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Sheffield Hallam University: MSc: Hospitality Assignments
Functional Management 1: Marketing
Copyright: Esperanza Zurita Edwardes 1997 - 2002
Assignment 2: Pizza Hut Marketing Plan
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TABLE OF CONTENTS
Company History
Company Profile
Stage 1: Marketing Audit
Stage 2: Marketing Objectives
Stage 3: Marketing Strategies.
Stage 4: Detailed implementation plan
Stage 5: Review and Control
References
Company History
1958 The first Pizza Hut opens in Wichita, Kansas.
1959 Pizza Hut is incorporated in Kansas and the first franchise unit opens in Topeka, Kansas.1971 Pizza Hut becomes the number one pizza restaurant chain in the world on both sales and number of restaurants.
1977 PepsiCo buys Pizza Hut, with 3,000 U.S. units.
1989 The Pizza Hut Jobs Plus program expands Nationwide to employ more than 10,000 individuals with physical and developmental disabilities. The Jobs Plus program is recognised as the largest corporate initiative of its kind in the food service industry.
1995 In March, Pizza Hut introduces Stuffed Crust Pizza, the first innovation in the pizza category since Pizza Hut introduced Pan Pizza 15 years earlier. The Deliver Me Home program is created by Pizza Hut and the National Center for Missing and Exploited Children and is tested at the Dallas/Fort Worth International Airport to inform the community of an important identification tool in helping to locate, identify, and return missing children to their families. 1997 On October 6, 1997, Tricon Global Restaurants, Inc. was formed as a result of a spin-off from PepsiCo Inc. of the three restaurant concepts - Pizza Hut, KFC, and Taco Bell. Pizza Hut launches "Totally New Pizzas", a quality initiative putting sliced, fresh vegetables and meatier meat toppings on pizzas. Source: Pizza Hut Website (1998)
Company Profile
Pizza Hut is the world’s largest pizza restaurant company.
Pizza Hut is the recognised leader of the $25 billion U.S. pizza category.
Pizza Hut currently has more than 7,600 U.S. restaurants and delivery units in the U.S. and more than 3,000 units in 86 foreign countries.
Pizza Hut has been voted "Best Pizza Chain" in Restaurants and Institutions’ consumer choice awards for 10 of the last 12 years.
Source: Pizza Hut Website (1998).
Stage 1: Marketing Audit
By developing a SWOT Analysis, a Company can determine what its distinctive competencies are. This will help determine what the organisation should be in business for, what its mission should be.
Strengths
One of the strengths of Pizza Hut has been to be a division of PepsiCo since 1977 and now an integral part of Tricon. It is the world's largest pizza restaurant as outlined above. It has a good reputation and a good branding. It can raise the profile of the company to gain the ability to sell at higher price, to recognise its products through the corporate image and to launch new products more easily. However, Pizza Hut has a good franchising development that has risen rapidly since its foundation in 1958 by Dan and Frank Carney. In 1986, 135 individuals, partnerships and/or corporations operated 2,395 Pizza Hut systems restaurants and 96 delivery-only units. Source: Pizza Hut Website (1998)
Weaknesses
Pizza Hut's weaknesses are the complex computer systems and internal conflicts from franchisees.
The complex computer system was contracted to develop delivery pizza service because Pizza Hut management was convinced that the installation of this system was essential to the delivery strategy and would be a significant competitive advantage (the cost of co-ordination and management of such centralised ordering system at Domino's would be prohibitive because about 70% of Domino’s franchisees are owned by only one store). Kaufmann (1993)
This system allowed the customers in a particular market to call a single number to place in order. The caller first was asked his or her phone number and the system ascertained whether the caller had ordered. The operator would verify the caller's name and address and ask if the customer would like the same type of pizza previously ordered. The order would then be forwarded automatically to the appropriate delivery unit where a terminal would receive the order information.
