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Student:      PRODUCT            Lecturer :DIFFERENTIATION & PAPA  JOHN’S CASE STUDY
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
MissionProduct                                                               ObjectivesDifferentiationProduct differentiat...
Firm-                 Customer                          The notion of a base of differentiation is important              ...
Here are how the implementation of V-R-I O toProduct Differentiation            Threat of entry                           ...
CASE STUDY
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
Company Snapshot                      3,646     612        2,280        754Stores (2010 data)            company-   domest...
There are more than 65,000 pizza                    restaurants in the United States                    $36.286 billion wo...
Type of Pizza                                      Channels of Distribution• Traditional Crust Pizza: The crust is not too...
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
Element                                                Facts                                               YearTechnology ...
Element                                              Facts                                      YearOperational Support   ...
“By using a combination of internal andexternal resources, Papa John’s wasdetermined to not compete with itscompetition on...
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
(in thousands, except per share data0                                                          Year Ended                 ...
CAGR                                                                                     5 4                              ...
Stock performance:Papa John’s stock even performed terribly after 2007. Loosingits value from 2005 by 8% while the restaur...
Key Issues:•   Papa John’s had enjoyed only incremental growth in the new century    (2000-present)•   Schnatter wanted to...
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
Value Chain Activity                                             Value for Customer            Inbound logistic           ...
Resources/            Is it     Is it   Costly to                V-R-I-O Analysis:                                        ...
What is it?Action used by the firm to gain a competitive advantage by exploiting corecompetencies in specific product mark...
What about the products? DoPapa John’s products own an   edge compared to its       competitors?
Papa John’s products             • Create your own pizza & specialty pizza    Pizza    • All pizzas are made from good qua...
Despite its Pizza uniqueness, Papa John’s products are not unique enough tobe considered sustainable               Is it  ...
And how do the valuableactivities stand on the scale?    Are they rated high?
ScaleValuable Activities                                                    Reason                         0-3Commissaries...
Conclusion on theAnalysis• Papa John’s Key valuable activities are not considered to be distinctive  or special thus the c...
TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
Threat of New entrantsIt is easy for new pizza parlor or pizza business to set up                                         ...
Type of                  • Mature   industry                  • Earnings and sales grow slower in mature industries than i...
The answer to the question of rareness    can safely be assumed at this point in    the analysis. The assumption is that  ...
Cost to imitate?                  Strategy                     ReasonEasy                          Product featuresMay be ...
Key points for PapaJohn’s consideration• Papa John’s weaknesses in the industry are: the business does  not have a difficu...
BackgroundFactsKey issuesAnalysisCourse of actionRecommendation
Opening 200-300    4,000 stores in 5       6,000-7,000 stores per year   year from 2007          worldwide                ...
Papa John’s sets-out these                 • Partner with local                                             producerstrate...
Goals                             Critics                                               Advise                  Despite it...
Strategy                      Implementation                                    ExampleNew & improved products            ...
The Organization question of the VRIO Model is perhaps even more important with aproduct differentiation strategy because ...
