Pizza Hut, Inc

Marketing Plan for 1986/1987

To: Allan Huston
Senior Vice President and General Manager of Delivery at Pizza Hut, Inc.

Executive Summary
Pizza Hut, Inc. has hired Team Red Lion to develop a marketing plan for the 1986/1987
Annual period. The plan addresses the problems that prevailed in the previous years with the
company; more specifically, with the low market share segment of the delivery. After much
market analysis, many evaluations, and given the company objectives, we have come to the
following conclusion: For this year, Pizza Hut should focus on creating new product innovation
and launching them onto public. They must also must also continue to use the previous annual
marketing mix to reach the other market segments

The marketing mix outlined in this report is targeted to meet the needs of consumers
ranging from age 15 to 55 such as baby-boomers with children, two-career families, college
students, and military personnel's. Some of the needs include that Pizza Hut must find a way to
provide convenience to this group. Pizza Hut must also keep up with trends each year, and
launch a new product innovation every seven to eight months to distinguish itself from its
competition such as Domino's, Little Caesars', and Godfather. The company should also focus on
excelling high quality of products and also providing excellent customer service to all its
consumer. This means getting consumers product on time to them, offering the best prices out of
its competitor, while still remaining at stake with its high quality perfection. The company must
also make sure that there is control, organization, and growth within its franchise system because
a majority of their income and success comes from its participation of the franchisees.
Place, Promotion, and Prices are designed around the products and are aimed to the
consumers ranging from age 15 to 55. For Place, we suggest that the company continues to
market in large metropolitan areas, as well as the small suburban areas to get a good gross
margin. We also consider that this company might want to pursue an alternative option which is
to have product available in high traffic areas such as the airport, shopping malls and outlet, etc.
Thus will ensure competition in all market segments against Pizza Hut top rivals. In terms of
Promotion we suggest, to increase the usage of advertising in newspaper, magazine spread
covers, billboards ads, brochures, tournament and sold out games, television, and radio stations.
For price, Pizza Hut should remain consistent with its price skimming.
Overall, with the execution of the marketing plan there will be an increase in sales and
market share with the delivery segment for Pizza Hut, Inc.

Problem/Objectives
Pizza Hut, Inc. had dominated the fast food market nationwide over the years. By 1986,
their leadership position in the overall pizza market, had been challenged by Domino's who is
essentially a delivery-only chain business. Delivery segment accounted for 20% of the pizza
market and had been responsible as the fastest-growing part of the $53 billion fast food market.
Although there had been a lot of mix review and resistance going into the delivery segment those

that entered was growing rapidly and its franchisees reported success within the segment to its
directors. Although, Pizza Hut have had much success with getting the franchisees cooperation to
enter the delivery segment, and 96 units they placed on developed markets had been doing so
well with increase sales, two units of the 96 had not been so fortunate to be profitable. Pizza Hut
team included Reinemund, Huston, and Baxter and they must implement a strategy that would
allow them to maximize profits in the delivery segment while keeping the operation cost as low
as possible, and not jeopardizing the high quality standards that Pizza Hut has fully succeeded
within the years they been in business. Pizza Hut must find a way to respond to their drop in
sales when Domino's fought them back with two-for-one deals for three months, and their
weekly sales dropped to 4,850. The company must find a way to price more competitively
against its competitor, they must find a solution as to why only 20% of its customer had upsized.
Overall, Pizza Hut best strategy is to develop a brand new product design exclusively just for the
delivery segment and no others.
Company
Pizza Hut restaurant began when Dan and Frank Carney, two college students from
Wichita, Kansas opened the first restaurant on June 15, 1958. Pizza Hut went public in 1969, and
in 1977 it was acquired by PepsiCo, Inc. In 1981, Pizza Hut became the largest pizza restaurant
chain in the world in both sales and number of restaurants and it reached $1 billion. By 1986,
Pizza Hut restaurant sold a total of 5,025 units and annual sales of almost $2 billion. Pizza Hut
restaurant was characterized by a distinctive freestanding design and familiar red roof. Pizza Hut
restaurants were full service, eat-in/carryout family-style operations seating about 60 to 90
customers and normally open from 11 a.m. to midnight. By December of 1986, Pizza Hut
company-owned traditional restaurants has 2,173 and 361 delivery only units. Its franchisees
owns 2,395 restaurants, 292 retrofit, and 96 delivery only units.
Strength
Pizza Hut has many different strengths. One of them include they had taken the lead in
marketing. Second, they have a strong brand name recognition and they are also leading partners
with PepsiCo, Inc. Another strength include they have dominated the eat-in pizza segment
nationwide for years. Currently, Pizza Hut is catering to three different segments of the pizza

