PRINCIPLES OF MARKETING

ASSIGNMENT 1

1.0 INTRODUCTION
Pizza Hut began its operation in 1958, when two college students from
Wichita, Kansas, Frank and Dan Carney, were approached by a family friend with
the idea of opening a pizza parlor. Although the concept was relatively new to many
Americans at that time, the brothers quickly saw the potential of this new enterprise.
They borrowed money from their mother, purchase some second-hand equipment
and rented a small building on a busy intersection in their home town. The result of
their entrepreneurial efforts was the first Pizza Hut restaurant, and the foundation for
what would become the largest and most successful pizza restaurant in the world. In
2012, the company had more than 6,000 Pizza Hut restaurants in the United States,
and had more than 5,139 store locations in 94 other countries and territories around
the world.

Image 1: Pizza Hut Restaurant

Meanwhile, Pizza Hut began its operations in Malaysia on 19th May 1982 with
the opening of its first outlet at Yow Chuan Plaza, Kuala Lumpur. Cerebos, a
Singapore based-company was the first owner. Cerebos had opened 29 outlets
when it decided to sell the franchise to KFC Holdings Malaysia Berhad in December
1995. It is extensively involved in breeder and contract broiler farming, hatchery and
poultry production and processing, as well as a host of ancillary businesses including
baking, commissary and sauce production. Today, Pizza Hut chain has growth to
more than 350 restaurants is the largest pizza chain in Malaysia, QSR Group is
confident that its pizza chain will continue to completely dominate this sector and will
be able to powerfully fend off any new competition.
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PRINCIPLES OF MARKETING

ASSIGNMENT 1

Pizza Hut featuring a delicious mix of nutritious Italian-American cuisine that

includes the worlds favorite pan pizza and other signature dishes. There are two
different concepts: Pizza Hut Restaurant & Pizza Hut Delivery. Pizza Hut Restaurant
offers a cozy & friendly ambience coupled with great hospitality makes it the perfect
place for one to relax, unwind & have a great time with family or friends. To add,
Pizza Hut Delivery provides guaranteed hot & fresh pizza within promised delivery
time in a convenient setting for added comfort.

2.0 PRODUCTS
Pizza Hut prepares many flavors of pizzas for their customer. There are cooked in
there type. There are:
a) Pan Pizza
- Crisp on the outside, fluffy on the inside. Handmade with our
signature dough recipe and baked to golden perfection
b) Hand Stretched
- Baked fresh daily and hand stretched to perfection, this light yet
fluffy dough is guaranteed to bring out the best of any pizza topping
c) Stuffed Crust Pizza
a. Enjoy 3 explosive cheese flavors in the crust - mozzarella,
parmesan and cheddar.
Pizza hut serving these the pizzas in two categories there are Supremes and Family
Favorites category. The pizzas and the categories are as below:

Image 2: Type of Pizza

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ASSIGNMENT 1

Image 3: Type of Pizza in Supreme

Image 4: Type of Pizza in Family Favourites

Apart from pizzas, Pizza hut also serve few other meals like appetizers, beverages,
pasta, rice and dessert for the customers different taste and favourite.

PRINCIPLES OF MARKETING

ASSIGNMENT 1

3.0 Pizza Hut Direct and indirect Competitors

Pizza becomes more and more a typically dinner food in the U.S.. Many
consumer view it as an evening snack, it is a personal and sensual experience for
many people. They did not believe that great pizza fast food chains could be made it
like others did it with hamburgers. Pizza Hut dominated the eat-in pizza segment
nationwide, Godfathers Pizza, which is another eat-in/carryout chain, competed in
many of the same local areas and was the most significant national competitor.
Dominos Pizza posed a serious competitive threat to Pizza Huts leadership
position in the nationwide pizza market. In the time between 1984 and 1985 it
redoubled its profit to more than $ 1 billion, to more than $ 1.5 billion by the end of
1986. The chain opened 950 new outlets (Total: 2.839 ). Two-third of Dominos
stores were franchised, but it still was a delivery-only chain. By 1986, Dominos
intended to gain total market leadership when it begun to extend its expansion into
smaller towns with smaller population density, which were already controlled by
Pizza Hut franchisees.