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Papa John's Case Study

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Transcript of "Papa John's Case Study"

  1. 1. Student: PRODUCT Lecturer :DIFFERENTIATION & PAPA JOHN’S CASE STUDY
  2. 2. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  3. 3. MissionProduct ObjectivesDifferentiationProduct differentiation is a business Internal Analysis External Analysislevel strategy in which firms attemptto create and exploit differencesbetween their products and those Strategicoffered by competitors. These Choicedifferences may lead to competitiveadvantage if customers perceive thedifference and have a preference for Business Level Corporatethe difference. Of course, such Strategy Level Strategydifferences will lead to competitiveadvantage only if the differences Costmeet the VRIO criteria leadership Product differentiation
  4. 4. Firm- Customer The notion of a base of differentiation is important Relationship because it allows a firm to focus its efforts on creating Product Firm and exploiting a particular difference between its Attributes Linkages products and competitors’ products. Managers need to understand their own bases of differentiation and the Bases for Product bases of differentiation of competitors so that they can Differentiation make informed strategic choices Bases for Product Differentiation Definition Example preferences are created by actual differences • product featuresAttributes of the product or in the tangible product or service offered by • product complexityservice the focal firm vis-à-vis competitors’ offerings • timing of product introduction • location preferences are created as the focal firm • Product customizationFirm-Customer relationship develops and exploits relationships with • Consumer marketing customers based on what the focal firm’s • Product reputation target customers want preferences are created as the focal firm • linkages among functions within the focalFirm Linkages combines the competencies of different firm functions within or across organizations to • linkages with other firms produce tangible and/or intangible • product mix differences between the focal firm’s offerings • distribution channels and those of competitors • service and support
  5. 5. Here are how the implementation of V-R-I O toProduct Differentiation Threat of entry Easy to duplicate. Such as . Organizational If the company Imitability RareValueable Organizing product feature structure, Threat of rivalry has established a Maybe costly to management control Threat of differentiated duplicate. Such as Product systems, and mix, links with other firm, substitutes product, which product customizatio, compensation Threat of suppliers implies that the product complexity, policies can all be consumer marketing managed to product is rare Threat of buyers Costly to duplicate. Such encourage customers as links between functions, to have a preference timing, location, reputation ,distribution for the focal firm’s channels ,service and products and/or support services Product differentiation If a product can neutralize the differentiation strategy is threats of the forces costly to imitate, the firm mentioned in the Five can reasonably expect to Forces Model enjoy a competitive advantage.
  6. 6. CASE STUDY
  7. 7. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  8. 8. Company Snapshot 3,646 612 2,280 754Stores (2010 data) company- domestic internationa owned franchise l franchise % franchised 83% • John Schnatter opened the first Papa Public/Private Public John’s in 1985 Headquarter Louisville • Sold its first franchise in 1986 • Initial Public Offering on June 8,1993 CEO John Schnatter • Opened its first international restaurant in Employees 16,336 1998 through acquisition of “Perfect Pizza” International Yes in UK. • #1 in American Customer Satisfaction IndexInternet Ordering Yes from 1999-2008 2007 Sales USD 504 million
  9. 9. There are more than 65,000 pizza restaurants in the United States $36.286 billion worth 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 it is still the independent chains that make up the majority—51.66%–of all pizza sales in the United StatesUS Pizza Industry
  10. 10. Type of Pizza Channels of Distribution• Traditional Crust Pizza: The crust is not too thick • Sit-Down Dining - custom pizzas made for in- and not too thin. Usually it is created by rolling the restaurant diners dough into a round circle then topping it with sauce • Typical Pizza Restaurant Establishments: Pizza Hut and cheese. Red Roofs, Independents • Delivery - custom pizzas made, baked and delivered Deep Dish Pizza: A thick crust and dense toppings by restaurant personnel to call-in customers usually characterize deep-dish pizza, also known as • Typical Pizza Restaurant Establishments: pan pizza. Domino’s Pizza, Pizza Hut, Papa John’s New York Style Pizza: The crust of this pizza tends • Carry Out - custom pizzas made and baked for walk- to be much thinner than traditional and deep dish. in or call-in customers to pick up • Typical Pizza Restaurant Establishment: Little Caesars • Take ‘N Bake - custom pizzas made for walk-in customers who then take the pizza home to bake themselves at their own convenience • Typical Pizza Restaurant Establishment: Papa Murphy’sUS Pizza Industry
  11. 11. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  12. 12. Element Facts YearTechnology The first pizza company with online ordering & text messages ordering 2001 & 2007Menu • Pan Pizza 2006 & 2008 • Added desserts to their carryout & delivery menu and chocolate pastry delightCompany growth • High-quality pizza with side items. Proprietary blend of pizza (Menu) 2007 • 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 operationsCost • Net property & equipment value $2 million & property lease $22.4 million. Leasing 2007Management building 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
