I. History & Background
Pizza Hut was started in 1958, by two brothers in Wichita, Kansas. Frank and Dan Carney had the idea to open a pizza parlor. They borrowed $600 from their mother, and opened the very first Pizza Hut. In 1959, the first franchise unit opened in Topeka, Kansas.(Grumpert, 1989) Almost ten years later, Pizza Hut would be serving one million customers a week in their 310 locations. In 1970, Pizza Hut was put on the New York Stock Exchange under the ticker symbol PIZ. In 1986, Pizza Hut introduced delivery service, something no other restaurant was doing. By the 1990’s Pizza Hut sales had reached $4 billion worldwide. In 1998, Pizza Hut celebrated their 40th anniversary, and launched their famous campaign "The Best Pizzas Under One Roof." (PizzaHut.com 2007) In 1996, Pizza Hut sales in the United States were over $5 million. However, Pizza Hut’s market share has slowly eroded because of intense competition from their rivals Domino’s, Little Caesar’s and newcomer Papa John’s.
Home delivery was a driving force for success, especially for Pizza Hut and Domino’s. Competitors started to look for new methods of increasing their customer bases. Many pizza chains decided to diversify and offer new non-pizza items such as Buffalo wings, and Italian cheese bread. The current trend in pizza chains today is the same. They all try to come up with some newer, bigger, better, pizza for a low price. Offering special promotions and new pizza variations are popular today as well. For example, chicken is now a common topping found on pizzas. In the past, Pizza Hut has always had the first mover advantage. Their marketing strategy in the past has always been to be first. One of their main strategies, which they still follow today, is the diversification of the products they offer.
Pizza Hut is always adding something new to their menu, trying to reach new markets. For example, in 1992 the famous buffet was launched in Pizza Hut restaurants worldwide. They were trying to offer many different food items for customers who didn’t necessarily want pizza. Another strategy they used in the past and are still using is the diversification of their pizzas. Pizza Hut is always trying to come up with some innovative way to make a pizza into something slightly different. In 1983, Pizza Hut introduced their Pan Pizza, which had a guarantee of being ready to eat in 5 minutes when dining at Pizza Hut restaurants.
In 1993, they introduced the "BigFoot," which was two square feet of pizza cut into 21 slices. In 1995, they introduced "Stuffed Crust Pizza," where the crust would be filled with cheese. In 1997, they marketed "The Edge," which had cheese and toppings all the way to the edge of the pizza. Currently, they are marketing "The Big NewYorker," trying to bring the famous New York style pizza to the whole country.
II. Customer Loyalty Program
Pizza Hut has always valued customer service and satisfaction. In 1995, Pizza Hut began two customer satisfaction programs. A 1-800 number customer hotline was set up to hear from customers who visited dine in restaurants. Customers would receive the hotline number on the back of receipts and offer coupons for participating in surveys and also for expressing comments about experiences good or bad. A customer call-back program was put into place to get feedback from customers of Pizza Hut delivery stores. Customers were called back within 36 hours of purchase and asked about satisfaction and room for improvement. (Johnson & Weinstein, 2004) These were implemented to make sure their customers were happy, and always wanted to return.
The goal of the company was to create loyalty among its customers. With customers being loyal, they would return again and again. They would also be inclined to recommend the restaurants to friends who would in turn do the same. In order for the strategy to be successful, the customer experience had to paramount, and the information gathered from the surveys put into action to better the process. A bonus plan was put into play for store managers which were tied to the value score received from their stores patrons. This bonus plan forced managers to focus on customer service and the customer experience. Pizza Hut was on to something with the entire plan except, the bonus structure had its flaws. The company found that some store would have high customer service ratings and those managers would receive large bonuses even though the revenue generated from those store were not particularly stellar. They also had stores which generated excellent revenue where the managers didnâ€™t get large bonuses because the customer service scores were low.
III. Macroenvironment Variables
A number of demographic and societal trends in the United States contributed to increased demand for food prepared outside the home. The divorce rate is almost 50%, and there is a growing trend showing that people are choosing to get married later in life. Because of these factors and many others, the single-person household is a growing segment of the population. This trend shows that individuals are choosing to eat out more often than eat at home. Another factor to consider is the increased number of women working outside the home today compares to 1958 when Pizza Hut was founded. As a result of more women in the workforce, household incomes are now combined and are growing. The combination of higher incomes and dual-career families result in less time in the home, therefore less time to cook food at home.
Also due to higher incomes, consumers have more disposable income, allowing them to eat out more often. However, in the early 1990’s, the growth of traditional fast food restaurants slowed down because the U.S. market had become saturated. The slowdown in growth intensified competition for market share and lead to consolidation. Many chains found that their market share could be increased by buying an existing company rather than building new units. Mergers and acquisitions had a powerful effect on the fast food industry. The top ten fast food restaurant chains controlled over 60% of fast food sales in the U.S.(Answers.com, 2006) I
V. Microenvironment variables
Six major segments make up the fast food segment of the food service industry. Sandwich chains, like McDonald’s and Wendy’s are the number one segment, followed by dinner houses, such as Applebee’s and Red Lobster. Pizza chains are ranked third. Out of all the pizza chains, Pizza Hut has the largest market share, followed by Domino’s. International sales have become more and more important to the fast food industry. In 1990, Pizza Hut opened two restaurants in Moscow where 20,000 customers were served a week, about the amount serviced by 10 American Pizza Huts.(Wikipedia, 2007) As profitable as the fast food industry is, there has always been one problem that many fast food companies cannot seem to overcome.