market: eat-in, carryout, and introduction of delivery and this had led them to a total generating
amount of $12.7 billion in 1986.
Weaknesses
Although there are many strengths presented for Pizza Hut, however there are
weaknesses that must be address by the company if they want continued business growth. One
concern, for the company was their mismatch of organizational forms between its franchisees.
Another had been that the Pizza Hut national advertising account has been split in two within the
advertising agency so that a separate group could begin working on delivery. Third, its
franchisees did not see a point with the Customer Service Center it drew major setbacks with its
installation, expensive to develop, charge .65 per call to its franchisees, and because of its
installation it cost serious loss in the Norfolk, Virginia market which was once a profitabledelivery market. Another issue it faces was that the company could not charge for delivery, most
of its competitor already offered free delivery to its customer. Pizza Hut decision to upsize its
product to cover the cost of delivery and the CSC system was not a success because only 20%
had upsized.
Opportunities
Opportunities presented for Pizza Hut is that they have a strong position going into the
delivery segment and they have had very much success with it. Out of the 96 delivery-only units,
that has been installed only two of them were not profitable. After its initial rejection with the
delivery segment, the franchisees who enter the delivery segment has experience rapid growth
and much success. In 1984, Pizza Hut delivery segment was at 10% with sales of $1.0 billion and
in 1986, delivery segment was at 20% with sales of $2.6 billion. Based on these calculations this
shows that the company has a lot of room to grow over its decade.
Threats
The number one threat Pizza Hut faces is from their biggest competition in the delivery
segment is Domino's. Domino's has succeeded in beating out Pizza Hut by using two for one
deals, offering free delivery within 30 minutes, as well as price lower at $9.50 whereas Pizza Hut
prices at $9.99. Another obstacle Pizza Hut faces is the in-restaurant consumption was not

increasing significantly. Although, there are tremendous growth if Pizza Hut was to fully commit
to the delivery segment, but there is not a lot of room to grow nor expand because everyone in
the pizza market has the same competitive advantage as the next person.
CULTURAL/SOCIAL ENVIRONMENT
Cultural and Social factors has helped shape the current environment. For instance,
Customer buying behaviors are being heavily influenced by television and internet
advertisement. Advancement in education must also be considered because this affects the role of
woman in society, by them having an increase in their level of education they now work outside
of the home, this can lead to an increase in household income, which means that they now have
more money to spend. The 1980s, brought fuel to the pizza delivery and carryout segment by the
increase number of baby-boomers with children and two-career families who did not have time
cook at home and was looking to fast-food businesses to provide them convenience. Third,
customers are now more cautious when deciding how much to spend on a particular product,
because they are being narrowed down by their choices of time and money. Pizza Hut must
consider this environment because a fraction of their gross margins come from making its sales
through college dormitories and military business.
ECONOMIC ENVIRONMENT
In the 1980s the U.S. economy condition had been at a slow growth. It suffered a deep
recession till 1982. Conditions improved for most of the segment of the economy in late 1983.
Throughout 1983-1987, GNP grew at an annual rate 4.2%, the annual inflation rate remain at a
balance interest rate of 2 % - 5% and by this time more than 13 million new jobs have been
established in the U.S. economy. Pizza Hut must consider the economic environment because
they depend on raw materials mostly from farmers. If farmers are experiencing a down economy,
then they will charge more for their produce and other stuff that Pizza Hut will need to maintain
its operations.
Consumer Analysis
Pizza Hut consumer markets are primarily focused on three different categories. The first
market segment are consumers who want the dine-in experience. Pizza Hut focused heavily on