One major issue presented in developing a profitable delivery concept was whether there would be a charge for service taking into account that, for competitive reasons, the Company could not charge for delivery. The solution to this problem was that the size and the price of delivered pizzas would be slightly increased over pizzas in traditional restaurants. Customers would pay approximately 10% more for a small, medium or large pizza but would get more as well. Kaufmann (1993)
But the Pizza Hut franchisees saw no reason for delivery and they openly expressed their disagreement with the company's delivery concept, especially regarding upsizing. They also questioned the necessity of the computerised Customer Service Centres which were so expensive and that Domino's didn't have one. Significant tension arose between the company and its franchisees, which was solved for a while by some incentives to the franchise communities. Kaufmann (1993)
Opportunities
The following: Pizza home delivery and growth into new markets.
After an initial rejection by the franchisees, the number of them which had introduced delivery was growing rapidly and were doing significantly better than the company owned stores. It was a fiercely competitive environment in the delivery service markets (Domino's, Pantera, Little Caesar, Godfathers, Pizza Inn, etc.) But looking at the files in Exhibit 1, we can assert that it is it the leader in Top Pizza Chain and that the positive difference which exists with Domino's will increase in the next years. We cannot forget that in 1990 the sales of the delivery segment (the most important new fast food concept) was U.S. Dollar 21.9 billion. Kaufmann (1993)
In my opinion, Pizza Hut can readily grow in other markets because it has a very good organisation and it has solid market share. Despite it having slightly fallen in 1984,1985 and 1986, it still has quite a good market share implying that people buy Pizza Hut's products simply because they like its products.
But Pizza Hut cannot stop looking after its customer's satisfaction. Consumer research has shown that the standard Pizza Hut pizza served in the traditional restaurants was not as well-suitable to the delivery environment, causing quality to suffer. Pizza Hut research and development managers were confident that they could solve the problem by developing a new product designed especially for delivery. This would involve an entirely different production process than that used currently in the traditional restaurants.
In the same way that Pizza Hut management intended to pursue vigorously the "exciting opportunities afforded by our new segment of delivery", after the right marketing studies, they can try to diversify growth because it allows Pizza Hut to make better and wider use of their management, technical and financial resources.
Threats
In my opinion the threats to Pizza Hut can be the intense competition and in narrow relationship with it, to cut down the quality of the products, the service and the attention to the customers so as to develop new products as a means of increasing profit. Such a course of action would be a slippery slope to disaster.
Pizza Hut should know as much as possible about its customers' tastes. How do the current customers and prospects judge the company and its competitors on reputation, product quality, service, strength and price? In the same way, it should know how the different classes of customers make their buying decisions.
Pizza Hut should also obtain as much information as possible about its competitors. It must know who its major competitors are and identify what the objectives and strategy of each major competitor are and their weaknesses and its strengths. What are the sizes and the trends in the market share? The study about the competitors should describe the trends that can be foreseen and identify external market threats - substitutes for this product.
Pizza Hut is a top Pizza Chain but it has to maintain its position over its competitors. Domino's clearly intended to gain total market leadership. Kaufmann (1993) Exhibit 1. Pizza Hut should maintain and if is possible, increase the "total quality" of its products creating differential advantages in its service. It showed this when it made the decision to computerise the central ordering system which was a splendid means of improving performance. The differential advantages can be in the product, in its presentation and also in the way that the staff treat the customers. Pizza Hut should never forget that the loyalty quotient of its customers is very low. However, if another chain, for the same price as Pizza Hut, gives the customer something different and more exciting than those products Pizza Hut is offering, the consumer, following the typical consumer behaviour, will try the other chain. It is a truism to say that it is much more difficult to capture or recapture a customer than to maintain an existing one. Perceptions as price, quality and value are considered pivotal determinants of shopping behaviour and product choice. Valaria A. Zeithaml (1988)
Stage 2: Marketing Objectives
This marketing objective is a statement of what is to be accomplished through marketing activities. My Marketing objectives for Pizza Hut are:
A: To maintain the number one market position
B: To increase the percentage of pizza sales by increasing the number of franchisee delivery units with carryout facilities.
