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
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8/10/2019 Studi Kasus Papa Johns
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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.
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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?
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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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