System
wide
sale

Average
Units

Check/Perso

Delivery

n
Separate delivery units plus

Pizza Hut
Dominos
Little Caesar
Pizza Inn

19340
1550
520
278.7

5025
3969
1308
748

$9.99

franchisee add-on delivery out

$9.50
$2.75
$4.30

of restaurant
Delivery only
No delivery
Separate delivery units

Figure 1: adapted from Nations Restaurant News

PRINCIPLES OF MARKETING

ASSIGNMENT 1

4.0 PIZZA HUTS BUSINESS STRATEGY

Given the previous discussion it is relatively clear that the potential monetary
losses from not pursuing the delivery segment for Pizza Hut would be greater than
any they might see from pursuing the market segment. In fact, one question may be,
why did Pizza Hut wait so long in answering Dominos? If Pizza Hut had used their
industry name and extensive distribution system during the early 1980s, they may
hold a significant advantage across all three pizza market segments at this point.
Once determining that this opportunity is one to be pursued, the final questions
remain, what strategy should they use, and how should they sell it to their franchises.
The first decision raised regarding their delivery strategy is should they pursue
delivery-only units or should they attempt to retrofit existing restaurants? While the
case does not provide enough data for a full financial analysis, it is evident that
retrofitting existing restaurants would require less investment capital than installing
delivery-only units. Retrofitting existing stores might also alleviate some of the
concerns mentioned by Pizza Hut management related to oversaturation of total
pizza units.
Retrofitting existing stores might have stronger appeal for the franchises,
some of which have already experienced success with this strategy. Incorporating
delivery-only units would require establishing a parallel business system for
marketing and operations. The Pizza Hut corporation has identified the additional
responsibilities in a completely separate distribution system as evident by the
change in the organizational structure and development of a separate business unit.
Delivery-only units would also create some human resource difficulties. It
would change the typical career path for Pizza Hut employees. The promotion path
in a delivery-only unit would likely be much different for the employees. Also the
management of employees would prove much different for Pizza Hut managers. This
completely separate distribution channel would lead to significant training differences
not only of the line employees, but also of the restaurant management and even the
distribution system.

PRINCIPLES OF MARKETING

ASSIGNMENT 1

The second strategic element related to moving into the delivery segment of
the pizza market is the customer service center. The one number call center would
greatly increase operating efficiencies of the delivery units. The service itself would
identify the correct distribution outlet as opposed to customers trying to identify for
themselves the appropriate outlet. Also this system would allow enormous marketing
efficiencies. National advertising could focus on one number and feature consistent
specials. Given the costs associated to the franchises associated with marketing and
advertising, these efficiencies should help to offset the high costs of the system itself.
The final strategic element related to this channel is the concept of pricing and
upsizing. It is clear that there are additional costs associated with this channel
method from CSC costs to actual delivery costs. Exhibit 4 from the case shows that
these costs alone account for 12% of gross sales. Certainly upsizing and up-pricing
could be used to help offset these costs. What is not included in the case are the
operational changes and costs associated with these changes. Larger pizzas require
larger pans, more dough, more ingredients, and possibly a change in boxes. It would
also lead to potential operational differences for the restaurants as well. For
example, would carry out receive the upsizing strategy as well? If so, would
customers in the store become aware of the size and price differences? Would they
be confused? Is a medium a medium or is it a medium-small? With only delivery-only
units it would be much more possible to manage the differences in the operations,
but with retrofitted stores as part of the delivery system, these changes could lead to
confusion and frustration among customers.
Based on these arguments, I recommend that Pizza Hut initially retrofit
existing stores for delivery. I believe that this will be one way to control costs to the
franchises and make them more interested in the idea in general. Also I believe the
CSC system would provide many long-term benefits and retrofitted existing stores
would allow franchises to accept the costs of these system more readily. While
upsizing would help spread the operational costs over a larger dollar amount, these
benefits would be minimized in the short-term due to changes in the organizational
operations. Therefore I would continue operations in existing stores with the current
product mix. I think suggestive selling add-ons such as appetizers and dessert
options would be a more effective way to increase the average delivery purchase
amount.
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PRINCIPLES OF MARKETING

ASSIGNMENT 1

5.0 STRATEGY IMPLEMENTATION

5.1 ADAPT STRUCTURE TO STRATEGY
The Pizza Hut delivery solution is based upon a powerful software, which is
robust, easy to use and comprehensible to all employers. It is accommodate to
understand
Pizza Huts operational management and information requirements. Similar system
archetypes can be developed to suit any serious business enterprise.