these consumers in the early start up days of Pizza Hut. These type of Pizza Hut restaurants were
focused on people who wanted to enjoy a slice of pizza while also enjoying some quality family
time. The second market is carry out. In this segment, it was highly marketed to the two career
families which made it take off in the early 1980s. Convenience was the way to go in this era
when the baby boomer age was starting to create families of their own. They believed that sitting
down in a restaurant every week for dinner was too time consuming. The last market segment
was also marketed to the workaholic who was too busy to leave the home or office to pick up
their dinner. These two market segments had not been heavily supported in the beginning of the
company's history, but when Pizza Hut saw the potential from competitors, they were forced to
jump on the band wagon which made the company put much effort into branching away from the
traditional dine-in environment. For example, in the early 80s eat-in restaurants had the highest
income at 4.3 billion dollars annually, compared to 3.2 billion combined for both carry-out and
delivery.
Competitive Analysis
As discussed above, Pizza Hut held a strong competition in the dine- in restaurant market
segment in the early 80s whereas its delivery and take-out segments had stiff competition. Pizza
Huts number one competitor in dine-in restaurants was Godfathers pizza. Along with
Godfathers Pizza, in 1984 Dominos competed for the delivery/ take-out segments and made
some major gains against Pizza Hut. It sales tripled from $626 billion to $1.55 billion by the end
of 1986. Pizza Hut first experienced the effect of Dominos in its highly successful company
owned stores which were based in densely large populated areas. Later, Dominos branched into
smaller market groups affecting Pizza Huts franchise chains. Dominos was able to have high
success in these two segments because most of Pizza Hut restaurants were franchised owned and
not all Pizza Hut locations offered the same services. Along with the differentiation is service,
the order taking system was different. Pizza Hut decided to use a singles system in which
customers would contact one phone line to take orders. This would clog the smooth flow that
Dominos had mastered by having orders taken by each individual restaurant. In the late 80s,
discounting, and free delivery with time guarantees became the major craze which brought even
more competition. Little Caesarss, in which was primarily focused on take-out started offering
two-for-one deals, and God Fathers pizza launched their own delivery system with discounted

pricing. As pizza was ideally though more and more as a fast food item, the more competition
Pizza Hut faced.
ALTERNATIVES
From, the Situational Analysis three alternatives have been developed to reflect some of
the opportunities available to the company. The positioning of each alternative, as well as the
company's target position is included in (Appendix B).
Alternative 1: STATUS QUO. One option Pizza Hut has is to employ the Status Quo pricing
strategy. In this case this option would be to continue retro-fitting the existing Pizza Hut
restaurants with delivery and take out windows and continue building the stand alone delivery
only stores. The Franchisees began to show a lot of success after starting delivery and were doing
so well they could afford to set their prices competitively and compete with Dominos.
Alternative 2: Upsizing. Another alternative would be an up charge. For Pizza Hut to cover the
price of the delivery service, they could upsize the pizzas they deliver and charge a higher price.
Since Dominos offers free delivery, for PH, to enter the delivery sector, they would have no
choice but to also offer free delivery. Introducing a new sector to their store such as delivery,
they could incur many extra fixed cost. Offering a larger pizza to delivery customers who most
likely need a larger size for their event is a good way to charge a small up charge and this would
absorb the cost of delivery.
Alternative 3: New Product. This is the most promising of the alternatives. Offering a new
product to compliment the pizza, such as bread sticks, cheesy bread, or a large beverage is
another good option for Pizza Hut, to increase profits as well as cover the cost of delivery.
Introducing a product like a lunch section such as 7inch pizza and breadsticks, would target
health facilities, office workers, and those that do not have the convenience to cook at home.
CRITERIA FOR EVALUTATING ALTERNATIVES
Pizza Huts goal in analyzing these alternatives is to figure out which will impact
profitability. The pizza customer has been to shown to not prefer to eat pizza in the traditional
restaurant setting because they have a different relationship with pizza than with most other
foods. They typically want to enjoy it in a more personal environment such as home and in this

