Marketing Strategy of Pizza Hut in the United States - Term Paper Example

Marketing strategy of Pizza Hut in the U.S Presented by: Research Advisor Table of Contents Appendix 12 2.Bibliography 15 Introduction 3 2. Chapter One –Pizza Hut in the U.S. 4 2.1 Rivalry among existing firms 4 2.2 Threats of substitutes 4 2.3 Threat of Potential Entrants 5 2.4 Bargaining Power of Suppliers 5 2.5 Bargaining Power of buyers 6 3. Chapter Two –Marketing Strategies of Pizza Hut in the U.S. 6 3.1 Product strategy 6 3.2 Pricing strategy 6 3.3 Promotion strategy 7 3.4 Product placement 7 4. Conclusion 7 5. Appendix 8 6. Bibliography 10 1. Introduction The purpose of this research paper is to expound the marketing strategies employed by Pizza Hut to guarantee that it stays at the top in the pizza business. The paper will examine the different aspects that affect the performance of the firm in terms of sales. Business veterans assert that an outstanding business is defined by its ability to reach out and sell to as many customers as possible. This makes it automatic that many people will see the products in use and thus would; prefer it too. Pizza hut is vast with over 6000 outlets in the United States and more that 5000 outlets in 94 other countries. The firm currently employs 160000 people in and outside the United States. The firm had a net sales value of $12.6 billion at the end of 2013, a figure that almost double of the closest rival, Domino. The paper will analyze the different strategies that pizza hut uses to create and maintain a customer base. It also analyses the market using the standard porter five forces that include, competition analysis, threats of new entrants, and threats of substitutes and bargaining power of suppliers and buyers. Moreover, the paper will deal with marketing strategies, the 5 P’s in chapter 2. 2. Pizza Hut in the U.S 2.1 Rivalry among existing firms Currently, Pizza Hut ranks first among pizza vendors in terms of market share and sales. The firm has several well off competitors whose worth in the market is worrisome for Pizza hut. Some of the major competitors are Domino, Little Caesars and Papa John’s. The competitors are engaged in similar trade as pizza hut and their success in the industry is harmful to Pizza Hut. Domino Inc. is ranked second in sales after pizza hut. The firm is number eight in the overall quick food category. This implies that the firm offers stiff competition worthy of consideration. Given that the firm offers related services just like pizza hut, it is expected that its growth would bite into the market share of pizza hut, thus, there is a strong business rivalry between the firms in which every side want to be the market leader. Papa John’s also offers quick services like Pizza Hut. The firm is third in the business in terms of sales. Business rivalry between the firm and pizza hut is often founded on the fact that they it offers exact related services like pizza hut. For success, pizza hut must consider the impact of market dynamics about the firm. Little Caesar comes in third, in the industry. Pizza Hut has been able to fend off the competitive rivalry using various marketing tools. First, the company takes on offensive product promotion with strong messages concerning its pizzas. According to studies, most people admitted watching pizza hut advertisements on television and acted upon them. Pizza hut has a strong reputation among the consumers that makes it have a sharper competitive edge in the market. However, firms like Papa John have adequate strategies to attract quality sensitive customers. For example, Papa John’s use fresh ingredients and use that as a promotional message. For people who endeavor quality of ingredients, the advert can easily sway them to Papa John. Pizza Hut employs latest technological and means of production and handling of orders. This reduces the cost of production and enhances efficiency and quality, which attract more clients to the firm, effectively fending off competition. 2.2 Threats of substitutes Pizza hut has often been faced with the threat of substitutes from inception. The threats come from lower quality pizza from new or existing restaurants, homemade pizzas and also from valuable competitors. The substitutes have a sizeable impact on the business of pizza hut in respect to sales, market share and costs. For example, a homemade pizza reduces the chances that a family will buy pizza from a Pizza shop. Moreover, low priced pizzas from restaurants that engage in cutthroat competition to win customers are also a threat. Despite the threats, Pizza hut has always emerged strongly. This has always been influenced by several internal factors such as; substantial differentiation of its products from others such that they can be distinguished from others, making high quality products that cannot be matched by entrants or incumbent competitors and finally. This automatically renders the substitute a low quality tag and finally, most substitutes have low performance hence customers shy away from them. Other potential substitutes of pizza include bread, toast and calzones (Chicken and Spinach Calzone). The products offer similar of near similar level of utility as compared to pizza. Consequently, there have been innovations in the fast food industry where emergence of other forms of foods and beverages has impacted upon pizza market. This is because indirect substitutes such as coffee offer an alternative fast food. The customer preference is what determines and marks the consumption decisions between the substitute and pizza. The level of differentiation is of utter importance when dealing with substitutes. 