5.2 LOCATION REGARD

The location of an outlet is very important for the 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
French haute restaurant. Therefore, the locations will not be Park Lane or Bond
Street in London or 5th Avenue in New York. Reasonable prime locations for a Pizza
Hut outlet will be general consumer shopping areas 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, so that a quick delivery is granted.

5.3 BUSINESS STRATEGY

I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.

Improved order accuracy and customer care.

Increased productivity and speed of service.
Enhanced system flexibility and ease of use.
Reduced training costs and operator errors.
Direct information access for the enterprise.
Full functional delivery management.
Reduced paperwork and manual activity.
Security of information & trickery prevention.
Increased management control and subsequent reductions in costs.

6.0 STRENGTH

PRINCIPLES OF MARKETING

ASSIGNMENT 1

A franchising concept allows to increase its own position without having too
many risks in financiation and managing. Pizza Hut concept in delivery aimed to
open a cluster of delivery-only units in each market and keep its costs as low as
possible because of the small expected market. A really good advantage is the
Customer Service Center (CSC). It allowes customers in a particular market to call a
single number to place an order. The caller will be asked about his phone number
and the operator can connect him to his relevant delivery unit. Also callers data can
be stored and the operator can suggest him to order the same pizza he previously
ordered. It is important that the CSC system works because customers, who orders
by phone, changes their pizza-delivery unit, if they have to wait too long or getting
the wrong order.
Eat-in consumers tolerate waiting to be seated, caller dial the number of the
competitor if the call is unanswered. One of the strengths of Pizza Hut is to be a
division of Pepsi Company Inc. since 1977. It is the world's largest pizza restaurant
and has a good reputation and 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.

7.0 WEAKNESS
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ASSIGNMENT 1

An advantage can also be a disadvantage. Too many franchisees can have

too many different business concepts, only a couple of franchisees can become too
powerful. Pizza Hut's weaknesses are the complex computer systems and internal
conflicts from franchisees. This 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.
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. 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 (CSC) which were so
expensive and that Domino's didn't have one. Significant tension arose between the
company and its franchisees.

8.0 OPPORTUNITIES
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ASSIGNMENT 1

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 tough competitive environment in the delivery
service markets (Domino's, Little Caesar, Godfathers, Pizza Inn, etc.) .
But the company 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 strict the new segment of delivery, it can try to change growth
because it allows Pizza Hut to make better use of their management, technical and
financial resources.

9.0 THREADS
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PRINCIPLES OF MARKETING

ASSIGNMENT 1

The threats to Pizza Hut can be the intense competition and in silly
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 to increase profit. Such a
course of business would be a safely way to disaster. For Pizza Hut, Inc. it is
necessary to know, how it is its 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. Throughout it has to know all about its major competitors, their
identification and what the objectives and strategy of each major competitor are. Also
Pizza Hut should has a wide-ranging knowledge about the competitors weaknesses
and its strengths, the sizes and the trends on the pizza market. The study about the
competitors should describe the trends that can be foreseen and identify external
market threats.

10.0 CONCLUSION
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PRINCIPLES OF MARKETING

ASSIGNMENT 1

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. 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
computerize the central ordering system which was a great idea of improving
performance. The differential advantages can be in the product, in its presentation
and also in the way that the staff treats 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 - a typical consumer behavior - will try products of the other
chain. It is a fallacy 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 central determinants of shopping behavior and product choice.
Important facts are quality, which is demonstrated by freshness and first-class
products, as well as friendly service which gives the guest the feeling of being
treated like a king. A second strategy could be to introduce reduction at national
celebrations, special decorations in the outlets, implementing an event logo or to
release stores according to special mottos like the 20th century, rockn roll or all
about a chosen country.

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