Marketing-Pizza Industry Essay

The four major competitors, Pizza-Hut, Papa John’s, Domino’s, and Little Ceasers are the market leaders in the take-out pizza industry. Having a strong brand equity in the take-out pizza industry allows a company to gain a significant advantage in the market. Customers in the take-out pizza industry place a high value on the product quality and price of a company. Maintaining a good reputation is very important in this industry for companies because customers will build a relationship with the company and will keep on coming back or ordering from that company if they feel like they are getting a good deal. Even though the take-out pizza industry is very competitive, many investors will surely be looking for investment opportunities in the years to come due to the growth potential in the industry. Macroenvironment The demographic factors in the take-out pizza industry have provided new positive opportunities for companies in the industry. Economic factors can also influence the industry in a positive or negative way during a good or bad economy. Ecological factors such as rising prices in gas and rising prices on dairy products has hurt the industry. Technological factors are helping companies meet new customer needs and demands and are opening up new opportunities for companies all around the world. Political and legal factors have not had a tremendous recent impact on companies in the industry. Cultural factors that have affected the take-out pizza industry have been primarily the increase in consciousness of health and fitness among the public in the United States. Microenvironment Those factors that are close to a company, that affect its ability to serve its customers, are called its microenvironment. There are several factors that affect the microenvironment of a company in the take-out pizza industry mentioned in this report. They include the industry’s market, the industry’s competitors, its customers, and the industry’s promotion and distribution of its products. A. The Market in the Take-Out Pizza Industry in the U. S. The market for the take-out pizza industry in the United States is fairly large and not to mention very competitive ( Competitors are talked about later on in this report). While there are four major companies, Pizza-Hut, Domino’s, Papa John’s, and Little Ceasers, that own 31. 7% percent of the market in this industry, 68. 3% percent of the market is dominated to what are known as â€Å"other† businesses. These â€Å"other† businesses, some of which are well known, include the hundreds of small companies or family- owned businesses, that most people do not even realize compete in the pizza industry. The 68. 3% percent statistic shows that due to the fact that there is a very large market for pizza in the United States, the pizza industry is open to a lot of businesses, which causes the competition to intensify. Another statistic that should intensify the competition in the next several years is the growth potential that is predicted to occur in this industry. According to Yahoo Finance, the growth potential for the pizza industry in the next five years is estimated to be about 12. 4% percent. This number or percentage will probably surprise a good number of people, especially since Papa-John’s has just recently announced that it had to lay-off some employees due to losses in the company. Regardless of this announcement, the pizza market in the United States is sure to attract more businesses because of the growth potential in this industry in next several years. B. Competitors in the Take-Out Pizza Industry The take-out pizza industry is an extremely competitive industry. The reason this industry is so competitive is because there are four major competitors in this industry that not only compete against each other, but also against hundreds of other companies or private businesses. The four major competitors in the take-out pizza industry are Pizza- Hut, Papa John’s, Little Ceasers and Domino’s. Pizza-Hut has a bit of an advantage over the other companies as it dominates about 13. 4 % percent of the market ( see Appendix A). Domino’s comes in second out of these competitors, owning about 8. 4% percent of the market. Little Ceaser’s and Papa John’s rank third and fourth, as they own 5. 3% percent and 4. 6% percent of the market respectively. The remaining 68. 3% percent of the market is controlled by those â€Å"other† companies in the industry. Some examples of those â€Å"other† businesses include Ledo’s Pizza, Sbarros’ Pizza, Jerry Subs&Pizza, and many others. So why is it that these four companies really have such a significant competitive advantage in the market over so many other companies in this industry? One reason is the fact that the four major competitors have very strong brand equities. Customers know and recognize the names of these companies and prefer their products over products from companies that they are not as well aware of. It also helps that these four competitors are multi-million dollar companies that are able to spend a significant amount of money promoting their products, which in turn leads to a stronger brand equity. The four major competitors have franchises all over the U. S. and are well known, while the â€Å"other† companies are usually just small