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DIFFERENTIATION
PAPA JOHNS CASE
STUDY
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Mission
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 the
difference and have a preference for
the difference. Of course, such
differences will lead to competitive
advantage only if the differences
meet the VRIO criteria
Objectives
Internal Analysis
External Analysis
Strategic
Choice
Business Level
Strategy
Cost
leadership
Product
differentiation
Corporate
Level Strategy
FirmCustomer
Relationship
Product
Attributes
Firm
Linkages
Bases for
Product
Differentiation
Definition
Example
Firm-Customer relationship
Firm Linkages
product features
product complexity
timing of product introduction
location
Product customization
Consumer marketing
Product reputation
Threat of
substitutes
Threat of suppliers
Threat of buyers
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.
Organizing
Threat of rivalry
If the company
has established a
differentiated
product, which
implies that the
product is rare
Imitability
Threat of entry
Rare
Valueable
CASE STUDY
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Company Snapshot
3,646
Stores (2010 data)
612
companyowned
2,280
754
domestic internationa
franchise l franchise
% franchised
83%
Public/Private
Public
Headquarter
Louisville
CEO
John Schnatter
Employees
16,336
International
Yes
Internet Ordering
Yes
from 1999-2008
2007 Sales
US Pizza Industry
Type of Pizza
Channels of Distribution
US Pizza Industry
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Element
Facts
Year
Technology
The first pizza company with online ordering & text messages ordering
Menu
Pan Pizza
Added desserts to their carryout & delivery menu and chocolate pastry delight
Company growth
2007
Cost
Management
Net property & equipment value $2 million & property lease $22.4 million. Leasing
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
2007
Element
Facts
Operational Support
System
Created Operation Support Service and Training (OSST) for training &
development of team members
Printing company for high-quality service
Community Affairs
Marketing
Partnerships
Industry
Year
2007 & mid-90s
Up to 2011,
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Dec. 30,
2007
52 weeks
$
Dec. 30,
2006
53 weeks
504.330 $
7.131
55.285
4.758
399.099
61.820
Year Ended
Dec. 25,
2005
52 weeks
Dec. 26,
2004
52 weeks
Dec. 28,
2003
52 weeks
10.314
20.860
1.063.597
52.047
1.446
(7.465)
7.551
15.658
1.001.057
97.955
1.682
(3.480)
6.529
11.860
968.788
72.700
1.248
(4.316)
5.010
10.747
925.296
36.632
639
(5.313)
3.810
10.572
900.123
55.353
672
(6.851)
46.028
96.157
69.632
31.958
49.174
(13.293)
(33.171)
(25.364)
(12.021)
(13.440)
32.735
62.986
44.268
19.937
35.734
389
1.788
3.134
3.242
32.735 $
63.375 $
46.056 $
- (413)
23.071 $ 38.563
Financial results:
Total revenue CAGR
was 4.3%
International Revenue
contributed the most
of the average growth
(21.3% )than Domestic
Revenue (3.9%)
Operating Income and
Net income had been
declining for the last 4
years on average by 1.5% and -4.0%
CAGR
5 4
Des-02 Des-03 Des-04 Des-05 Des-06 Des-07
years years
100,0
116,7
120,7
213,1
206,3
100,0
146,0
160,0
167,8
180,8
100,0
137,8
202,4
209,4
225,5
Stock performance:
Stock performance:
Papa Johns stock even performed terribly after 2007. Loosing
its value from 2005 by 8% while the restaurant industry has
grown 60% against 2005
Key Issues:
Papa Johns had enjoyed only incremental growth in 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 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 Johns 2010 annual report, the company
international operation suffered loss for several years
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Secondary
Primary
Inbound logistic
Online sales account for USD 400 million (2007). Papa Johns revenue in 2007 was USD
1.063 billion
Operations
Outbound logistic
Service
Procurement
Technology development
Papa Johns operates Operation Support Service and Training (OSST) for its human capital
development
General adminsitration
Resources/
Capabilities
Is it
Valuable?
Is it
Rare?
Costly to
Imitate?
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
development
Yes
No
No
HRM
Yes
No
No
GA
V-R-I-O
Organizing
V-R-I-O Analysis:
Papa Johns
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-levelstrategy
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)
Sides
Drinks
Desserts
Extras
Softdrinks
Applepie, cinnapie
Despite its Pizza uniqueness, Papa Johns products are not unique enough to
be considered sustainable
Is it
Valuable?
Is it
Rare?
Costly to
Imitate?
Organizing
Conclusion
Pizza
Yes
Yes
No
Yes
Sides
Yes
No
No
Yes
Drinks
Yes
No
No
Yes
No differentiation at all
Yes
Yes
Products
Desserts
Yes
Extras
V-R-I-O
No
Yes
Yes
No
No
Valuable Activities
Scale
0-3
Commissaries/Centrali
zed quality control
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)
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
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
Papa 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
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 has contributed to the firm expansion but the system itself is very common
and has beem practiced by so many players
Franchise system
Likert Scale
Reason
Conclusion on the
Analysis
Papa Johns 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
Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Threat of Rivalry
Small differences in terms of product amongst rival business. Each claim to have better products but customers perceiption is
various
Threat of Substitutes
Pizza is not a staple food. It is easy for customers choose other food
Threat of Suppliers
Our biggest concern is the supply & volatility of cheese price but this has been mitigated through the creation of procurement
center & hedging
Threat of Buyers
The firm does not have a highly differentiated product, customers can choose different pizza restaurant
Type of
industry
Mature
Characteristic
Cost to imitate?
Strategy
Easy
Product features
Product mix
Links with other firms
Product customization
Product complexity
Consumer marketing
Reason
Background
Facts
Key issues
Analysis
Course of action
Recommendation
Opening 200-300
stores per year
4,000 stores in 5
year from 2007
6,000-7,000
worldwide
Ensure steady
stream of revenue
despite difficult
environment
Internatio
nal
Expansion
Grow &
Maintain
domestic
markets
Diversifica
tion
Co-branding efforts
Develop or acquire
additional
restaurant chain
Goals
International
Expansion
Maintain
domestic
market
New business
(acquisition or
development)
Critics
Advise
Strategy
Implementation
Example
Catering services
Location
Distribution channels
Reputation
The Organization question of the VRIO Model is perhaps even more important with a
product differentiation strategy because of the relationship between the company
and customers
Strategy
Implementation
Reason
Organizational Structure
U-form
Not too many layers
Profit oriented regional business area
Management Controls
Compensation Policies
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