The week three assignment for Strategic Management MGT 498 involves researching the environmental scanning practices of two to three real-world companies’ internal and external environments and describe their internal and external environments. This assignment provides a brief overview on the competitive advantages of each identified company and what strategies these companies use. Included in the assignment is information on how each company creates value and sustains their competitive advantage through business strategies and what measurement guidelines each company uses to verify their strategic effectiveness.
Last, the assignment provides the effectiveness of these measurement guidelines. This paper contains the environmental practices of Domino Pizza, Inc. versus Pizza Hut, Inc. Stakeholders, customers, and members of an organization’s board of directors expect executive leaders to balance the strategic fit of a company to what the environment wants and what the corporation has to offer. The expectation necessitates executives to strike a balance between what the corporation needs to what the environment can provide.
The organizational balance involves both the internal and the external stakeholder. Environmental scanning allows an organization to identify possible external opportunities and threats, and look within the organization’s internal environment for strengths and weaknesses (Wheelan & Hunger, 2010). The fast food culture in the United States has grown from a $6 billion-a-year industry in 1970 to a massive corporate franchising empire earning more than $170 billion in annual revenue (Food Empowerment Project, 2010). Leading the way in the fast food culture is the pizzeria industry.
The pizza industry is a highly competitive market. Although there are many pizza makers ranging from local pizzerias to international franchises, Domino’s Pizza, Inc. , and Pizza Hut, Inc. are two major restaurants within the industry. In 2009 Pizza Hut, lead the industry with $29 billion and 18% of pizza sales, whereas Domino’s Pizza took 10% of this market with approximately $290 million in sales revenue (Young, 2009). The two competitors battle for consumer appetites, consumer dollars, and consumer attention.
Before launching into a major marketing campaign, using valuable corporate resources each company implements a strategic plan with an analysis to identify the weaknesses and threats of their competitor. When Domino’s conducted an organizational analysis to identify strengths and weaknesses, the company recognized their biggest strength is in name recognition, pizza delivery, and take-out pizza. The company understands the importance of brand image and further understands a strong brand image creates customer loyalty and helps the company when introducing new products into the market.
Domino’s enjoys a strong business network with franchise owners and boasts a diversified franchise market. Because of the diversification and strong network capabilities with franchisees, Domino’s can increase domestic and global market share, and increase sales opportunities. In contrast, Domino’s weakness relates to a decline in domestic store sales affecting brand image and company’s profits (Henry, 2010). Consequently, Domino’s opportunity over competitors is their focus on pizza delivery services.
Pizza delivery for Domino has improved operating effectiveness with minimized spending. Another opportunity for Domino’s is the mobile device industry. Threats to Domino’s include competition in the pizza delivery industry, consumer health awareness, and an increase of labor and food prices (Henry, 2010). On the other hand, Pizza Hut, Inc. is the number one pizza manufacturer in the pizza industry enjoying strong brand image and recognition, and their organizational analysis revealed some of the same strengths as with Domino’s.
In addition to a strong brand name, their organizational strengths include a competitive advantage in developing a large network of full service pizza restaurants with delivery service, targeting different segments with a broad range of products, and a strong franchisee network. The organizational analysis shows Pizza Hut maintains high overhead costs with their full service restaurants, high cost of pizza products leading, and an internal conflict among franchisee owners.
In contrast, the external environmental analysis reveals Pizza Hut’s opportunities remain in pricing by creating and offering innovative pizza selections, increased brand loyalty through good customer service, updating customer online ordering system, expanding home delivery services, and entering new markets. Threats, facing Pizza Hut come from Domino’s Pizza as the number one competitor in delivery service. Because Pizza Hut boasts claims as the number one pizza manufacturer, the organization faces threats of competitors matching their products and imitating their strategy methods to gain market share (“Scribd. om,” 2012).