Because of America’s large aging population, greater awareness and interest in health issues have resulted. Nutritional value of fast food is a huge problem. For many people, fast food automatically means low nutritional value. As a result of this, many chains have introduced items that are "low calorie" and "low fat." Despite their efforts, many critics and consumers feel that their efforts were not satisfactory in providing a healthy meal.
V. TOWS Analysis
Pizza Hut’s number one threats are from their competitors. Currently, their closest competitor is Domino’s Pizza. Domino’s main competitive advantage over Pizza Hut is their price which is generally lower than Pizza Hut. Little Caesar’s is another one of Pizza Hut’s competitors, right behind Domino’s in market share. Little Caesar’s is famous for offering large quantities of pizza for less money. Other competitors include Papa John’s, Sbarro, and Pizza Inn. A problem facing all of the pizza chains is that they share the same competitive advantages. Most if not all the top pizza chains offer free delivery, and always have some sort of promotional deal offering large pizzas at reduced prices. Other competitors to take into consideration are frozen pizzas and make-it-yourself pizzas that are purchased in grocery stores. Some examples of these are Tombstone Pizzas, Boboli, and Di’Gornio pizzas.
Pizza Hut’s opportunities are almost endless. They can increase revenue with their new innovative pizzas, and increase brand loyalty with good customer service. An opportunity that Pizza Hut has is their new ordering online system. Anyone with internet access can order whatever they wish and get it delivered to their house without even speaking to someone.
However, the fact that Pizza Hut does have a restaurant to run is also a weakness. Pizza Hut has higher overhead costs, due to the restaurant that other competitors don’t have to deal with. Another result of higher overhead costs is higher prices Pizza Hut must charge. Obviously, Pizza Hut is not the low cost producer. They rely on their quality pizza and good service to account for their higher prices. An indirect weakness that Pizza Hut has is that they have lost a lot of their customers and market share due to such intense competition with competitors.
Pizza Hut has many different strengths. Name recognition is an obvious strength for Pizza Hut. Pizza Hut has been around for a long time, and consumers know the name well. Another big strength and even a competitive advantage is the fact that they have a full service restaurant as well as delivery services. Most of Pizza Hut’s competitors do not have restaurants. Because of the restaurant, Pizza Hut can market to many different segments that other pizza chains cannot. For example, Pizza Hut can market to families much easier than Domino’s or Little Caesar’s. Pizza Hut offers a sit-down, conversational type restaurant where families can take their children for birthday parties for example. Pizza Hut’s broad selection of products also makes it easier for them to market to different market segments.
VI. Recommendations & Rationale
Pizza Hut has right idea with the customer feedback program which they put into place. If you can create loyalty among customers, then you business will definitely grow. The problem with the survey system is that they incorrectly rewarded the restaurants for providing good service. The bonus program for the managers needs to be changed. The bonus should be based on the value score as well as store profitability. The ultimate goal of the customer loyalty program is to increase revenue. The revenue component should be a crucial part of the bonus structure. The bonus should be based half on profitability and half on customer service. The bonus also needs minimum standards for each in order to qualify for any percentage of the bonus. This should prevent stores who are very profitable, to forget about building value through customer service and vice versa.
Pizza Hut also needs to use the information gathered from the customers and use the information for marketing products to certain market segments. The segment which they should consider exploiting and promoting, is ecommerce. The company needs to be ahead of the competition with accepting orders via the internet. By being the first to truly revolutionize the way customer order pizza, they will continue to be the top pizza make in the industry. Being that Pizza Hut holds the most market share in the pizza industry, the perceived quality and service of the company will help to ensure a better than average chance at a successful introduction of a new product.
The pizza industry firms are famous for introducing new products to spark short-term sales. Pizza Hut has been very successful at accomplishing this. The introduction of a product that keeps with today’s trends is also important to reduce the risk of failure. In recent years there has been an increase in the marketing of products with an extreme twist to them. Mountain Dew, which is a brand name owned by Pizza Huts parent company, Pepsico, has been very successful at repositioning itself to this segment of the market, which has sparked new interest in the soft drink. Many other imitators have followed in there footsteps and have been successful as well. Pizza Hut has the resources available to research and implement a new product with great success.
Pizza Hut is company whoâ€™s business model had stood the test of time. Today they are an industry giant with name recognition and restaurants spanning the globe. The company has been able to retain market share despite efforts by competitors due to introduction of new products and services and the customer focus. Pizza Hut strives to achieve customer satisfaction and loyalty. They created a system in order to receive customer feedback in order to improve service. They also created a bonus structure which makes individual store managers focus on the customer experience.
The bonus structure needs to be restructure to avoid the current situation of managers of poor performing stores receiving bonuses while managers of very profitable stores, receiving less if not nothing at all. The focus on the customer experience is a contributing attribute which separates the company from the rest of the competition. If your customer is satisfied and feels you are delivering good value, then loyalty will grow your business. A loyal, satisfied customer, is you best form of advertising.
1. Pizza Hut Website: http://www.pizzahut.com
2. Author not available (2007). Pizza Hut. Retrieved March 15, 2007, from Wikipedia Web site: http://en.wikipedia.org/wiki/Pizza_Hut 3. Gumpert, David, The Pizza Hut Story, Wichita, Kansas: Pizza Hut, 1989 4. Author not available (2006). Pizza Hut. Retrieved March 13, 2007, from Answers.com Web site: http://www.answers.com/topic/pizza-hut-inc 5. Johnson & Weinstein, W.C. , A. (2004). Superior Customer Value in the New Economy, Concepts and Cases. Boca Raton, FL: CRC Press.
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