Studi Kasus Papa Johns

8/10/2019 Studi Kasus Papa Johns

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PRODUCTDIFFERENTIATION

PAPA JOHNS CASE

STUDY


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Theory

Background

Facts

Key issues

Analysis

Course of action

Recommendation


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Product

Differentiation

Product differentiation is a business

level strategy in which firms attempt

to create and exploit differences

between their products and those

offered by competitors. These

differences may lead to competitive

advantage if customers perceive thedifference and have a preference for

the difference. Of course, such

differences will lead to competitive

advantageonly if the differences

meet the VRIO criteria

Mission

Objectives

Internal Analysis External Analysis

Strategic

Choice

Business Level

StrategyCorporate

Level Strategy

Cost

leadership

Productdifferentiation


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Bases for Product Differentiation Definition Example

Attributes of the product or

service

preferences are created by actual differences

in the tangible product or service offered by

the focal firm vis--vis competitors offerings

product features

product complexity

timing of product introduction

location

Firm-Customer relationship preferences are created as the focal firmdevelops and exploits relationships with

customers based on what the focal firms

target customers want

Product customization

Consumer marketing

Product reputation

Firm Linkages preferences are created as the focal firmcombines the competencies of different

functions within or across organizations to

produce tangible and/or intangible

differences between the focal firms offeringsand those of competitors

linkages among functions within the focal

firm

linkages with other firms

product mix

distribution channels service and support

Bases forProduct

Differentiation

ProductAttributes

Firm-Customer

Relationship

FirmLinkages

The notion of a base of differentiation is important

because it allows a firm to focus its efforts on creating

and exploiting a particular difference between its

products and competitors products. Managers need to

understand their own bases of differentiation and the

bases of differentiation of competitors so that they can

make informed strategic choices


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Valu

eableThreat of entry

Threat of rivalry

Threat ofsubstitutes

Threat of suppliers

Threat of buyers

RareIf the company

has established adifferentiated

product, whichimplies that the

product is rareImita

bilityEasy to duplicate. Such as

product feature

Maybe costly toduplicate. Such as Product

mix, links with other firm,product customizatio,product complexity,consumer marketing

Costly to duplicate. Suchas links between functions,timing, location,reputation ,distributionchannels ,service andsupport

Organizing. Organizational

structure,management control

systems, andcompensationpolicies can all bemanaged toencourage customersto have a preferencefor the focal firms

products and/orservices

Product differentiation

can neutralize the

threats of the forces

mentioned in the Five

Forces Model

If a product

differentiation strategy is

costly to imitate, the firm

can reasonably expect to

enjoy a competitive

advantage.

Here are how the implementation of V-R-I O toProduct Differentiation


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CASE STUDY


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Theory

Background

Facts

Key issues

Analysis

Course of action

Recommendation


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Company Snapshot

Stores (2010 data)

% franchised

Public/Private

Headquarter

CEO

Employees

International

Internet Ordering

2007 Sales

3,646 612

company-

owned

2,280

domestic

franchise

754

internationa

l franchise

83%

Public

Louisville

John Schnatter

16,336

Yes

Yes

USD 504 million

John Schnatter opened the first Papa

Johns in 1985

Sold its first franchise in 1986

Initial Public Offering on June 8,1993

Opened its first international restaurant in

1998 through acquisition of Perfect Pizza

in UK.

#1 in American Customer Satisfaction Index

from 1999-2008


9/42US Pizza Industry

There are more than 65,000pizza

restaurants in the United States

$36.286 billionworth of pizza was

sold in the US in 2010

45%of pizza is ordered for carry

out, 36%for delivery, and 20%for

dine-in

The Big 4 controls some 31%of

the American pizza industry. But itis still the independent chains that

make up the majority51.66%of

all pizza sales in the United States


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Type of Pizza

Traditional Crust Pizza: The crust is not too thickand not too thin. Usually it is created by rolling thedough into a round circle then topping it with sauceand cheese.

Deep Dish Pizza: A thick crust and dense toppingsusually characterize deep-dish pizza, also known aspan pizza.

New York Style Pizza:The crust of this pizza tendsto be much thinner than traditional and deep dish.

