Pizza Hut_marketing Case

7/30/2019 Pizza Hut_marketing Case

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PIZZA HUT CASE

QUALITATIVE ANALYSIS

SEC D, GROUP 8

SYNOPSIS

CASE OUTLINE

THE USA PIZZA MARKET

FRANCHISEE SYSTEM

CONTENTION BETWEEN PIZZA HUT ANDFRANCHISSES ANALYSIS OF KEY

ISSUES

QUANTITATIVE ANALYSIS RESULTS

RECOMMENDATIONS


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The Major facts in the case are shown as a time-line below:

Major facts pertaining to the USA Pizza market is shown below:

THE FRANCHISEE SYSTEM

Fastest growing part of $53billion fast-food market

3 main segments :eat-in,carry out, delivery

Total market for 1986estimated to be $12.7billion

Rapid growth due to homedelivery, observers feltindustry has reached itspotential

PIZZA MARKET

2nd most preferred fastfood; An evening snack ordinner

Consumers saw pizza to bea personal or sensualexperience

Tastes varied by region

Rapid growth in inhomevideo market + doubleincome families would fuelmore growth

PIZZA CONSUMER

Regional chains and singleunit owners posed somecompetition

Godfather's Pizza was seenas the major competitor

Domino grew rapidly withgreat stress on homedelivery

Other small playersincluded Pizza Inn, littlecaesar, Mr. Gatti's etc.,.

COMPETITION

Characterized by Red roof

Full service, eat-in or carry out

Seating for 60-90 customers

Pizza hut started in June 1958 by two

college students, Dan and Frank

Cartney

Franchising was an integral part

Company-franchise mix kept

varying

Franchisees not so interested in

home delivery initially

Towards second half of 1986,

interest increased

Franchise delivery units were

more profitable

296 stores by 1968 Went public in 1969

Pepsico acquires in 1977

Home delivery from 1985

CSC (Customer service center),

single number to take orders

Current management confused

over expansion in delivery units


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Franchising was an integral part of Pizza Hut strategy since founding.

1) RATIO OF FRANCHISEE TO COMPANY OWNED STORES

Though initially dominated by franchisee outlets, by mid-1970s the ratio of franchisee to company owned store

was 1:1. Franchisees operated 2395 Pizza hut system restaurants and 96 delivery only units

2) CHOICE OF FRANCHISEES

Most of the francisees were large companies with diversified holdings like KFC, Long John silver

3) FRANCHISEE AGREEMENTS

Under a formal agreement, each franchisee was obligated to develop its exclusive market area in

Accordance with five year development schedule

4) FRANCHISEE DEVELOPMENT SCHEDULE

Each franchisee was required to open up an agreed amount of new restaurants during first year of

agreement and so on. After a 5 year period, company could negotiate a secondary development

schedule.

5) EXCLUSIVITY RIGHTS

In no case could there be a restaurant within 2 miles of an existing franchisee

6) FRANCHISEE INVESTMENT

Franchisee Invested about $15,000 and paid a 4% commission on sales.

7) IPHFHA (International Pizza Hut Franchise Holders Association)

This association acted as bridge between Pizza Huts top management and Franchisees

INVESTMENT :

Traditional unit $466,000 - $816,000 Delivery only unit - $128,500 - $198,500

CSC, computerized central operating system, took calls from customer and processed as shown below :

CONTENTION BETWEEN FRANCHISEE AND PIZZA HUT KEY ISSUES AND THEIR ANALYSIS

Customers in a

particular market

call up a single

Ask caller his

mobile number

Check if his caller

has called before

Verify name and

address, check the

pizza ordered

Make a new entry

and take an order

Forward the order

to appropriate

delivery unit

YES

NO


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Franchisees were not very happy with the idea of delivery units due to 3 reasons. They are reviewed below

1) The Upsizing Concept Pizza hut wanted home delivery pizzas to be bigger than traditional store pizzas by 1 inch They were priced 10% higher. This was to combat the expenses of free delivery and CSC expenses Not implemented in some markets at spring/summer (Pg 6, para 4)

ANALYSIS OF UPSIZING CONCEPT People tend to consume more at home. So increased size might be preferred Increased price would be surely noted, but increased size might go unnoticed. Marketing should be

scaled up for this

Retrofitting might now be very difficult since many sizes are to be maintained2) Expensive Customer Service Care

ANALYSIS OF CSC

A single number will reach more customers and avoid any confusion Online marketing possible (since a single number), all stores get equally benefitted Easy to keep track of sales and customer data

Such coordination was not feasible for Dominos since their franchisees had only one store andfranchisees formed a greater share of Dominos stores.

This was a complicated system. Most of the calls (~60%) came during a particular one hour of theday. Initial problems in this system lost market share in some markets (Pg 5, last para)

Franchisees didnt know why they need a CSC if Dominos didnt have one. They wanted to keepcosts minimum.

3) Marketing Procedures Pizza hut gave autonomy to delivery units. Franchises felt they do not have enough resources to

operate and market independently for traditional and delivery units

Pizza hut bifurcated advertisement expenses. Franchisees felt coordination between the two couldbe difficult

Dominos spent huge amounts on advertising especially in areas where Pizza hut was trying to enterthe delivery market.

ANALYSIS OF MARKETING PROCEDURES

Since many franchisees implemented retrofitting separate advertising can harm their interests.

RESULTS FROM QUANTITATIVE ANALYSIS

Loss due to cannibalization $ 4.60 Million

Potential Gain from home delivery $ 35.24 Million

Potential loss from not offering home delivery $ 7.65 MillionActual gain from Home delivery $ 9.18 Million

RECOMMENDATIONS


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1) PRODUCT QUALITY AND INNOVATION Customers are quality sensitive. As in-house pizzas are not fit for delivery, special pizzas that meet the

needs of delivery must be made.

Product innovation that could suit the needs of delivery and in-house would help the firm andfranchisees that use retrofit model.

2) RESTAURANT QUALITY To prevent cannibalization loss, restaurant dining should be made an experience along the lines of

Starbucks and similar firms. If restaurants could offer more than pizzas people would definitely prefer

visiting them.

Restaurants can offer more items in the menu so that customers perceive a difference between deliveryand in-house.

Special arrangements for parties and celebrations can attract a larger customer base3) CSC SYSTEM Considering the huge network of Pizza hut stores, CSC would ease marketing and advertising required. Franchisee owners should be convinced of its merits. Though simple phone ordering can help in the

short run, the CSC is best suited for long run. Lowered call time could be achieved only through CSC and so is a competitive advantage over Dominos. However, resources needed for CSC must be gauged properly and implemented. Since 60% of calls come

during a particular time in the day, leasing additional resources during that time can help.

4) UPSIZING Upsizing is not a very good idea because:

o Customers do not perceive the increase in size but they clearly see the increase in price and thiscould lead to decline in sales

o Franchisees operating in a retrofit model may find it very difficult to offer two sizeso

Pizza hut can retain market share by charging the same price for both channels To make up for delivery costs, Pizza hut must try to sell more to customers through home delivery.

Discounts for combo purchases, family packs, discount on the 2nd

pizza etc., can attract customers to bu

more. Higher margins due to this can help us cover delivery costs.

Pizza Hut_marketing Case

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