case it would be easier to offer sides and drinks to enhance the enjoyment of the pizza. These
side products would be available to delivery customers exclusively in order to boost the delivery
revenues.
RECOMMENDATION
Alternative 3 is the best choice. To introduce a new product line to the delivery segment
will help Pizza Hut impact profits most effectively. The second option, Upsizing is a good
alternative to new product and might be shelved for now to be added at some point in the future,
but this method has not been very widely adopted, only 20% of franchisees use upsizing, and the
franchisees that have not used this have still showed much success. Similarly, the first
alternative, continuing the Status Quo is a good choice but only if there werent any other options
available due to the fact that it has been showing success although not a quickly as desired.
Consider that when Pizza Hut delivery abandoned the Customer Service Center and began
having calls go directly to the store, they were able to cut costs and increase profits. Since
managing profit is Reinemund, Huston, and Baxters focus, this is very good option to continue
the gradual success of delivery segment.
PRODUCT
Currently, Pizza Hut main objective is to focus on increase growth of their delivery
segment. Pizza Hut share within the delivery is at 20% share, earning them $2.6 billion in sales
in 1986 compared to 1984 when their share was at 10% and sales of $1.0 billion. The franchisees
that introduced delivery within their store units are doing relatively well, compared to the
company owned stores. To continue this trend of profitability, Pizza Hut must introduce a new
product line into the market to compliment the pizza delivery. Pizza Hut can offer a lunch
program from 11AM 3PM in which they will offer their customer a 7 inch pizza plus a 20 oz.
can of any PepsiCo product. The cost to make this lunch program will not cost much, materials
will be roughly less than a dollar. Pizza Hut can introduce this lunch program at a rate of $5.99.
Aside from this Pizza Hut, has the option to introduce flavored breadstick or cheesy bread onto
their stores (in accordance with the deal between Pepsi and Pizza Hut). These products will only
be exclusively for the individuals that chooses delivery, and this would definitely bump up
revenue for the delivery segment and give customers an option that they dont get with
Dominos.

PLACE
Currently, Pizza Hut company-owned traditional restaurants has 2,173 and 361 delivery
only units. Its franchisees owns 2,395 restaurants, 292 retrofit, and 96 delivery only units. In
order to produce the maximum revenue increase, Pizza Hut should launch both the company and
franchise owned restaurants to achieve identical services across the board, but Pizza Hut should
heavily focus on the densely populated metropolitan areas first to regain the loyalty of the
working force. After all two career families are looking for fast and easy ways of feeding their
families. After gaining loyalty from these company owned restaurants, they should branch off
into the smaller areas just as Dominos had done to them. This will generate more competition for
other Pizza chains which will cause Pizza Hut to gain more consumers. Afterwards, Pizza Hut
must consider an option to launch their product and create awareness in high traffic areas by
using Airport stores, Mall and outlet stores, as well as in the sports industry.
PROMOTION
Objectives of promotion includes the idea of launching and introducing a new product
onto current market. Pizza Hut currently does a great job in marketing with national TV
advertisement. The company must now extend its marketing opportunities through magazines,
newspaper ads, radio stations, billboards, brochures, and sponsorship of local or state
tournament. For example, Pizza Hut needs to advertise their product on television in most of the
developed countries on a certain channel. In India, Pizza Hut needs to advertise their product on
Sony channel during the live cricket game where almost 60 to 70 percent of viewers are on
television watching the game. The company needs to advertise the free delivery products with
deals in magazine and newspaper more than they might have done in past. Deals should display
the new product line such as the lunch program, offer a free side of appetizer and free delivery
for a minimum purchase. By doing this it will bring a new boost if advertise correctly, and
implement this deal in Asian and Western countries. Pizza Hut would also need to promote
extensively in local newspaper and hand out brochure to consumer's home or apartment. In this
case, the company can give out several dollar off coupons, buy 2 large pizza get the third free, or
purchase a minimum purchase of $15 and get free delivery. Although, this may seem like a small
step, over time it will beneficial to the company.