Channels of Distribution

Sit-Down Dining- custom pizzas made for in-restaurant diners

Typical Pizza Restaurant Establishments: Pizza HutRed Roofs, Independents

Delivery- custom pizzas made, baked and delivered

by restaurant personnel to call-in customers Typical Pizza Restaurant Establishments:

Dominos Pizza, Pizza Hut, Papa Johns

Carry Out- custom pizzas made and baked for walk-in or call-in customers to pick up

Typical Pizza Restaurant Establishment: LittleCaesars

Take N Bake- custom pizzas made for walk-in

customers who then take the pizza home to bakethemselves at their own convenience

Typical Pizza Restaurant Establishment: PapaMurphys

US Pizza Industry


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Theory

Background

Facts

Key issues

Analysis

Course of action

Recommendation


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Element Facts Year

Technology The first pizza company with online ordering & text messages ordering 2001 & 2007

Menu Pan Pizza

Added desserts to their carryout & delivery menu and chocolate pastry delight

2006 & 2008

Company growth High-quality pizza with side items. Proprietary blend of pizza (Menu)

Lower operating cost & efficient QC center (Efficient Operating System) Training programs for corporate members & franchisee, performance-based financial

incentives (Commitment to Team Member Training and Development)

National advertising campaign, restaurant level-marketing, direct-mail, store-to-door

couponing, community oriented activities, cross marketing activities with third party

companies, sponsorship (Marketing)

Attract franchisee with experience in retail business and financial resources to open

multiple location. Assistance in restaurant operations

2007

CostManagement

Net property & equipment value $2 million & property lease $22.4 million. Leasingbuilding space provide the flexibility to move locations quickly

Leased the trailers used to distribute ingredients

Cheese contribbute appx 35-40% of food costs

Partnered with a third-party entity formed by franchisee, BIBO Commodities, Inc. To

reduce cheese price volatility

2007


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Stock performance: The performance of overall F&B business has been very poor

compared to the overall growth in stock indices

Despite a better performance compared to its peer in the industry

(CAGR 10%)but Papa Johns stock also under-performing compared

to the overall stock indices

Meaning, Papa Johns investor would create more wealth investing

in other company than pouring their money in Papa Johns

CAGR

CSRP total Returns IndexDes-02 Des-03 Des-04 Des-05 Des-06 Des-07

5

years

4

years

Papa John's International, Inc 100,0 116,7 120,7 213,1 206,3 161,0 10,0% 8,4%

Nasdaq Stock Market (US Companies) 100,0 146,0 160,0 167,8 180,8 197,6 14,6% 7,9%NASDAQ Stocks (SIC 5800-5899 US

companies) 100,0 137,8 202,4 209,4 225,5 150,3 8,5% 2,2%

eating & drinking places


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Stock performance:

Papa Johns stock even performed terribly after 2007. Loosing

its value from 2005by 8% while the restaurant industry has

grown 60%against 2005


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Key Issues: Papa Johns had enjoyed only incremental growthin the new century

(2000-present)

Schnatter wanted to see Papa Johns return to the days when it opened

200 to 300 stores a year Restaurant analysts belived that pizza industry is a matureand

saturatedindustry

Despite the growth in revenue (especially from overseas) the company

experience declining operating income meaning that the operating

expense has grown faster than the revenue 2010 stock performance compared to 2005 & 2007 showed that the

company is destroying is shareholders wealth

Learning from Papa Johns 2010 annual report, the company

international operation suffered loss for several years


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Theory

Background

FactsKey issues

Analysis

Course of action

Recommendation


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Value Chain Activity Value for Customer

Primary

Inbound logistic Online sales account for USD 400 million (2007). Papa Johns revenue in 2007 was USD

1.063 billion

Operations Store located in prime areas supported by commissaries as its suppliers

Outbound logistic Use delivery van

Marketing & sales National advertising campaign through television, print media, internet, store-to-door

coupon, direct mail and in-store marketing

Local communities sponsorship

CSR program in the form of scholarship

Pan Pizza proprietary & dessert

Service Customer service available online and via telephone

Secondary

Procurement BIBP Commodities procure the cheese for Papa Johnss

10 regional Commissaries supplies Papa Johns store nation wide

Technology development Papa Johns useIT and text messages for customer order

Also use IT & mobile technologies for promotional services

Human resources management Papa Johns operates Operation Support Service and Training (OSST) for its human capital

development

General adminsitration

Papa Johns Value Chain


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Resources/

Capabilities

Is it

Valuable?

Is it

Rare?