businesses that are located in one area. It is important to note that there are those â€Å"other† companies in the take-out pizza industry that have name recognition among customers and have franchises through out the U. S. Two examples of those companies are Ledo’s Pizza and Sbarro Pizza. Both of these companies are successful companies but do not have nearly the market share that the four major competitors have. This is because the four major competitors have thousands of franchises across the U. S. while Ledo’s and Sbarro’s have only a couple hundred. C. Customers in the Take-Out Pizza Industry Markets in this industry are segmented by dividing the markets into distinct group of buyers. The market in the take-out pizza industry is segmented by three types of buyers or consumers. Consumers who purchase cheap pizza, consumers who purchase moderately priced pizza, and consumers who purchase expensive pizza ( see Appendix D -perceptual map for which company fits different consumers). However, companies in the industry often ignore these segments and target the market using undifferentiated marketing or mass marketing by going after the market with one offer. For example, Little Ceasers could advertise a deal such as â€Å"2 Pizzas for $14 dollars†, which is intended to target all the segments in the market. The most effective vehicles that are used to reach the consumers in the take-out pizza industry are just any types of cars. With so many different competitors in such a large market, the marketing mix plays a major role in the buying behavior patterns of customers in the take-out pizza industry. Promotion is definitely one of the key factors in the buying behavior patterns of customers in the take-out pizza industry. Promotion is a big reason why the four companies, Pizza Hut, Papa John’s, Dominos, and Little Ceasers have a distinct competitive advantage in the market over other companies in the pizza industry. The more customers know about a companies product, the more business that company will usually generate, especially over those companies that do not promote their product. Price, which is another component of the marketing mix, is also a very important factor in the buying behavior pattern of customers in the take-out pizza industry. However, price is a more complex issue in the pizza industry than one might anticipate. The reason for this, is the fact that many of the â€Å"other† smaller companies in this industry, lower their prices on purpose, in order to compete with the big name companies like Pizza Hut and Papa John’s. A lower price will not necessarily mean more business if the product quality of a particular company is considered low by customers. Quality is another factor that has a huge affect on customer buying behavior. A lower price with good product quality is what will really generate business in this industry. The four major competitors, Pizza Hut, Papa John’s, Dominos, and Little Ceaser’s are known for their great product quality and their fair prices (see perceptual Map). These companies have that great reputation of great product, great service, and fair price which is valued so highly by costumers. Having a good reputation of a product and price is very essential in the take-out pizza industry because customers will build a relationship with the company and will keep on ordering from that company if they believe they are getting a good deal. D. Pricing in Pizza Market What is interesting about the pricing in the pizza industry is that the take-out pizza market can be thought of as having two types of competition. Most people would agree that the take-out pizza market can be seen as a monopolistic competition, or the market consisting of many buyers and sellers with different prices (Kottler). What most people do not realize is that between the four major competitors there is somewhat of a oligopolistic competition. The four major competitors are very sensitive to each others’ prices because customers perceive their quality of product very similarly. If Pizza-Hut were to lower its prices, the other competitors would be in danger of losing business if they do not lower their prices as well. Lowering prices could lead to price wars among the competitors, which the pizza-industry was very well known for in the 1990’s. Therefore, companies must be very careful in the prices and deals they offer to their customers. For companies to be successful in the take-out pizza industry in the future, companies must find a way to have lower prices along with great product quality among their competitors. E. Promotion and Distribution in the Take-Out Pizza Industry Promoting and distributing the product is very important in the take-out pizza industry. Those companies that promote their product and are able to distribute or deliver that product efficiently are the companies that tend do be successful in the take-out pizza industry. The four major competitors are known for their advertising and promoting in this industry. These companies try to differentiate themselves in the industry by having unique logos and catch phrases that express their great product or service (see Appendix C for logos of the four major competitors). For example, Papa John’s tries to distinguish itself in the pizza industry as having â€Å"Better