  13. 13. Element Facts YearOperational Support • Created Operation Support Service and Training (OSST) for training & 2007 & mid-90sSystem development of team members • Printing company for high-quality serviceCommunity Affairs • Sport team sponsorships • College scholarships ($5 million) • National FFA, Cerebbral Palsy K.I.D.S Center, Children Miracle NetworkMarketing • Coca-Cola (sole supplier in Papa John’s store) Up to 2011,Partnerships • Endorsement • Blockbuster Video (30-day trial of free Blockbuster Video online)Industry • Pizza industry is a mature and saturated industry • Highly competitive, cost of entry was relatively low and produc differentiation was difficult
  14. 14. “By using a combination of internal andexternal resources, Papa John’s wasdetermined to not compete with itscompetition on price. Focusing on qualityproduct, active participation in the localcommunities, and product branding enabledPapa John’s to hold its own with the otherpizza chains” – excerpt from the case study
  15. 15. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  16. 16. (in thousands, except per share data0 Year Ended Dec. 30, Dec. 30, Dec. 25, Dec. 26, Dec. 28, 2007 2006 2005 2004 2003Income Statement Data 52 weeks 53 weeks 52 weeks 52 weeks 52 weeks Domestic revenues: Company owned restaurant sales $ 504.330 $ 447.938 $ 434.525 $ 412.676 $ 416.049 Financial results: Variable interest entities restaurant sales 7.131 7.359 11.713 14.337 - • Total revenue CAGR Franchise royalties 55.285 56.374 52.289 50.292 49.851 Franchise dand development fees 4.758 2.597 3.026 2.475 1.475 was 4.3% Commissary sales 399.099 413.075 398.372 376.642 369.825 Other sales 61.820 50.505 50.474 53.117 48.541 • International Revenue International revenues: Royalties and franchise and development fees 10.314 7.551 6.529 5.010 3.810 contributed the most Restaurant and commissary sales 20.860 15.658 11.860 10.747 10.572 Total revenues 1.063.597 1.001.057 968.788 925.296 900.123 of the average growth Operating income Investment income 52.047 1.446 97.955 1.682 72.700 1.248 36.632 639 55.353 672 (21.3% )than Domestic Interest expense (7.465) (3.480) (4.316) (5.313) (6.851) Revenue (3.9%) Income from continuing operations before income taxes and cumulative effect of a change in accounting principle • Operating Income and 46.028 96.157 69.632 31.958 49.174 Net income had been Income tax expense (13.293) (33.171) (25.364) (12.021) (13.440) Income from continuing operations before income taxes and declining for the last 4 cumulative effect of a change in accounting principle 32.735 62.986 44.268 19.937 35.734 years on average by - Income from discontinued operations, net of tax - 389 1.788 3.134 3.242 1.5% and -4.0% Cumulative effect of accounting change, net of tax - - - - (413) Net Income $ 32.735 $ 63.375 $ 46.056 $ 23.071 $ 38.563
  17. 17. CAGR 5 4 Des-02 Des-03 Des-04 Des-05 Des-06 Des-07 CSRP total Returns Index years years Papa Johns 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 placesStock 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 John’s stock also under-performing compared to the overall stock indices• Meaning, Papa John’s investor would create more wealth investing in other company than pouring their money in Papa John’s
  18. 18. Stock performance:Papa John’s stock even performed terribly after 2007. Loosingits value from 2005 by 8% while the restaurant industry hasgrown 60% against 2005
  19. 19. Key Issues:• Papa John’s had enjoyed only incremental growth in the new century (2000-present)• Schnatter wanted to see Papa John’s return to the days when it opened 200 to 300 stores a year• Restaurant analysts belived that pizza industry is a mature and saturated industry• 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 John’s 2010 annual report, the company international operation suffered loss for several years
  20. 20. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  21. 21. Value Chain Activity Value for Customer Inbound logistic • Online sales account for USD 400 million (2007). Papa John’s revenue in 2007 was USD 1.063 billion Operations Store located in prime areas supported by commissaries as its suppliersPrimary 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 Procurement • BIBP Commodities procure the cheese for Papa Johns’s • 10 regional Commissaries supplies Papa John’s store nation wideSecondary Technology development • Papa John’s use IT and text messages for customer order • Also use IT & mobile technologies for promotional services Human resources management Papa John’s operates Operation Support Service and Training (OSST) for its human capital development General adminsitrationPapa John’s Value Chain
  22. 22. Resources/ Is it Is it Costly to V-R-I-O Analysis: OrganizingCapabilities Valuable? Rare? Imitate? • Papa John’sInbound Logistic Yes No NoOperation Yes No No Papa John’s value chain analysis using the V-R-I-OOutbound Yes No NoLogistic shows that actually theMarketing Yes No No company does not have aService Yes No No strong competitive advantageProcurement against the competition thus Yes Yes No lack the ability to createTechnologydevelopment Yes No No value.HRM Yes No NoGAV-R-I-O
  23. 23. What is it?Action used by the firm to gain a competitive advantage by exploiting corecompetencies in specific product markets • Papa John’s 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 better thus the marketing slogan came about (Better Inggredients, Better Pizza)Business Level Strategy
  24. 24. What about the products? DoPapa John’s products own an edge compared to its competitors?
