International Marketing of Pizza Hut in China - Essay Example

International Marketing (Pizza hut in China) Contents Contents 2 Introduction 3 Discussion 3 Background to the company and the nature of its business3 The current level of International activity the company is involved in 4 The current marketing environment 5 Evidence of International expansion strategies 6 Cultural issues 6 Key elements of the International marketing mix 7 Market definition and segmentation issues 9 Branding 9 Pricing 10 Marketing communications 10 Distribution and transportation management 11 Ethical considerations and criticisms 12 Conclusion 12 References 14 Introduction China has emerged as the biggest consumer market in the globe accounting for almost 20% of the global population. The increasing purchasing power of the consumers and the high growth of the economy make China the most obvious locational choice for a foreign business to enter into. The tastes of consumers across the world are becoming convergent which has increased the scope of western food companies like Pizza Hut to open up their restaurants in emerging countries like China and India. The international expansion process of Pizza Hut in China has been a success story due to the specialized and far sighted strategies followed by the company in expanding its business into the high potential market of China. Discussion Background to the company and the nature of its business Pizza Hut is one of the most famous fast food centres specialized in a wide variety of pizzas with different crusts and toppings. Pizza Hut is based in Texas and is the largest pizza restaurant in the world. There are more than 7500 Pizza Hut restaurants in the United States alone. The company also operates more than 5600 Pizza Hut restaurants in almost 100 countries in different corners of the world. The first fast food restaurant of Pizza Hut was opened in 1958 in Kansas by two brothers named Frank Karney and Dan Karney. The company followed a franchisee based strategy to expand its operations (Bradley, 1999, p.118). The first franchisee of Pizza Hut was opened in Topeka region of Kansas. After the opening up of this franchisee, the company continued to grow in terms of size, popularity as well as scale of operations. The company currently has more than 8000 units of food chains operating across different countries in the globe. The company introduced the delivery system in 1988 after which the sales of the company were boosted to a high extent, especially in the United States. Apart from a variety of pizzas, Pizza Hut also offers other fast food items like Garlic bread, chicken wings, soups, pastas, nachos, cornitos and lasagnes in its menu. The company offers a wide range of food items and is famous for its excellent quality and efficient services provided to the customers. The current level of International activity the company is involved in Pizza Hut emerged as a highly popular fast food company in the United States. After the success in their home country, the company focused on expanding their operations in other suitable international markets to tap in new opportunities and increase their revenues and customer base. The high market growth and profitability of Pizza Hut in the domestic market provided the company with the necessary backup and resources to internationalize the business by finding suitable markets and entering into them through proper planning regarding the internationalization process (Johansson, 2002, p.154). The first restaurant of Pizza Hut outside its home country was set up in Canada in the year 1968. The company started its international expansion by setting up a pizza store in Canada in the franchisee format. Pizza Hut has mostly followed the formats of Franchisee or wholly owned subsidiary in opening up Pizza Hut restaurants in almost 100 countries and territories all over the globe. Presently Pizza Hut restaurants have been established in countries like Malaysia, India, Brazil, Canada, Germany, France, Sri Lanka, New Zealand, Oman, Qatar, United Kingdom and few countries in the United Arab Emirates. Pizza Hut has been enormously successful in its international expansion processes due to the high in sightedness and adoption of flexibility in the internationalization strategies followed by the company (Floyd, 2000, pp.48-52). Though Pizza Hut experiences major competition from companies like Domino’s pizza and Papa’s Pizza, the ability of Pizza Hut to adapt to the regional tastes and culture has enabled the company to have more competitive advantage as compared to the competitors in the major international markets. The company mainly focuses on international strategies to make its foothold on new markets where the level of competition is less and the market is untapped. In this fashion the organization will be able to expand the operation and acquire more customers under its base. The current marketing environment The market of China has been developing at a high growth rate. The major multinational companies are aiming China as their most preferred choice for the international expansion of their businesses. The abundant source of cheap labour, the evolving preferences of the consumers, the accelerated growth of the economy and the relaxation of the political framework and regulations are identified as the major factors that have created a positive marketing environment in China. Since the economy has emerged as a strong and high