The marketing objectives can be achieved through different ways. One of them can be creating internal campaigns or contests with attractive prizes to achieve the established objectives. In July 1997, Pizza Hut organised a " Serving Up a Million" contest. It was an eight-week long contest among all Company-owned Pizza Hut stores across the country and the Odessa restaurant outperformed more than 4,000 company-owned Pizza Huts in U.S.A. The Pizza Hut manager and his staff received a check for U.S. dollar 100.000. Pizza Hut Website (1998).
Another way could be signing agreements with leading corporations or chains which are operating in the same or in complementary markets such as the agreement signed in 11 February 1997 by Pizza Hut and Hilton Hotels. The objective was to offer hot, tasty Pizza Hut pizzas at select Hilton Hotels and resorts across the United States "To provide travellers with the same food and service that they received at their hometown "Pizza Hut" said Pat Williams, President of PepsiCo Express Restaurant.
In my opinion, Pizza Hut can improve its sales percentage and its profit by opening more delivery units with carryout facilities in strategic places carefully chosen. In comparison with the traditional restaurants, the delivery-units required an estimated U.S. Dollar 128,500 to 198,500. By contrast with the company-owned delivery units, the franchisee investing in delivery-units typically did not buy vehicles and did not always adopt the company's computer-ordering system. The cost of sales would be lower in the Delivery units due a combination of upsizing and higher prices for order. (Exhibit 2 in relation with Exhibit 4). However, the carryout segment is the segment with a greater percentage of sales. The number of staff required for its functioning should be smaller as well. "When we introduce delivery to a market, we get the business of customers who probably were ordering a competitors pizza simply for the convenience of home delivery" said a senior Pizza Hut manager.
Stage 3: Marketing Strategies
The first objective is:
To maintain the number one market position
Pizza Hut should continue to offer a high quality product with higher price
Pizza Hut could revise all its unnecessary expenses increasing the advertising promotion in local radios and T.V. and more publicity.
In the same way, another marketing strategy could be to start or increase the number of mailings to send homes. The Marketing Department will establish which areas and the frequency with which to send it.
It could be very useful for Pizza Hut to edit a monthly "Pizza Hut Magazine" which will include news of the Restaurants and delivery units either Company-owned and franchisees, customers letters, games with prices, promotions of the month, etc.
In my opinion with the creation of discount cards for loyal customers, it is possible to obtain from them "total " fidelity to Pizza Hut with free advertising ("word of mouth")
Another strategy could be to pay more attention to the senior citizen segment, because its number is steadily increasing and they have more buying power as well. They could join the "Pizza Hut Senior Club" specially created for them. This Club could organise activities, holidays in attractive places in States or abroad in collaboration with Hilton Hotels, organised monthly meetings, etc. However, Pizza Hut in collaboration with the Nutrition Department of a famous American University can launch special menus for them which a perfect balance between health (no fat, no cholesterol, etc.) and taste. Perhaps these menus would be suitable also to vegetarian people. This strategy should be advertised in local radios and T.V.
To achieve this objective, it would be most appropriate to increase staff training to make all fully aware that they are working in the top Pizza chain. To continue maintaining this position the company needs them, needs their professional skills which they should try to improve everyday and needs their friendliness providing the best treatment to the customers (personal selling)
B: to increase the percentage of pizza sales increasing the number of franchisees delivery units with take-away/carry-out facilities which should be carefully picked in areas with strong customers’ potential.
A market study is required to identify the best areas to install the delivery units.
The Finance Department will carry out its study to know the cost of the investment and its possible profitability as well.
The number of franchises who had introduced delivery was growing rapidly and many franchisees that had introduced delivery were doing significantly better than the company-owned stores. Eighteen franchisees opened 65 delivery - only units in 1986, bringing the overall to 96. I think that that if it is possible to install carryout facilities, the business’ volume could increase in a favourable way.
As I mentioned in previous lines, Pizza Hut must strongly work to develop a new products designed especially for delivery. This would involve an entirely different production process than that used currently in the traditional restaurants.
