Market Orientation: Pizza Hut - Case Study Example

 Market Orientation: Pizza Hut Business Summary Pizza Hut continues to experience sales growth by diversifying its product offerings and also enhancing how it provides value to customers. This is often done through vouchers, however the market leadership at Pizza Hut is concerned it could erode long-term sales and brand value. Pizza Hut attempts to make itself flexible to the needs of customers, showing signs of market orientation through strategy. However, Narver & Slater (1990) consider not only providing superior customer value, but market-orientation begins with a cultural dimension that is found throughout the entire organisational culture. Narver & Slater (1990) suggest that three components must exist to be truly market oriented: customer orientation, inter-functional coordination, and competitor orientation. Using these measurement factors, whether Pizza Hut is actually market-oriented will be presented. What is market orientation? In order to be market oriented, the business must make decisions based on the external environment. Especially in a service business, customer value should be accepted as a core belief and then build on service concepts to provide superior value (Narver, Slater & Tietje, 1998). This suggests setting a vision of performing excellence in service-orientation and then using tangible and intangible resources to set this standard of high excellence in service delivery. Tangible resources include business tools and assets while developing a culture of service excellence in all levels of employees. Companies that are market oriented understand the external environment through ongoing environmental analysis. Using basic scanning models such as the PEST Analysis or the Five Forces model, a company will identify the activities of competitors, the barriers toward achieving their long-term strategies, and also understand what consumer behaviour principles drive forward decision-making in their chosen market segments. Market orientation is gearing the company to have all of the characteristics needed to respond to the external environment. Far outside of basic supply chain issues or generic management strategy, market orientation means responding to environmentally-driven changes as they surface without forcing alterations back into the external environment (Martin-Consuegra, Molina & Esteban, 2008). This is responsive behaviour for company managers rather than offensive. Being market-oriented essentially means setting the objective of superior service delivery, ensuring that the organisational culture is adaptive to changes and willing to provide excellence, and then basing decision-making on the external consumer and competition in order to provide the most competitive or comparative value. This might mean making business decisions that sometimes go against executive instinct or proven sales figures so as to make changes that provide customers with higher overall value. The benefits of market orientation Johnson & Verayangkura (2001) reinforce that market orientation provides competitive advantage because it becomes an asset which is invisible and therefore becomes more difficult for competitors to mimic. Organisational culture involves having the entire organisation focused on a singular mission, different depending on the industry or nature of their product or service offerings. It involves having employees dedicated and motivated toward excellence and have positive identification of their role within the organisation. The barriers between management and employees typically are removed in key resources to allow for communications and positive relationship-building. A positive culture is about improving communications between employees or management peers while working in a multi-cultural environment. “Success in multi-cultural organisations is to include management awareness and knowledge of the cultural context within which the firm operates and having an open mind about the values and perceptions of others in the organisation” (Holden, 2001, p.615). In a service business, the external markets are those customers most willing to purchase the service and specific target groups with the characteristics most closely associated to the company’s market position. The advantage of market orientation is that the company comes to understand these customer needs and then enacts policy and process (internally) to engage employees to identify with these customer-focused strategies. A company that has the organisational culture needed to call itself market oriented would have evidence of customer-focused strategies in human relations, human resources, sales, and any support staff that holds up the brand. Aligning culture with meeting needs of clients enhances employee motivation and makes the environment more rewarding, in turn enhancing productivity toward meeting strategic goals. Companies that have found success in market orientation include one foods producer who responded to key factors in buyer behaviour by offering a new convenience campaign that included ready-made meals and convenient wrap-kits to assist in the preparation process (Ibeh, Ibrahim & Panayides, 2006). Changing the process by which these products were assembled gives the end user a better experience in ease of preparation, therefore linking the company as a convenience organisation. If this company had an internal team of experts that were dedicated to making rapid changes to meet client demand, then productivity is the best outcome of competitive advantage. Being market-oriented also gives benefit because it helps identify what competition is doing in terms of marketing, product development, launch activities, or just regular business promotion. By aligning strategy with external environmental analysis, it keeps the company aware of competitor behaviours so that proactive strategies can be built to outperform these identified actions. It could improve research capabilities or capacity to improve knowledge about certain target groups and their preferences or lifestyles. If a company adopts sales activities into the information technology architecture, as a response to customer demands or competitor activities, it can bring advantage as a new market-focused strategy. With the high volume of consumers globally having access to the Internet, aligning or automating certain functions for convenience or customer support can bring advantage. The Internet, as an automation tool, can give up-to-date information to sales teams to keep them aligned and aware of promotions, pricing changes, or prospects. It can reduce time to compile sales reports or schedule phone calls (Prasad, Ramamurthy & Naidu, 2001). From a cultural view, if a business adopted Internet technologies as a means to improve communications or build better team objectives toward a single goal, they have made market-oriented decisions and found competitive advantage with stronger and more unified sales teams. Market orientation measurement for Pizza Hut Pizza Hut is part of the Yum! Brands, Inc. family of brands and has established a well-known brand name, achieving awareness and certain segment loyalties. The company maintains characteristics of a business with marketing orientation, especially in terms of being responsive to external customer demands. Rather than wait for regulation to demand the practice, Pizza Hut has agreed to voluntarily place calorie information on their menu boards (pizzahut.com, 2008). This is a move to illustrate to consumers that the company understands their trend toward healthier eating and calorie-consciousness, therefore creating a new policy that is responsive to buyer demands. By linking the content of food with their proactive behaviours, moving faster than competition, Pizza Hut made internal business decisions out of social trend identification. These are the activities of a market-oriented company. Today, there are billions of consumers globally with access to the Internet and there is considerable growth in marketing using this tool (Aziz & Yasin, 2004). Pizza Hut has recognised that in order to provide convenience as part of the value philosophy, the business would need to rely more on technology to assist in remaining modern and customer focused. In 2007, Pizza Hut launched pizzahut.co.uk in order to focus on convenience, a customer-driven need, and had experienced growth of 25 percent each month in online sales because of its value to consumers (pizzahut.co.uk, 2008). The convenience of being able to order Pizza Hut products online would require the business to make internal staffing changes or design how information is communicated from client to employee. However, it represents market-orientation by having the resources and focus to make these internal changes as a means of adapting to external environmental demands. In an effort to diversify its offerings, Pizza Hut attempted a rebranding campaign to make certain locations Pasta Hut. This was to show customers that the company was more than quality pizza, it was also having the ability to order sophisticated foods such as tomato-mozzarella mezzaluna, crayfish arrabiata, and prawn (Bailey, 2008). However, was this just an effort to diversify potential sales by appealing to a new target audience or was it responsive to changes in consumer demands related to Italian food? Research did not identify any trends in consumer groups that demanded new and more sophisticated dining options with Pizza Hut. This shows an indication of a profit-focused strategy rather than market orientation. No sales figures related to the individual successes of the Pasta Hut divisions could be identified, however it does not indicate a market-oriented strategy. No evidence of competitors in this same service category were using diversification of product offerings, therefore not an adaptable strategy to external influence. Pizza Hut’s long brand history is associated with pizza and quality, highly unlikely that Pasta Hut or sophisticated ingredients will gain much more than niche market acceptance. A poll conducted by Pizza Hut indicated that 81 percent of consumers wanted the Pasta Hut name changed back to Pizza Hut (Marketing Week, 2009). Pizza Hut is also responsive to consumer needs at a time where competition is high and consumers are pressured by the realities of finances in recessionary periods. Pizza Hut is running ongoing promotions to satisfy profit objectives and lure consumers with different vouchers, such as the two-for-one offering. The recession has many different restaurants fighting for fewer customers (Bainbridge, 2010), and must therefore adapt to their needs by providing value from the financial level. There are more frugal dining out activities in consumer groups and have adjusted spending in the restaurant sector proportionately (Bainbridge). Why would vouchers be considered market orientation when it looks, at first glance, to be a profit objective? Even Pizza Hut’s marketing director Claudia Nicholls-Magielsen believes this to be “lazy marketing” in order to gain market share in the short-run. “We can’t be blind to the fact we are in a recession, but we need to look at how we can deliver value by setting up the brand for long-term growth” (Costa, 2010, p.33). By adapting this short-term strategy for voucher creation, against the advice of leadership in this area, it shows market orientation by putting customers’ needs first and denying strategic needs to make this value continue to be expressed to customer segments. Some competitors have been finding new avenues to express their promotional messages through home mailings in various customer bill statements (Fernandez, 2009). Pizza Hut has been considering using bills as marketing tools, which shows market orientation by understanding, through environmental analysis, what is driving some marketing successes with companies in their industry; or outside of it. Though this would also be a profit objective, it is responsive to external trends, making the company attempt to realign its marketing objectives with new direct mailing systems. If the company was able to get the internal culture geared toward the support role of ensuring these partnerships and help others envision the process, it would be a market-oriented decision. Research did not identify any internal organisational practices at Pizza Hut that illustrated an organisational culture that is devoted to service excellence. No individual rewards for culture or benchmarked systems associated with Pizza Hut staffing or human resources were identified through extensive research. A clear picture of the activities occurring internally at Pizza Hut are difficult to quantify. However, this is an industry that is used to operating with high turnover rates in their base line positions (Brereton, Beach & Cliff, 2003). In order to have a company-wide organisational culture focused on issues of service excellence, it would be necessary to have talent that remains with the organisation long enough to develop the same attitudes and belief systems. Having a high turnover means lost talent and then being forced to begin the process of acclimating new hires to the cultural system all over again. This does not prevent the business from being market-oriented, however when base level positions do not have the time or dedication to adopt cultural