Ingredients, Better Pizza†. Domino’s wants to be known in the industry as not just having great pizza, but as having that very fast and efficient service when they use the phrase â€Å"Get the door! Its dominos†. Little Ceasers Pizza, a company that lost a lot of its market popularity when it suffered big losses from 1998 to 2001 (VBIC-Little Ceaser’s), has been slowly climbing back by offering â€Å"Quality Products + Great Taste + Favorite Food =Little Caesars Pizza! â€Å". Pizza-Hut, the company with the biggest market share in the industry, is known as â€Å"The family pizza place† (Pizza-Hut). Companies in the pizza industry have also been known to run their advertisement campaigns by promoting sales using special deals or bonus packs. For example, Domino’s used to promote † buy one, get one free on Tuesdays† (see Appendix B for examples of bonus packs used by the four major competitors). Many other companies in the industry have been known to promote deals that are very similar. Marketing and promoting a companies product will help companies in the pizza industry with their goal of maximizing their profit. Efficient distribution of products in the take-out pizza industry is now more important than ever before. Intensive distribution, which is stocking the product in as many outlets as possible is the strategy most franchises of the four major competitors prefer to use, because pizza is a convenience product, and is therefore bought frequently. With the increasingly rapid pace of living in our society, customers are demanding faster and more efficient service. The pizza industry has responded with this change by distributing the product straight to the consumer faster and more efficiently. One of the ways distribution has improved is due to the fact that companies have become more convenient for the customer. For example, Pizza-Hut has partnered up with KFC and Taco Bell to make it more convenient for customers to obtain their product (Pizza Hut). The companies in the take-out pizza industry, that will be most successful in distributing their products in the future, are the ones that will be able to provide their product faster, more efficient, and at more convenient locations. Macroenvironment There are also factors outside of a company that affect its ability to serve its customers. These factors are called the macroenvironment of the company. The macroenvironment factors that affect companies in the pizza industry include the demographic, economic, ecological, technological, political/legal, and cultural factors. A. Demographic factors that have affected the Take-Out Pizza Industry The demographic factors that have affected the take-out pizza industry are the geographic shift of families toward the suburbs, as well as the increase in single-parent families. These developments have presented new positive opportunities for the take-out pizza industry. New opportunities have been created in the industry because more people have been moving from cities to the suburbs. New communities are now being developed in places like the countryside, once thought to be unreachable by many just a decade ago. This has allowed the market in the industry to expand because there are more families and people in general in the suburban areas. This demographic shift has provided more accessible targets for companies in the industry. Another demographic shift that is having an affect on the take-out pizza industry is the change in the makeup of the American family. There are more divorces in the United States than ever before and due to this there are more single parent families. Many single parents work and do not have time to prepare meals for their families. This presents another positive opportunity for companies in the take-out pizza industry. When single parent families are in a rush or are looking for a just simple meal to feed the family, companies in the take-out pizza can gain from this opportunity because they can satisfy this customer need. Demographic developments such as the increase in single parent families, and the geographic shift of of families from cities to the suburbs has expanded the market for companies in the take- out pizza industry. B. Economic Factors that can influence the Take-Out Pizza Industry Economic factors influence almost every industry, and the take-out pizza industry is no exception. If prices of a product such as pizza go up by a significant amount, there will probably be an affect such as less consumption of pizza by customers. One other thing that could happen is, due to the various prices of pizza in the industry, customers could also buy cheaper pizza with lower quality to compensate for the rising prices. However, usually when the price of a product goes up, especially such as food, consumers tend to substitute that good or product with a cheaper good or product. In a bad economy, people tend to spend less and save more. Therefore, people will probably spend less on pizza compared to what they would in a better economy. On the other hand, if the income of people or families were to increase, there will probably be a rise in the consumption of a product such as pizza. When people have more money, they tend to spend it on more goods and products. In a good economy, people are generally spending more money and are