  25. 25. Papa John’s products • Create your own pizza & specialty pizza Pizza • All pizzas are made from good quality dough (better ingredients) • Each pizza accompanied by special garlic sauce and 2 pepperoncinis Sides • Chicken wings, chicken strips, breadsticks Drinks • Softdrinks Desserts • Applepie, cinnapie Extras • Dipping sauces, pepperoncinis, parmesan cheese, crushed red pepper
  26. 26. Despite its Pizza uniqueness, Papa John’s products are not unique enough tobe considered sustainable Is it Is it Costly to Products Organizing Conclusion Valuable? Rare? Imitate? Despite its rarity, Papa John’s pizza isPizza Yes Yes No Yes not costly to imitate Papa John’s side dishes can be foundSides Yes No No Yes anywhere elseDrinks Yes No No Yes No differentiation at all The dessert is quite rare but notDesserts Yes Yes No Yes costly to imitate and the variation is not enough Rare but not too valuable as they’reExtras No Yes No Yes considered to be “extras” & cannot produce too much valueV-R-I-O
  27. 27. And how do the valuableactivities stand on the scale? Are they rated high?
  28. 28. ScaleValuable Activities Reason 0-3Commissaries/Centrali Having a regionalized commissaries allow the company to control its stock low (not 2zed quality control having too much stock per store), maintain quality controlOperation Support Nowadays, a training center for franchisee and staffs are very common in the industryService Training 1 thus having OSST does not mean give too much edge for the company. But the(OSST) existence is definitely necessaryBIBP Commodities, Inc 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 3 prices thus having a stable purchasing price of cheese is necessary. And not many companies have thisInternet & mobile Papa John’s is one of the pizza company that generates 80% of its sales throughtechnology 1 internet or mobile technologies but this technology is not distinctive and already applied by other companies in the industryPan Pizza, Dessert The pizzas are not sold cheaper than its competitor because Papa John’s uses better 3 ingredients and prepared the dough seriously. Despite its quality, the menu or taste is somewhat similar to any pizza available in the marketFranchise system Franchise has contributed to the firm expansion but the system itself is very common 1 and has beem practiced by so many playersLikert Scale
  29. 29. Conclusion on theAnalysis• Papa John’s Key valuable activities are not considered to be distinctive or special thus the company does not have a sustainable competitive advantage• 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 number showed that the international business experienced loss for several consecutive years
  30. 30. TheoryBackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  31. 31. Threat of New entrantsIt is easy for new pizza parlor or pizza business to set up Threat of RivalrySmall differences in terms of product amongst rival business. Each claim to have better products but customers perceiption isvarious Threat of SubstitutesPizza is not a staple food. It is easy for customers choose other food 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 BuyersThe firm does not have a highly differentiated product, customers can choose different pizza restaurantDetermine the threats
  32. 32. Type of • Mature industry • Earnings and sales grow slower in mature industries than in growth and emerging industries Characteristic • earnings may be stable, growth prospects are few and far between • The company can differentiate established products by What can the “refining” the product - new and improved • Or differentiate by offering new levels of service to company do? accompany the productDetermine the industry
  33. 33. The answer to the question of rareness can safely be assumed at this point in the analysis. The assumption is that Papa John’s must establish a differentiated product, which implies that the product is rareIs the product rare?
