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Marketing strategy of Pizza Hut in the U.S
Presented by:
Research Advisor
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Table of Contents
1.
Introduction ............................................................................Error! Bookmark not defined.
2.
Chapter One –Pizza Hut in the U.S. .......................................Error! Bookmark not defined.
3.
2.1
Rivalry among existing firms ..........................................Error! Bookmark not defined.
2.2
Threats of substitutes .......................................................Error! Bookmark not defined.
2.3
Threat of Potential Entrants.............................................Error! Bookmark not defined.
2.4
Bargaining Power of Suppliers .......................................Error! Bookmark not defined.
2.5
Bargaining Power of buyers ............................................Error! Bookmark not defined.
Chapter Two –Marketing Strategies of Pizza Hut in the U.S. Error! Bookmark not defined.
3.1
Product strategy ...............................................................Error! Bookmark not defined.
3.2
Pricing strategy................................................................Error! Bookmark not defined.
3.3
Promotion strategy ..........................................................Error! Bookmark not defined.
3.4
Product placement ...........................................................Error! Bookmark not defined.
4.
Conclusion ..............................................................................Error! Bookmark not defined.
5.
Appendix ............................................................................................................................... 12
6.
Bibliography .......................................................................................................................... 15
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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.
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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
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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.
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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
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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.
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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.
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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.
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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 Wayne's 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
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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.
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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%
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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%
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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
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