PRICE
Pizza Hut image is recognize as a red hat in the market, and has been really strong among
their competitors in this segment. They are the only brand in the market who created dine in
restaurant with a friendly and kind environment. Pizza Hut organization has been in profit until
they got a serious threat from the competitors when the consumer reference started moving from
dine in restaurant to the delivery. Pizza Hut target customers ranges from the age of 15 to 55.
Pizza Hut pricing are set very high in the market among their competitors such as dominos and
god fathers. Their price of the product is set very high because they want their consumer and
their target market to know that the quality is very different than their competitors. These is
called a price skimming meaning pricing strategy in which a marketer sets a relatively high price
for a product or service at first, than lowers the price over time. It is temporal version of price
yield management. Only weakness of price skimming if they were to pursue a market in Asian
countries, it will not do well because there is a wide variety of foods that is inexpensive to its
population, the only way they will attract Asian market is if they price lower. In America, Pizza
Hut can increase the price of their product because the economic situation here allows the
population to do as that. Salary wages are much higher than those of developed countries. To see
a list of new product innovation and its cost please refer to Appendix____. With the new product
innovation that Pizza Hut will pursue this upcoming year it is no doubt that they will have an
increase market share between 4%-5%.
Physical Facilities
When pizza hut enters the delivery market they might get away with selling the same
pizza to its delivery customers, but this sector makes changes necessary to certain intangibles in
order to also help increase profits. PH shows steps in this when the existing company owed and
franchisees retrofit their facilities to fit the needs of delivery. This is a relatively inexpensive way
for the company to add the necessary features for delivery while not creating and entirely new
facility.
Personalized Service
Pizza Hut can offer personalized service easily by introducing a new product line. PH
knows there are different types of Delivery pizza consumers so its easy to tailor the delivery

packages, discounts, pricing, and sizes to the appropriate recipients. This personalized service
helps Pizza Hut offer a differentiated product and helps them stand out in the market and
increasing their revenues.
Personal Selling
A way that Pizza Hut can focus on personal selling when it comes to improving their
revenue is by connecting with their customers on a personalized basis. They can improve the
way they do personalized sales by enhancing the way Pizza Hut employees take the orders of
each individual customer. For instance instead of blindly asking what would you like to order?, a
Pizza Hut Employee can help guide the customer through the menu and provide suggestions to
the customer based on their needs. For example, an employee can suggest would you like
breadsticks with your order? If you like our dipping sauces they are a delicious add on to the
pizza. Another example could be that if a mother comes in with five children, or calls with
plenty of background noise, the Pizza Hut employee can suggest a large family pizza deal which
can increase sales, instead of blatantly asking what can I get you. The same idea goes for the
person who is going in by themselves and wants a personalized pan pizza. If the Pizza Hut
employee makes good suggestions to the customer, then, the customer will be more likely to
return which will give more chances for an employee to build customer loyalty. This is good in a
sense that every time a person is craving pizza they will be more likely to return, or call for
delivery to the place in which they received assistance in purchasing a product that they enjoyed.
IMPLEMENTATION
Based on the marketing mix described by the group Red Lion above, the consultants
suggests the following time plan for the couple of upcoming years. To see timeline of
Implementation please see (Appendix A).The aim of this marketing plan is to build market share
in the delivery segment. Placing Advertisements in high traffic can bring great awareness.
Overall, this marketing plan captures the opportunities presented in the current environment to
promote a healthy, strong, and successful organization.
Implementation time line (Appendix A)

1st period of research: pizza hut developing research development will research the location
where pizzas delivery is in more demand over the world; researcher will give list to company.
2nd period of product development: company will than develop the product according to the
research demand that we have. Company will limit this product for the sale so we can figure out
the quick result in a short period of time. Product will be the size of pizza that we proposed and
also it will include the side of bread sticks and a bottle of drink.
3rd period of promotion & distribution: company will market this product in the high traffic,
densely populated, and industrial area. Once the company advertise the product in these area we
will try to just focus on this location and then see the profit of the delivery segment.
Conclusion
Pizza Hut, Inc. has established a strong image in the market by providing high quality of
products in the fast-food industry over its previous years. In the segmentation of the Pizza
Market, Pizza Hut currently makes $5.1 billion for eat-in, $5.0 billion for carry-out segment,
under delivery they were only exceeding $2.6 billion at a 20% share. Based on this calculation, it
clearly shows that their main problem is that they need to hold a strong position in the delivery
segment. Although, this company has done well in marketing its brand and partnering with
PepsiCo and creating awareness in Television and Radio they must consider other alternative
options such as marketing its brand new product innovation in Billboards across the state,
magazines covers and spreads, as well as the local newspaper in each town. Pizza Hut, Inc. must
also remain consistent with its product innovation and launching the product to the public every
seven to eight months and also to keep up with trend for that year, this is very important if Pizza
Hut would like continued growth for this segment. Pizza Hut, Inc. must also follow its new
marketing plan and its implementation if it would like to have success with this new product
innovation.