usually consuming more pizza. C. Ecological Factors that affect the Take-Out Pizza Industry The ecological factors that are affecting the take-out pizza industry are the rising gas prices as well as the rising prices on dairy products, specifically cheese. Both of these factors have really hurt companies in the industry. The rising prices of gas has really hurt those companies in the industry that deliver because companies have had to compensate their drivers for the extra costs. The rising prices on dairy products, especially cheese, has hurt all the companies in the industry because cheese is one of the main ingredients to making a pizza. The smaller chains have been especially hit hard by these rising costs and it has been reflected in the rising costs of pizza in many stores. For example, one small chain in Boston called Papa Gino’s, has had to raise the price of their medium sized pizza from $8. 99 to $9. 49 ( National Restaurant Magazine). Customers do not buy as much with higher prices so companies end up losing business. These increases in prices have had a very negative affect on the industry. (For negative publicity in the industry, please see Political/legal factors). D. Technological Factors that affect the Take-Out Pizza Industry Technological factors are also affecting the take-out pizza industry. Due to the increasingly rapid pace of living, customers in the take-out pizza industry are now demanding faster and more efficient service (Pizza-Hut). Technology is helping companies in the pizza industry meet those customer demands. For example, new and better equipment, such as faster ovens, which are always being modified and improved on, are allowing for companies to make pizzas faster and more efficient. The new internet age has allowed customer to order pizza online, giving companies more business and speeding up the service. With computers available in almost every pizza store, when an order comes in for a pizza, stores are now able to get more precise directions to the address of where the pizza is supposed to be delivered. Technology has also opened up doors to new opportunities for many companies in the industry. Due to improved technology and communication through out the world, companies in the industry, especially the ones with money, like the four major competitors, are now looking to expand their business not only in the United States but also oversees. Improvements in technology has helped companies in the take-out pizza industry adjust to customer needs and wants, and at the same time, it has opened up opportunities all over the world for companies in the industry. E. Political/Legal Factors that affect the Take-Out Pizza Industry The political or legal factors that affect the take-out pizza industry are usually any food regulations that are enforced from the U. S. government. In the last several years, the government has pushed companies in the pizza industry to make their food healthier for consumers. This has not been as big of a problem as first anticipated, because companies in the take-out pizza industry have been forced to modify their menus anyways. Due to the increase in consciousness of health and fitness among the public, companies have had to adjust to this health craze with healthier choices to provide customer satisfaction and to stay profitable in the industry (see next section on cultural factors for more in depth on this topic). Another legal issue, which has received some bad publicity, is that the group People for the Ethical Treatment (PETA) has sent letters to three of the major competitors, Domino’s, Papa John’s and Little Ceasers â€Å"seeking to curb alleged abuses, particularly against dairy cows that produce the milk for mozzarella cheese†(News Digests). This issue is being dealt with as the companies are meeting with PETA to make sure they are meeting its guidelines. Overall, political and legal factors have not had a tremendous affect on the take-out pizza industry. F. Cultural Factors that affect the Take-Out Pizza Industry The major cultural factor that has affected the take-out pizza industry has been the increase in consciousness of health and fitness among the public. This has had a negative affect on the industry because companies have suffered in business. Pizza has never been perceived as being exactly the most healthy food out there. With the new health craze, companies in the take-out pizza industry have been forced to adjust their products and services to the new costumer wants. Companies in the industry have spent millions of dollars to find out how to satisfy these wants. Even though pizza is still the dominant menu item, many new healthy compliments have been added to the menu in order to soothe customer demands. These new additions have included salads that could be purchased separately or in different pizza combo packages, and the offering of healthier beverages such as numerous diet beverages and water. Pizzas have also been modified to adjust with the health craze as items such as vegetarian pizzas, lower fat ingredients, and low-carb crust are now being offered. Due to the fact that the American society has placed more value on health, companies in the take-out pizza industry have been forced to adjust their products and services in order to remain profitable.