  34. 34. Cost to imitate? Strategy ReasonEasy Product featuresMay be costly to imitate • Product mix • Links with other firms • Product customization • Product complexity • Consumer marketingUsually costly to imitate • Links between functions • Timing • Location • Reputation • Distribution channels • Service and supportIf a product differentiation strategy is costly to imitate, the company canreasonably expect to enjoy a competitive advantage.What about to cost to imitate?
  35. 35. Key points for PapaJohn’s consideration• Papa John’s weaknesses in the industry are: the business does not have a difficult barrier to enter. Anyone can open a pizza joint and being a food industry meaning that customers have a lot of choice of substitutes in the market• The industry itself is mature meaning that in order to have an edge, the company must differentiate its level of services and refine its existing products• In order to have a product which is costly to imitate than Papa John’s must improve its link between functions, build brand reputation, conduct innovation in its distribution channels and service support
  36. 36. BackgroundFactsKey issuesAnalysisCourse of actionRecommendation
  37. 37. Opening 200-300 4,000 stores in 5 6,000-7,000 stores per year year from 2007 worldwide Ensure steady Reduce company- stream of revenue run stores despite difficult environmentLet’s revisit Schnatter goals
  38. 38. Papa John’s sets-out these • Partner with local producerstrategy to achieve its Internatio nal • Franchisegoals (stated previously) Expansion • Accomodate sit- down dining are Grow & Maintain domestic • Co-branding efforts markets • Develop or acquire Diversifica tion additional restaurant chainHow the firm plan to bring about?
  39. 39. Goals Critics Advise Despite its experience in international market, • The company should maintain its core values of the opportunity looks very promising but the producing quality pizza at a premium price and its company will have to sacrifice its identity as a business model which is a carry-out & delivery carry-out & delivery pizza restaurant • Despite the lure of international opportunity, theInternational company should refrain from going into asianExpansion market since the characteristic are very much different. Other option would be to focus on North America (Canada & Mexico) which share resemblance Reducing company-run store would turn • The company should maintain a healthy ratioMaintain disastrous because the company will lose its between company-run & franchisee store because itdomestic sense of the business. needs to make sure that the franchisee businessmarket remain profitable • Co-branding with renown brand • Acquisition, based on various studies often • Acquisition can be done for expansion toNew business failed because the differences in the culture international market. By acquiring brand that and over-pricing the value of acquiree already established in the international market. It(acquisition or • If the business is totally different from Pizza can be a pizza restaurant or any restaurant businessdevelopment) business then the company needs to acquire new knowledge in the new industryCritics to Company’s Goals
  40. 40. Strategy Implementation ExampleNew & improved products • Pizza with high quality inggredients, • Original Pizza, the one that originates imported inggredients from Italy • New line of esserts • Chocolate melted, tiramisu cake, • Italian beverages cheese cake • Health concious • Cappucinno, lattes • Products which contains low calorie, fresh ingredients & healthyNew level of service and support Catering services For private parties or birthday partyLinks between functions Store expansion through tripartite (Bank, Using the company’s guarantee, help the company & franchisee) franchisee expand their business through stores openingLocation Expand to Canada & Mexico. Market Open new franchise that resembles US.Distribution channels Modern outlet (supermarket) Sell “create your own pizza” and “ready to make pizza” in supermarketsReputation Health conciuous, not only better Pizza Marketing campaign that focus on healthier Pizza, not only betterBusiness-Level Strategy Recommendation
  41. 41. The Organization question of the VRIO Model is perhaps even more important with aproduct differentiation strategy because of the relationship between the companyand customers Strategy Implementation ReasonOrganizational Structure • U-form Eash business manager, must be • Not too many layers responsible for the profitability of their • Profit oriented regional business area respective area. Not only that, they also must have the knowledge to expand their business locallyManagement Controls • KPIs not only based on financial The main idea behind using management indicators but also on business controls in the implementation of a product growth & innovation 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 adaptableCompensation Policies • Rewards for successful Compensation policies should be experimentation structured to reward managers and • Absence of punishment for failed employees for cooperating within cross experimentation provide strong functional teams and being creative in incentive to be creative the processBusiness-Level Strategy Recommendation
  42. 42. THANK YOU
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