rosa’s Fresh may be able to turn things around without raising prices or ending the “Little Rosa” program. And that would be welcome news to people like one soft-spoken woman seemingly in her late 50s, who politely waited for the end of our interview to thank Wartman for her free slice.
“She’s in here every day,” he said.