2.3 Threat of Potential Entrants Pizza business is easy to enter and thus there is a constant threat of new entrants into the market. A point to note is that pizza is just bread and a collection of food and spices added on top of it. This implies that it is a rather simple process for nay restaurant owner. Needless to say, the cost of starting the business is not high since capital equipment retired are not technical thus not costly. A distinguished factor is skill and reputation in the market. An entrant, in pizza business, would imply a firm that specializes in making pizza. For a new or existing restaurant to engage in large scale pizza business, it would need ready market. According to game theory, sane incumbents would fight off an entrant who threatens their business. The war would be in terms of prices (price wars), quality and promotion. This automatically means high costs which a new firm may not manage, effectively throwing it out of business. The overall impression is that oligopolistic characteristics would bind the major pizza makers by acting together since they have the power. So, the threat of new entrants is not destructive to the industry. Most new entrants produce pizza on a small scale basis for fear of above mentioned reactions from incumbents. 2.4 Bargaining Power of Suppliers Pizza hut has a very different distribution system thus lowering the power of an individual distributor. This action has benefited pizza hut since not distributor can blackmail the company and lead to major changes in the position of the business. The diverse distribution system also enables the company to maintain its name and brand and avoid tarnishing that may come from the reputation of rogue dealers. Mitsides and General Mills Bakeries are major suppliers of flour and Indonesian firm Sinar Mars supplies palm oil. Other suppliers are CTI foods, Trident sea foods, Westbridge Foods for chicken supplies and seasoning firm McCormick. Suppliers are very important for the existence and flourishing of a business. Pizza hut ensures that its supplies maintain very low influence on their trade agreements with also very strict contractual agreement. This is done by keeping multiple suppliers such that a failure by one supplier cannot adversely affect business. Consequently, there are a number of substitute inputs for the production of pizzas, thus, Pizza Hut can always turn to other inputs in any eventuality that halts or delays delivery of standard ingredients. Suppliers have low bargaining powers when inputs do not form a large part of cost in a firm. This is the case of pizza hut. The inputs that it sources are of low cost compared to the overall cost of operations. This directly implies that supplier decisions or actions are futile and cannot adversely harm pizza hut’s business. 2.5 Bargaining Power of buyers Pizza hut offers various services to their customers in respect to their pizza orders. The main service is product customization at a price. The customer has the authority to give directions on how the pizza should be; its color, ingredients and flavors. As such, customers used to such services may find it hard to switch to other forms who do not offer the services. This is an important competitive advantage of Pizza Hut. Another benefit is that pizza hut has many customers in a stable market. This makes it possible to analyze the buyers bargaining power thus working decisions can be made. Consequently, a wide customer base also reduces the bargaining power of individual customers thus creating bargaining leverage 3. Marketing Strategies of Pizza Hut in the U.S 3.1 Product strategy Pizza hut emphasizes on product quality. In fact, its quality has been unmatched for long thus making it stand out in the face of stiff competition. According to the firm, its products are made with the finest available materials for optimal satisfaction of its customers. The quality aspect of the product ensures that customers always return for more. Another stronghold in product management is that pizza hut offers customized services on their products. This ranges from design, ingredients and also flavors. Moreover, different packaging options are available. As such, many customers can get satisfaction with a pizza that they wish at any pizza hut outlet. This is an ideal marketing strategy. Pizza hut has diversified its product list with inclusion of side dishes. Also, there are varied types of pizzas like cheesy bits, thin n crispy, stuffed crust among others. Diversified range of products gives the customers the power to choose from a pool of alternatives. Pizza hut boasts of making pizzas that are at par with most people taste buds. Pizza Hut does not disclose a lot of information about their supplies in order to maintain their secret recipes. This hinders quality copying among rival firms. The non-disclosure of the information makes its pizza special. However, major ingredients like flour and oil are inevitable in pizza making and thus are not part of secret ingredients. The main suppliers of four include firms such as Mitsides. Market research and distribution Research on markets enables Pizza Hut to determine and analyze the needs of its customers and market gaps. Pizza hut sales are composed of dine-in sales and also home deliveries. Pizza strategy to make home deliveries was initiated in 1986. The move gave Pizza Hut an advantage since no other firm was doing that. Consequently, the company endeavors to provide a diversified range of products under the same brand. This is made available by research on needs of various groups of people. Recently, the company launched the ‘Extreme Pizza’ an abnormally big pizza. The move was prompted by research that indicated that some people would prefer larger pizzas. 