potential economy with the purchasing power of consumers being multiplied in the last few years and the disposable income level increasing to a new height, the market of China is identified to have sufficient potential to absorb new companies in food, retail, industrial, manufacturing and many other sectors. Pizza is considered as the most popular Italian food among the Chinese consumers. The quick service restaurants and fast food restaurants have become very popular in China, especially among the young students and couples in China. International franchising has been identified as the most successful entry mode for international businesses, particularly for restaurants like Pizza Hut (Carter, 2003, p.180). The opening up of the economy followed by the government of China allowing the foreign companies to establish wholly owned in the country have also emerged as a new trend dominating the Chinese market. Evidence of International expansion strategies The international expansion strategies of Pizza Hut encompass the selection of a feasible market for entering into, choice of tee entry mode into the market followed by the decisions regarding product innovation and other factors of the marketing mix like location, promotional activities and pricing (Hassan and Kaynak, 2004, pp.68-70). The most common method of international expansion followed by Pizza Hut is through franchising the Pizza Hut stores in collaboration with a local trading partner. This helps the company to gauge the responsiveness of the market at an early stage (Schuster and Copekand, 2002, p.124). Pizza hut is renowned to be one of the most successful companies in terms of international expansion. Pizza Hut has succeeded in penetrating those markets in which other companies like Dominos Pizza and Papa’s Pizza have not been able to establish successful businesses. The most successful strategy of Pizza Hut used in China is the C.H.A.M.P.S strategy in which cleanliness, product quality, speed of delivery, accuracy of orders, and maintenance of the restaurants and hospitality to the customers are practiced adequately. The whole strategy is employed by each and every employee in the store of Pizza Hut to ensure a higher degree of customer satisfaction. Cultural issues The taste and preferences of the customers in the host market are critical factors form consideration in the international expansion process of a food business. The consumers of China exhibit intense consciousness towards cleanliness, hygiene, location, service and quality of food for eating out. The factor of experience is most critical for them in their choice of restaurants. The tastes of the Chinese customers are majorly different from that of the western customers. The use of technology and employment of local people are important for catering to the Chinese customers properly (Doole and Lowe, 2001, pp.89-90). The cultural environment of China imposes the necessity of using Chinese language in communicating with the customers. The infusion of foreign culture is prevented in the country which indicates that the customers in China are not very adept with the western brands and would be unable to identify with these brands if the companies do not alter their products, services and business processes to suit the cultural backdrop existing in the country. To become culturally accepted in the Chinese market, Pizza Hut focused on employing more local employees in their food chains. This enabled the company to establish smooth communication with the local customers (Engel, Warshaw and Kinnera, 2000, p.21). Also, Pizza Hut altered their menus sufficiently to suit the preferences of the customers. Much attention is given to cleanliness, hygiene and fast service in the Pizza Hut restaurants in the country. Key elements of the International marketing mix Product: Pizza Hut has altered their menu with the aim to satisfy the tastes of the local customers. Other companies like Papa’s Pizza had to wind up in their business in China due to their low adaptation of the local tastes and culture. Pizza Hut focused on learning from the case of Papa’s Pizza and altered their western standard menu by introducing a number of food items that used Chinese food products. This enabled Pizza Hut to meet the tastes of the Chinese customers through the integration of the Chinese ingredients into the pizza recipes inherent to the company. Pizza Hut was among the first restaurants to introduce a western style of dining in the mainland of China. The company has also focused on the service quality factors by introducing three major types of services in their operations in China. These services include the Pizza Hut canteens which are restaurant providing complete service, the Pizza Hut Express which operate on delivering in a restaurant base system and the pizza hut Delivery which focuses on the area of restaurants for home services. Pizza Hut tried to adapt to the existing tastes of the Chinese consumers by introducing seafood like snails, oysters, shrimps etc., steaks of beef, pork and lamb, soups and desserts as well as price efficient three course meals. Place: Pizza Hut has chosen the locations in China on the basis of visibility, connectivity and popularity (Terpstra and Sarathay, 2000, p.116). The location factor is critical for the food businesses in China. Pizza Hut has chosen locations in proper Shanghai focusing on the residential areas and market areas which ensures a