Costly to

Imitate?Organizing

Inbound Logistic Yes No No

Operation Yes No No

Outbound

Logistic

Yes No No

Marketing Yes No No

Service Yes No No

Procurement Yes Yes No

Technology

developmentYes No No

HRM Yes No No

GA

V-R-I-O Analysis: Papa Johns

Papa Johns value chain

analysis using the V-R-I-O

shows that actually thecompany does not have a

strong competitive advantage

against the competition thus

lack the ability to create

value.


23/42Business Level Strategy

What is it?

Action used by the firm to gain a competitive advantage by exploiting core

competencies in specific product markets

Papa Johns applies differentiation

strategy as its business-level-strategy

They reject the idea of competing in

price

Their focus is on customer

experience with Pizza made out of

better ingredients & prepared betterthus the marketing slogan came

about (Better Inggredients, Better

Pizza)


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What about the products? Do

Papa Johns products own an

edge compared to its

competitors?


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Papa Johns products Create your own pizza & specialty pizza

All pizzas are made from good quality dough (better ingredients)

Each pizza accompanied by special garlic sauce and 2 pepperoncinisPizza

Chicken wings, chicken strips, breadsticksSides

SoftdrinksDrinks

Applepie, cinnapie

Desserts Dipping sauces, pepperoncinis, parmesan cheese, crushed red pepperExtras


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ProductsIs it

Valuable?

Is it

Rare?

Costly to

Imitate?Organizing Conclusion

Pizza Yes Yes No Yes

Despite its rarity, Papa Johns pizzais

not costly to imitate

Sides Yes No No YesPapa Johns side dishes can be found

anywhere else

Drinks Yes No No Yes No differentiation at all

Desserts Yes Yes No YesThe dessert is quite rare but not

costly to imitate and the variation is

not enough

Extras No Yes No YesRare but not too valuable as theyre

considered to be extras & cannot

produce too much value

Despite its Pizza uniqueness, Papa Johns products are not unique enough to

be considered sustainable


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And how do the valuable

activities stand on the scale?

Are they rated high?


28/42Likert Scale

Valuable ActivitiesScale

0-3Reason

Commissaries/Centrali

zed quality control2

Having a regionalized commissaries allow the company to control its stock low (not

having too much stock per store), maintain quality control

Operation Support

Service Training

(OSST)

1

Nowadays, a training center for franchisee and staffs are very common in the industry

thus having OSST does not mean give too much edge for the company. But the

existence is definitely necessary

BIBP Commodities, Inc

3

This is very important for the company since cheese is one of the main ingredients for

Pizza and in the case of price increase the company cannot immidiately raise their

prices thus having a stable purchasing price of cheese is necessary. And not many

companies have this

Internet & mobile

technology 1Papa Johns is one of the pizza company that generates 80% of its sales through

internet or mobile technologies but this technology is not distinctive and already

applied by other companies in the industry

Pan Pizza, Dessert3

The pizzas are not sold cheaper than its competitor because Papa Johns uses better

ingredients and prepared the dough seriously. Despite its quality, the menu or taste is

somewhat similar to any pizza available in the market

Franchise system 1Franchise has contributed to the firm expansion but the system itself is very common

and has beem practiced by so many players


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Papa Johns Key valuable activities are not considered to be distinctiveor special thus the company does not have a sustainable competitiveadvantage

Despite the uniqueness of the products itself (better ingredients,better pizza), the startegy seems to be not to costly to duplicate

The firm implement its strategy by doing 2 major activities:

Focus on product quality (Better Ingredients, Better Pizza)

Marketing Campaign through advertising, publicity, etc

Expanding through franchise and expanding internationally

Its international strategy seems not to work out very well. The numbershowed that the international business experienced loss for severalconsecutive years

Conclusion on theAnalysis


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Theory

Background

FactsKey issues

Analysis

Course of action

Recommendation


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Determine the threats

Threat of Buyers

The firm does not have a highly differentiated product, customers can choose different pizza restaurant

Threat of SuppliersOur biggest concern is the supply & volatility of cheese price but this has been mitigated through the creation of procurementcenter & hedging

Threat of Substitutes

Pizza is not a staple food. It is easy for customers choose other food

Threat of RivalrySmall differences in terms of product amongst rival business. Each claim to have better products but customers perceiption isvarious

Threat of New entrants

It is easy for new pizza parlor or pizza business to set up


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Determine the industry

MatureType ofindustry

Earnings and sales grow slower in mature industries than ingrowth and emerging industries

earnings may be stable, growth prospects are few and farbetween

Characteristic

The company can differentiate established products byrefiningthe product - new and improved

Or differentiate by offering new levels of servicetoaccompany the product

What can thecompany do?