Stage 4: Detailed implementation plan
Objective A: To maintain the number one market position
Product-Service / Target Market
To obtain total co-operation of employees because they are essential in increasing productivity, providing customer service and beating the competition.
Motivate the personnel to perform effectively through a plan which should be fair, ethical and well understood by them.
Hire and maintain high quality personnel and market the organisation or service to them because it is people in a service organisation who differentiate the organisation from competitors.
Establishing rewards to employees and appropriate compensation, promoting and implementing flexible benefits programme. Simkim, Ferrel (1994).
Pay more attention to the senior citizen segment creating suitable products and increasing staff attention to them. Creating Pizza Hut Senior Club which will organise different activities.
Maintain and enhance a high quality product providing value and excellent service.
Launching new products and "New Pizzas" to "surprise" the customer as it was with The Edge Pizza which "delivers a phenomenal new taste" and "will consumers will run out of crust before they run out of toppings?" as commented Randy Gear chief marketing officer of Pizza Hut.
Launching periodic Customer Satisfaction campaigns.
Staying in touch with and adapting quickly to new preferences. Always providing friendly, helpful service from well trained staff.
Introducing new improvements in the restaurants’ facilities such as introducing lunch buffets to exhibit the pizzas and the salads and unifying its corporate image.
Place
The phrase "Location, location, location" is very often used to describe the most important aspect of any hospitality business. This is especially true for a premier brand that has to be located in the best positions appropriate for its market. Nevertheless, one needs to be realistic with respect to the market position. Pizza Hut maybe a prime Pizza Restaurant marque but it is not a three-star Michelin French haute cuisine restaurant. Therefore, the locations will not be Park Lane or Bond Street in London or 5th Avenue in New York. Appropriate prime locations for the Pizza Hut marque will be general consumer shopping areas such as Oxford Street in London or in out of town shopping malls or in High Streets.
As far as the location for the delivery service is concerned, location is not important but it has to be close to the customer residential areas or near offices.
Promotion
Strengthen the task of the Pizza Hut Advertising Committee and increasing its budget through the increase of the restaurant and franchisees current assessment. In 1986 the current assessment was 2% of the first U.S. dollar 28.000 of monthly sales for each Restaurant and 1% of all monthly sales above U.S. dollar 28.000. Kaufmann (1993).
Pizza Hut should target the senior citizen segment doing some advertising in the local radios and T.V.. Nevertheless, the main part of advertising in radio and on T.V. of Pizza Hut will be its traditional focus on a large audience of potential fast customers, ranging from children to adults at the effective time and in the right place.
Direct mail will be sent to advertise new products, new Pizza Hut Restaurants or delivery units including in the mailing promotional discount coupons or tokens to encourage use of the new establishment.
Another way to promotion will be "personal selling" trying all the Pizza Hut staff informing customers and persuading them to purchase the most suitable products in that moment.
Sponsorship giving financial support of sports activities and giving financial support to scientific research.
Price
Taking in account that the a major input to the price decision is the cost of producing and marketing the product (Butler, 1996), Pizza Hut should maintain highest price giving the best quality but trying hard to reduced as much is possible, the section of variable costs, such as Semi-variable & premiums in both, Traditional Restaurant and Delivery Unit, or the vehicles section in the Delivery Restaurant improving the routes to delivery, to save petrol.
However, all the sections whose costs are variable, should be reduced as much is possible, to obtain the maximum profit, maintaining high quality, high price and high standard service.
Pizza Hut should not forget that environmental factors such as legislation, trade union, or consumer pressure, together with the current business climate, influence the price decision. Butler (1986)
Objective B: To increase the percentage of pizza sales by increasing the number of franchisee delivery units with carry-out facilities, which should be carefully picked in the areas with strong customers’ potential.
Product-Service / Target Market
Improve the standard Pizza Hut served in the traditional restaurants to be well-suited to the delivery environment to avoid quality to suffer. Kaufmann (1994).