greater number of footfalls in the restaurants as well as enhances the visibility of the restaurants. Proximity to the shopping arcades and easy connectivity with various areas were also considered by Pizza Hut while deciding the locations of the restaurants. Price: The price of the food items in Pizza Hut restaurants have been decided by keeping in mind the spending habits of the Chinese customers. The consumers in China are willing to pay a higher amount if the quality of food is good and proper cleanliness is maintained in the preparation of the food as well as in the restaurant areas. But during the starting up of an international franchisee, it is important for the restaurant to keep the prices low so as to compete with the existing choices for eating out. Pizza Hut was able to maintain a standard pricing because of the quality of their food, the reputation of the brand and the introduction of new concepts in the country. Since, eating out in china is an important ad occasional experience; high prices actually indicate a high status level of the customers and add to the status quo factor. Promotion: China is traditionally rooted country as well as a technologically advanced country. Therefore, the promotional activities should encompass the use of conventional as well as innovative methods of promotion (Hollensen, 2004, p.214). Pizza Hut has followed the strategy of renewing the menu in order to create a fresh and fashionable image of the brand in the minds of the customers. The introduction of new dishes with culturally resembling names line Mythic Harem, China Featured and Trend Exotic help to promote the brand and attract the Chinese customers effectively. The company also makes full use of Chinese language in the promotion processes and uses traditional media like television as well as the comparatively newer vehicles of promotion like the internet and social networking sites. Market definition and segmentation issues The market of China can be broadly divided into the younger age group customers including the young students and working professionals and the traditional aged group of the society. The main target group of Pizza Hut was the younger generation which has shown a greater interest towards spending on social activities like eating out and entertainment (Paliwoda, 2000, p.44). The young group of customers in the society are more interested in eating experiences with their friends and family. On the other hand, the older age group of the Chinese society are traditional and reluctant to accept modern ways of eating experience. The young professionals have higher income due to the increasing number of job opportunities in China and have more inclination towards spending on eating out. Therefore, the students and professionals are targeted as the main group of customers for Pizza Hut. Branding Pizza Hut opened up its restaurants in China as full service restaurants offering the experiences of a five start dining at a cost of a three start dining. Later, the company went on to open other ancillary services like Pizza Hut Express and Pizza Hut delivery. The home delivery system of Pizza Hut was one of the early concepts in China and went on to become a very popular business activity of pizza restaurants and other fast food chains. Since, the Chinese consumers are more impressed by the experiences than the name, Pizza Hut went on to provide value added products and services customized to meet the demands of the Chinese consumers (Cateora and Graham, 2004, p.144). The brand had several advantages as it operated under the umbrella brand of Yum. Another brand of Yum which was Kentucky Fried Chicken was already established as a full-fledged business in China. Pizza Hut was able to leverage of the popularity and reliability of the brand name of Yum among the consumers in China. Pricing Though Pizza Hut was initially introduced with higher prices to attract the medium aged group of customers, yet after the inception phase Pizza Hut quickly shifted to the young group of customers. This is because the scope of succeeding in the Chinese food market could be utilized by positioning the company suitably for the young generation which constituted a major part of the Chinese food market (Czinkota and Ronakainen, 2007, p.91). Pizza Hut introduced a combination of cheap as well as expensive food items to cater to a wide variety of customers. Earlier the pizzas were priced around USD 10 each but presently; the company has a wide range of offerings with the pricing ranging from USD 4 to USD 10 which is around 30 to 50 Yuan. Marketing communications Pizza Hut had the early movers’ advantage in most of the countries in which they have set up their international business. The company positioned itself in the experiential level of the market for food chains. The marketing communications of Pizza Hut involved the use of local modes and local language to communicate with the customers. Extensive promotional activities were conducted to tap in the customer groups (Albaum, Strabdskov, Duerr and Dowd, 2002, p.60). . The features of organizing birthday parties and celebrating other occasions like anniversaries of customers, special days, Chinese New Year etc. helped to promote the image of the restaurants as well as foster word of mouth publicity among the consumers in the local market. Since hygiene, quality and food safety are major factors concerning the choice of the customers in their dining