3.2 Pricing strategy Pizza hut uses different types of pricing to enhance its sales. First, the firm uses high-low pricing method, otherwise known as rice skimming to sell its products. New products are often launched at a higher price as compared to competitors’ prices and are then gradually lowered to match competitors pricing. This implies that though the pricing strategies are different, the prices of pizza hut and other pizza making houses are nearly the same. Second, pizza hut uses one price policy in all its outlets a one price policy allows all users to pay the same price for the same products. As such, pizza hut does not encourage price discrimination as it targets virtually everybody in the economy. The one price policy ensures that all people get equal treatment at the outlets unless extra services are paid for. This makes all people feel represented. Another method used to set prices is the value based pricing. This method is sued to value products whose intrinsic value can be measured, estimated or perceived rather than the cost of production. This helps in ensuring that customers value the services offered and at the same time improves the financial position of the firm. Value pricing applies on items that have an impact on sensitive aspects of humans such as emotions and health. 3.3 Promotion strategy Pizza hut engages in various promotional strategies to popularize its products and presence in the United States. Being its mother country, it is also the largest market. The firm uses standard means of product promotion to reach out to buyers. They include advertisements, personal selling and sales promotion. Advertising is done on television, internet and radio. Lately, social media has also been used as its importance grows daily. Many people admit seeing pizza huts advert in television, billboards or hearing it on radio. The media are chosen due to their penetration abilities and reach, thus target market is covered. Personal selling involves sending real people to the field to talk to people out about pizza hut and its products. The method is used to offer more explanation and clear any doubts. This method is coupled with sales promotions where a person is rewarded upon ordering pizzas from pizza hut 3.4 Product placement Pizza hut uses various product placement tactics to sell it to potential customers. The placement strategy has been used in movies, music and also in important national events. The ideal is to popularize their products target number of people. Often, product placement is done in places where there will be a lot of people so that it can draw attention of both existing and potential customers. Placement is major element in marketing in pizza hut. Placement starts from within the firm. The logo depicts a hut beside a wrapped pizza box, certainly containing a pizza! Moreover, pizza hut has placed adverts on various artistic pieces such as films, games, reality shows and also in games. Placement included information about the product and locations. For example, In the Sega game, Crazy Taxi, passengers can be picked and be dropped at a Pizza Hut shop. The strategy is aimed at capturing the attention of gamers. Pizza hut product placement is common in entertainment scenes. For example, in the movie Waynes World", the camera focuses on a character holding a pizza from Pizza Hut. This example of placement intrigues viewers to ordering pizza from pizza hut. the movies are an effective product placement option since they are permanent and have wide reach especially when uploaded on the internet. People can thus see that pizza hut is recognized and used by celebrities and role models of various people, especially the youth. 4. Conclusion As seen in the discussion, Pizza hut is the leading pizza vendor in the United States. Luckily, this status is not likely to end soon. This is due to the fact that the company is the leading in terms of virtually every aspect in the industry. The aspects include production, promotion, pricing and placement. The firm uses the factors as a competitive advantage to outdo other players in the industry. However, the firm needs to redefine its product line and diversify to include other fast foods. This would make it an indispensable part of the economy. According to Pizza Hut, customer satisfaction is prioritized. The customers get what they want, in the quality they need and at the time they need it. A combination of such factors makes the firm a valuable business for both the owners and also customers. 1. Appendix Survey results 1. How often do you consume pizza in a month? 1-3 times 44% 4-6 times 40% More than 6 16% Total 100% 2. 2. Who do you usually eat pizza with? (You may choose more than one). Self 53% Friends 60% Family 40% Total 153% 3. Awareness: Top of Mind 14% Unaided 66% Aided 20% Total Unaided 80% Total Awareness 100% 4. Have you ever ordered or eaten at PIZZA HUT? Yes 83% No 17% Total 100% 5. What rating would you give PIZZA HUT on a scale of 1-10 (1= poor, 10= excellent)? (1) 6.7% (6) 16.4% Average (2) 5.2% (7) 16.5% Mean 5.3% (3) 4.1% (8) 8.1% Median 5.0% (4) 13.7% (9) 5.5% Mode 5.0% (5) 20.6% (10) 2.7% Total 100% 6. Have you seen any PIZZA HUT advert lately? Yes 53% No 47% Total 100% 7. If “yes” to Question 9, ask please describe the advertising you have seen? 4 for 4 Family 21% 4 for 4 Muppets/J. Simpson 10% Newspaper 4% Other 9% Can’t remember 9% Total 53% 8. Where did you see the advert of Pizza Hut? (% of 53) TV 94.3% Newspaper 9.4% Other 3.9% Total 107.6% 9. Demographics of the interview Male 50% Female 50% Total 100% NB: Some totals exceed 100% due to multiple answers given by interviewees 2. Bibliography N.p., Web. . N.p., Web. . "Pizza hut." Upload & Share PowerPoint presentations, documents, infographics. N.p., n.d. Web. 29 Mar. 2014. N.p., Web. . N.p., Web. . "Pizza hut swot analysis - Research Paper - Putaneska." StudyMode. N.p., n.d. Web. 29 Mar. 2014. "Swot analysis PIZZA HUT." Scribd - Read Unlimited Books. N.p., n.d. Web. 29 Mar. 2014 "Pizza Hut SWOT Analysis - WikiWealth." WikiWealth | Stock, ETF, Mutual Fund Research | SWOT, 5 Forces Analysis - WikiWealth. N.p., n.d. Web. 29 Mar. 2014. N.p., Web. . N.p., Web. . "Marketing strategy by pizza hut - Essays - Kotwani." StudyMode. N.p., n.d. Web. 29 Mar. 2014. Schweig, Stefan. Case Study: Pizza Hut, Inc. München: GRIN Verlag GmbH, 2007. Internet resource. "Pizza hut - Five Forces Analysis - WikiWealth." 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