symbols and principles, it detracts from being able to classify the business as wholly market oriented. The external environment, this being employee turnover, impacts overall service delivery from outlet to outlet. Recommendations Pizza Hut definitely works toward satisfying customers and changes their internal models as necessary to provide perceptions of value. This was evident by their voucher creations, the use of Internet for convenience, and with the use of calorie information on menu products. If market orientation meant only customer satisfaction, Pizza Hut is market-oriented from the consumer perspective. There may be problems with the quality of research available to Pizza Hut marketers about different customer beliefs and values related to the company. This is supported by the recent branding change to Pasta Hut that had an overwhelming majority of customers wishing for a return back to its parent name. Updated information about consumer preferences and their association with Pizza Hut should have identified the potential consumer acceptance of this name change prior to launch. Enhancing the research-gathering process or extending its reach to more local focus groups, might be one effort to improve market-orientation. This process simply involves investing more funds into these efforts and could be built on existing resources and systems. A timeline for launch to improve research focus is two to six months. Without a more coordinated, longer-duration campaign, it would be difficult to diffuse consumer perceptions of what Pizza Hut stands for in relation to their views on finer dining selections. It is unrealistic to recommend strategies for improving retention efforts without more data on what drives their hiring practices or Pizza Hut’s focus on base line employees. However, the high turnover rates in this industry might mean inferior motivation to perform to service excellence standards mandated by the company itself. The use of more automated features links the client to modernism and takes some of the risk away from unprofessional, low-level workers that might interfere with strategy for service excellence based on attitudes or their belief in the short-term nature of their employment with Pizza Hut. However, adjustment to retention materials to express the organisation as a career-goal, like their competitor McDonald’s, might give the business more response from career-minded individuals looking for development. By changing recruitment from a job posting to a career development initiative, long-term cultural symbols can be developed to improve internal unity toward goal-attainment with the promises of advancement or career training in management. A redevelopment of how job posting or recruitment efforts are coordinated would involve discussions with human resources, marketing, and any external consultancy services needed to assist in a range of solutions. Pizza Hut definitely understands the activities of competition, which is why they have, in part, developed their two-for-one vouchers to gain market share short-term over competition. Under Narver & Slater’s model, competitive focus and adaptation to external demands illustrates true market orientation. Pizza Hut does not currently offer a value menu, like many of their competitors do or have found a way to limit pricing on specific menu items to appeal to the cost-conscious consumer segments. Pizza Hut offers several products that are designed to be accessory purchases to main entrée purchases (i.e. pizza and pasta). Small menu pricing reductions on these secondary items, promoting them as value menu purchases, can give consumers the idea that Pizza Hut is positioned to provide long-term value in pricing. Increases in the main products would not be necessary to offset the difference based on higher volume purchase incentives by customers. This is a market-oriented strategy to meet needs of recessionary clients or those that might not have wished to consider purchasing wings, cinnamon sticks, or any other side product. The creation of promotional materials that highlight a new value pricing focus for specific, low overhead products, can be developed in two to four months time to adopt new pricing market focus. Failure to adopt a value menu focus gives indication that some market-orientation is lacking. Offering this same pasta, presented with value-menu sides, might ensure more sales and interest. Until any turnover issues can be improved to attract more developmentally-minded employees in base line positions, use of Internet and social networking is a better tool for ensuring perceptions of value than that of relying on short-term support help to carry out service ideals. Because even the marketing director does not believe that two-for-one specials are good strategies for the long-term profit expectations, limiting voucher creation is a strategy. It would be market-focused if the proper promotional tools were extended, naming each new voucher the Value Voucher, offering one, singular outstanding deal that outperforms competition. The goal as a marketing-oriented business is not to erode profits by succumbing to pricing demands from cost-conscious clients, but to promote value through discount incentives. If pasta sales are going to move, they should be targeted at families looking for convenience. Vouchers that highlight superior discounts, once monthly or bi-monthly, will provide this value without the need for ongoing sales discounts (which consumers will quickly grow used to and resent when they are gone because profit needs can no longer sustain it). This will quickly become value pasta, with value sides, and further value for Pizza Hut. Associate the business with value and competitors will react and so will consumers, making this a market-oriented business decision. The three proposed recommendations address the key components identified by Narver & Slater that are necessary to achieve genuine market-orientation. Pizza Hut will be satisfying customers, making themselves more competitive through value rather than heavy, ongoing discounting, and also working with a new retention model to build a staff that can assist in the organisational culture development needed to achieve true advantage. Automating the service function appeals to convenience and reduces risk, whilst value menu development and value vouchers and their limited use enhances overall value perceptions in customers. References Aziz, N. & Yasin, N. 2004, The influence of market orientation on marketing competency and the effect of Internet-marketing integration, Asia Pacific Journal of Marketing and Logistics, 16(2), p.3. 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