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Is the product rare?

The answer to the question of rareness

can safely be assumed at this point in

the analysis. The assumption is that

Papa Johnsmust establish a

differentiated product, which implies

that the product is rare


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What about to cost to imitate?

If a product differentiation strategy is costly to imitate, the company can

reasonably expect to enjoy a competitive advantage.

Cost to imitate? Strategy Reason

Easy Product features

May be costly to imitate Product mix Links with other firms

Product customization

Product complexity

Consumer marketing

Usually costly to imitate Links between functions Timing

Location

Reputation

Distribution channels

Service and support


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Background

Facts

Key issues

Analysis

Course of action

Recommendation


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Lets revisit Schnatter goals

Opening 200-300stores per year

4,000 stores in 5year from 2007

6,000-7,000worldwide

Reduce company-

run stores

Ensure steadystream of revenue

despite difficultenvironment


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How the firm plan to bring about?

International

Expansion

Partner with localproducer

Franchise

Accomodate sit-down dining are

Grow &Maintaindomesticmarkets

Co-branding efforts

Diversification

Develop or acquireadditionalrestaurant chain

Papa Johns sets-out these

strategy to achieve its

goals (stated previously)


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Goals Critics Advise

International

Expansion

Despite its experience in international market,

the opportunity looks very promising but the

company will have to sacrifice its identity as a

carry-out & delivery pizza restaurant

The company should maintain its core values of

producing quality pizza at a premium price and its

business model which is a carry-out & delivery

Despite the lure of international opportunity, the

company should refrain from going into asian

market since the characteristic are very much

different. Other option would be to focus on NorthAmerica (Canada & Mexico) which share

resemblance

Maintain

domestic

market

Reducing company-run store would turn

disastrous because the company will lose its

sense of the business.

The company should maintain a healthy ratio

between company-run & franchisee store because it

needs to make sure that the franchisee business

remain profitable

Co-branding with renown brand

New business

(acquisition or

development)

Acquisition, based on various studies oftenfailed because the differences in the culture

and over-pricing the value of acquiree

If the business is totally different from Pizza

business then the company needs to acquire

new knowledge in the new industry

Acquisition can be done for expansion tointernational market. By acquiring brand that

already established in the international market. It

can be a pizza restaurant or any restaurant business

Critics to Companys Goals


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Strategy Implementation Example

New & improved products Pizza with high quality inggredients,imported inggredients

New line of esserts

Italian beverages

Health concious

Original Pizza, the one that originates

from Italy

Chocolate melted, tiramisu cake,

cheese cake

Cappucinno, lattes

Products which contains low calorie,

fresh ingredients & healthy

New level of service and support Catering services For private parties or birthday party

Links between functions Store expansion through tripartite (Bank,the company & franchisee)

Using the companys guarantee, help

franchisee expand their business

through stores opening

Location Expand to Canada & Mexico. Marketthat resembles US.

Open new franchise

Distribution channels Modern outlet (supermarket) Sell create your own pizza and readyto make pizza in supermarkets

Reputation Health conciuous, not only better Pizza Marketing campaign that focus onhealthier Pizza, not only better

Business-Level Strategy Recommendation


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Strategy Implementation Reason

Organizational Structure U-form Not too many layers

Profit oriented regional business area

Eash business manager, must be

responsible for the profitability of their

respective area. Not only that, they also

must have the knowledge to expand

their business locally

Management Controls KPIs not only based on financialindicators but also on business

growth & innovation

The main idea behind using management

controls in the implementation of a product

differentiation strategy is that of flexibility.

Not only must managers and employees have

the freedom to be flexible, they should also be

encouraged to be creative and adaptable

Compensation Policies Rewards for successfulexperimentation

Absence of punishment for failed

experimentation provide strong

incentive to be creative

Compensation policies should be

structured to reward managers and

employees for cooperating within cross

functional teams and being creative in

the process

Business-Level Strategy Recommendation

The Organization question of the VRIO Model is perhaps even more important with aproduct differentiation strategy because of the relationship between the company

and customers


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Studi Kasus Papa Johns

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