Develop and research of new products designed specially for delivery, involving an entirely different production process than that use currently in the traditional restaurants
All the products and he services should have some differentiation, something unique and superior, to the competence products
Establishing a performance standard, that means, an expected level of performance. Examples of a performance standard might be the reduction of the time to serve a customer the food who he or she ordered or to try persuasively but gently to get the customer to ask for new product (new recipe pizza), etc..
Quickly resolve any problem in providing Pizza Hut service, to avoid damaging the firm's reputation for quality.
Use high technology to provide improved services at lower cost. Continually evaluate how to customise the service to each consumer’s unique needs. Simkim, Ferrell (1994)
Consider whether carry-out should be available from delivery units, restaurants or both. Anecdotal evidence suggests that some eating-in and carry-out customers feel uncomfortable with carry-ut in restaurants.
Consider drive-in locations for both delivery and carry-out.
Place
Location is one of the most important of the strategic retailing issues, because it dictates the geographic trading area limits from which a store must draw its customers. Simkim, Farrell (1994)
Pizza Hut should pick carefully the place to open the new franchisees delivery units in areas with strong customer’s potential. Parking should be appropriate to the delivery needs and as to whether carry-out will be included. Another point to consider is the transport network (major thoroughfares and public transport must be able to accommodate customers and delivery vehicles. Pride, Farrell (1994)
Promotion
Increase the advertising in local T.V. and radios announcing the opening of the news delivery units in commercial areas such as shopping malls, shopping centers, etc.
In the same way to start or increase advertising in print media such as newspapers, consumer publications and business publications and even other media as such transport, posters and cinema. Buttle (1986)
Price
Maximisation of profit.
Reducing as much is possible, the variable costs but maintaining a high quality product, high price and excellent service, obtaining in every way, customer satisfaction.
Projection (* represents projected figures)
Stage 5: Review and Control
Sales analysis to evaluate Pizza Hut performance to be compared with forecast sales, specific competitors’ sales or the cost to achieve the sales volume. Simkim, Ferrell (1994).
This analysis sales data can be daily and weekly examioned for each outlet to see if they are performing to the established objectives.
Periodically sending different Pizza Hut controllers who should be completely unknown to the personnel, even by the outlet manager. The controllers behaviour will be exactly as s/he is a normal customer but her or his work will check all the stages of the service, the way that the staff ask the customers, the way to serve him, the condition and cleanliness of their uniform, the relationship between the manager and the personnel, the condition of the Restaurant, its tables, its chairs, the hygiene of the utilities, etc.
The Pizza Hut controllers should have complete "Check List" which will contain in detail all the points referring to the Restaurant or delivery-unit going.
Another way to control the performance of the Restaurants or the delivery-unit is knowing if the customer is satisfied with the product and the service provided.
Through the Franchise Holders Association, Pizza Hut can collect feedback from the outlet operators and through the International Pizza Hut Holders Association to know the degree of the shareholders’ satisfaction with the company's progress
References
§ Buttle, F. (1986) "Hotel and Food Service marketing", Holt, Reinehart and Winston
§ Enis, Cox and Mokwa (1990) "Marketing Classics", Theodore Levitt "Marketing Myopia" Art.1, Russell I. Haley "Benefit Segmentation: A Decision -Oriented Research Tool" Art. 16. Gerald J. Tellis, "Beyond the Many Faces of Price: An Integration of Pricing Strategies"Art.33, Valarie A. Zeithaml, "Consumer Perceptions of Price, Quality and Value: A Means-End Model and Synthesis of Evidence", Theodore Levitt "The Globalization of Markets", Prentice-Hall Inc
§ Pizza Hut Website (1998) http://www.pizzahut.com
§ Kaufmann, P (1993) "Pizza Hut, Inc." Harvard Business School
§ Simkin, D and Ferrell, P (1994) "Marketing Concepts and Strategies" An Analysis of Marketing Opportunities, (p.1 -155) Selected Applications (p 664-678), "Product Decisions" (p.192-238),"Pricing Decisions" (p.476-478), " Setting prices" (p.498-527) "Promotion Decision" (p 374-400), "Marketing Channels" (p.264-292), "Retailing" (P.315-349) Houghton Mifflin Company.
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