locations, Pizza Hut effectively communicated their business strategies of cleanliness, reliability, and hygiene and food safety in their marketing communications. The company can take the initiative to promote the products through social media advertising, television commercials as well as advertisements on newspapers and hoardings. Today’s generation spends a lot of time on social media like face book, LinkedIn, or similar social media. Advertisements on social media will reach those customers instantly and so the access will be better for the company. Distribution and transportation management Pizza Hut established a robust supply chain and distribution system in China. The company sourced all the necessary ingredients that go into food preparation form reliable Chinese suppliers (Hennessey, 2004, p.54). Ingredients like chicken, lettuce, cheese, tobacco sauce etc., were sourced from local suppliers. The company established a vertically integrated structure with the suppliers and the distributors. Pizza Hut uses an efficient Supplier Tracking and Rating System (STAR) to maintain the quality and safety of its food products. The distribution process follows the use of a number of stores opened up in conventional locations and full-fledged delivery systems. The technological advancement of China and the wide accessibility of the internet have encouraged Pizza Hut to enable online ordering services. The company takes orders through phones and the internet for doorstep delivery. Since, the roads of China are highly populated and the Chinese people are much conscious about environmental safety, Pizza Hut uses electric bicycles for fast delivery of the orders products to the doorsteps of the customers. The company employs work ethics by training and supporting its employees to perform their daily work. The stores incorporate total quality management (TQM) and quality checks to ensure the production of safe and standard quality food. Ethical considerations and criticisms Pizza Hut had to focus ion suitable ethical considerations related to the working conditions and wages of their employees in the stores in China. The exploitation of the cheap labour in China was something that the company wanted to avoid so as to keep the ethical image of Pizza Hut intact. In the shifting trends of global business, increased importance is given to ethical practices in the business. To comply with the ethical codes of business in the country, Pizza Hut focused on training the local staff adequately, preparing them before making them work for long hours and in the peak hours so that they can sustain the pressure during these periods and contribute positively to customer satisfaction. The wages and the working conditions were properly established. The company ensured the creation of a safe and healthy workplace for the employees and also implemented satisfactory pay packages along with other employee benefits. Conclusion The international expansion processes of Pizza Hut have been successful in almost all the countries that the company has ventured in, with china being no exception. The customization of the product menu, delivery services, adaptation of the local culture and social factors have added to the success of Pizza Hut in China. The operations of Pizza Hut are strong and sustainable but the company faces fierce competition primarily from Domino’s Pizza. To ensure the continuity of the success of Pizza Hut in the Chinese market, the business will have to focus on holding the market share through the implementation of suitable strategies for improving the value creation for the customers and adapting to the evolving preferences and demands of the customers in the market. Also, Pizza Hut should continue to maintain the efficient operations, distributions and customer management to ensure long term viability of the business in China. References Albaum, G., Strabdskov, J., Duerr, E. & Dowd, l. 2002. International Marketing and Export Management, 3rd Ed. Wokingham: Addison Wesley. Bradley, F. 1999. International Marketing Strategy, 3rd Ed. New Jersey: Prentice Hall. Carter, S. 2003. International Marketing Strategy. Oxford: Butterworth Heinemann. Cateora, P. & Graham, J. 2004. International Marketing. New York: McGraw Hill. Czinkota, M. R. & Ronakainen, I. 2007. International Marketing. Stamford: Thompson. Doole, I. & Lowe, R. 2001. International Marketing Strategy: Analysis, development and Learning and Implementation, 4t Ed. Stamford: Thompson Learning. Engel, I., Warshaw, M. & Kinnera, T. 2000. Promotional strategy: Managing the market communications. Boston: Irwin. Floyd, D. 2000. International Business Environment. Journal of Management & Development. Vol.15 (5), pp.48-52. Hassan, S. & Kaynak, E. 2004. Globalization of Consumer Markets: Structures and Strategies. Philadelphia: Haworth Press. Hennessey, J. 2004. Global Marketing strategies, 6th Edition. Boston: Houghton Miffing. Hollensen, S. 2004. Global Marketing, 3rd Ed. New Jersey: FT prentice Hall. Johansson, J. K. 2002. Global Marketing: foreign Entry, Local marketing and Global Management, 3rd Ed. New York: McGraw Hill. Paliwoda, S. 2000. International Marketing, 2nd Ed. Cheltenham: Edward Elgar Publishing. Schuster, C. P. & Copekand, M. 2002. Global Negotiations: Planning for Sales and Negotiations. Stamford: Thompson Learning. Terpstra, V. R. & Sarathay, R. 2000. International Marketing, 8th Ed. Stamford: Thompson Learning. Read More