The competitive advantage used by Domino’s Pizza is in their delivery service market and the fact Domino’s does not incur the overhead costs associated with sit-in dining restaurants. The competitive advantage Pizza Hut has over Domino’s is in name recognition, brand- in-store dining, and a variety of menu selections. The external environmental factors used by each organization to determine environmental scanning and strategic planning are societal, task, and natural environment reports.
Societal environment scanning influences long-term strategic planning and takes into consideration economic forces, technological forces, political-legal forces, and sociocultural forces. Task environmental scanning involves remaining aware of the trends and changes within the respective industry, and natural environmental scanning involves those factors affecting the ecological system and how the organizations carbon footprint affects the ecological system (Wheelan & Hunger, 2010). Both Domino’s and Pizza Hut value and understand the power of the consumer and are attentive to trends affecting consumers.
The business strategy applied by each organization focuses on the customer and making each operation more efficient. For instance, Domino’s focus is on the fast-food side of the pizza industry and places emphasis on take-out and delivery services. Pizza Hut on the other hand, prefers to offer consumers the option of take-out, delivery, or dining-in. Each has created value with advantages of the Internet. With online ordering and delivery services offered by both, placing value on consumer personal time is a value added.
However, Pizza Hut sustains a competitive advantage over Domino’s with customer service, upgrading customer online ordering systems, expanding home delivery services (Wheelan & Hunger, 2010). Both restaurants use various advertising strategies as a measurement guideline to verify how their strategic effectiveness brings a return on investment. Both restaurants rely heavily on television advertising campaigns, which account for 92% of Pizza Hut’s paid media advertising, and 94% of Domino’s paid media advertising (Young, 2009).
In using social-media as a strategy, Pizza Hut implemented a broad-range of programs across social media outlets. According to reports, nearly 400,000 people view Pizza Hut advertising through social media. Domino’s social media efforts, reaches 370,610 potential customers with both Domino’s and Pizza Hut tripling their investment in online advertising. Domino’s primarily promoted delivery service across a broad range of sites, including Amazon, Ask, Yahoo! , MySpace, Facebook, College Humor, Yellow Pages, and local newspaper sites.
Pizza Hut used their key product calendar to push online sales, sending users to the company’s website to place delivery orders targeting a younger and more female-skewed audience to sites, including ETonline, Cosmo Girl, Elle, Fandango, and Fox News. Each restaurant uses mobile device apps to reach consumers. Pizza Hut’s app allows customers to order menu items directly from their mobile devices by using an intuitive touch-screen interface. The Domino’s mobile-ordering application is an iPhone optimized web app.
By visiting Dominos. om, customers use an ordering system designed specifically for iPhones or an iPod Touch. Domino’s Pizza used an outdoor campaign, whereas Pizza Hut did not (Young, 2009). The effectiveness of the guidelines used by each company to measure their ability to grab the attention of consumers is in the tale of sales receipts. According to Young, Domino’s use of TV ads directed toward recession-related advertising, and value-based offers showed good focus and resulted in a positive impact on traffic and sales. Their online and search activity supporting those promotions led to increased uptake with online delivery.
A recent market share report ranked Domino’s Pizza number one in online sales with an increase of 28% in market share, up from 11%. On the other hand, Pizza Hut’s use of smart media programs, particularly in social media did not increase sales. In fact, Pizza Hut’s receipts were down by 8% (Young, 2009). In conclusion, environmental scanning allows companies to dissect the competition to determine opportunities and threats allowing management to create a strategic plan to propel their organization in front of respective competitors.
The process allows organizations to look within to understand internal strengths and weaknesses and look at changes needed to support identified opportunities and threats of competitors. In the case of Pizza Hut and Domino’s, Pizza Hut has brand and name recognition above Domino’s Pizza. However, Domino’s environmental scanning identified an opportunity against Pizza Hut with online sales, thus propelling Domino has to gain valuable market share increasing sales by 11% whereas Pizza Hut’s sales fell by 8%.