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Pizza Hut in Korea

Introduction

Pizza Hut in Korea has experienced the nine year decline; thus, the new CEO decided to take measures to finish the period of low profits. The situation of Pizza Hut in Korea was challenging from the viewpoint of marketing. The company has to address the return on marketing investment and customer lifetime value. In order to analyze the strategies that caused the company to go through the period of severe decline, the management initiatives have to be considered. The current work aims at understanding the management approaches to return the company to the direct sales and increase the level of its revenue.

 

Concept Development

Pizza Hut in Korea has been experiencing the severe decline, which has started in 2002. The main reason for the challenging situation was the fact that competitors have taken the essential part of the company’s shares and developed their brand at the expense of Pizza Hut. In order to overcome the business crisis, the management of the company decided to introduce the promotional plan. Thus, the marketing director and operational director of the company made a decision to update the pricing strategy to meet the market’s requirements. Moreover, the company introduced the new kind of pizza. The new item was called Special and included 5 pizza toppings, which made the pizza soft but chewy.

The decision to update the pricing strategy and introduce a new product turned out to be a beneficial move, as it attracted new customers and increase the revenues of the company. Researchers Wit and Meyer (2010) have stated in their work that “a market can be looked at as a set of niches and opportunities that a firm must choose from to best leverage its capabilities” (p. 280). In the Pizza Hut case, the management of the company decided to expand the sales through the introduction of new product at an attractive price. The marketing strategy entailed an attempt to occupy the particular niche in the market.

Despite the fact that the new product managed to obtain the attention of the target audience, the prospects of the anticipated success were hardly achievable. The situation was exacerbated by the extreme competition in the pizza market in Korea. In 2010, Korea has experienced over-penetration of the fast food pizza industry. The three dominant companies that occupied nearly 76% of the market were Pizza Hut, Mr. Pizza, and Domino’s Pizza. Sungil Lee and Shijin Yoo (2012) in their article emphasized that Pizza Hut, which came to the Korean market in 1985, experienced the rapid growth initially. However, in 2002, it faced the decline because the company appeared to be unable to match the value and the price (p. 8). In order to protect the clients’ base and address the business decline, the company has also introduced a number of marketing initiatives, which included smart lunch, fresh delight, and taste initiative. The aforementioned measures were applied to motivate the sales. Moreover, the market growth was supported by additional attractions, which included discounts and lower price of the products.

Observations show that the actions turned out to be partially efficient. The low price was beneficial for the customers, but not for the company. Therefore, Pizza Hut in Korea had a risk of increasing the number of customers, but decreasing the profitability of the company. Researchers Hiduke and Ryan (2014) emphasize that “the hardest part of the pricing is making sure you have included all the costs involved in providing a product or service to customers. Volatility in pricing for commodities and changes in the economy also present major challenges for most entrepreneurs” (p. 202).

Based on the discussion above, the derived conclusion is that the major mistake of Pizza Hut in Korea was the attempt to reduce the price at the expense of the profitability of the company. According to Lee and Yoo (2012), the overall calculations have shown that price reduction was a costly approach for the business. The total discounts summed up to $ 130,107. Thus, the discounts have led to the 28% reduction of the general revenue of the company.

Analysis

The desire of Pizza Hut to capitalize on the loyalty of the old clients and attract the new markets has resulted in the loss of profit. Therefore, the strategy of attracting the new consumers by low prices and various promotional actions is not effective during the period of economic decline. The example of the similar situation is discussed in the article by Adi Narayan (2016). The author discusses the food start-ups and the approach to operating the business. Moreover, the article considers the reason for the failure of the innovative food start-ups, and flourishing of the primitive dabbawalas. The conclusion derived by the author is that dabbawalas worked for profit, while start-ups tried to increase the number of clients. They applied various strategies, such as low prices and huge discounts to attract the potential clientele. However, the trick was that the consumers attracted by discounts have disappeared at the moment when the companies started introducing the profit-generating prices. Despite the fact that the article discussed the situation in India, it is closely connected to the Pizza Hut case in Korea. In fact, the internationally recognized business has committed the same error. It strived to end the long period of decline and started taking erroneous actions in order to attract the consumer. Low prices and new products have assisted the company to generate additional customers, but they did not assure loyalty.

The company has to incur profit through the performance. Otherwise, business turns out to be inefficient. Having extensive customer base and collecting minimum profit means being close to a failure. Goodwin et al. (2015) discussed the challenges of low price approach and claimed that the strategy results in decreased profit margin. Therefore, when Pizza Hut spends money on discounts, it simply reduces its revenue. One could object stating that it sacrifices the profit for a particular period of time, but has an opportunity to obtain the loyalty of its clients for the upcoming years. Although the argument contains a grain of truth, it should be stated that low prices attract the low-budget customers, who choose the company because of the cheap prices. The aforementioned segment of the market does not develop loyalty, as they will substitute with a cheaper alternative after the price rises. In order to create the loyalty of the client, it is worth paying attention to the uniqueness and quality of the product. The two traits are essential for the clients’ retaining.

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Recommendations

The recommendation for the Pizza Hut in Korea is to introduce the products, which could differentiate their company in the market. The company has made an attempt to take into account the concerns of the clients and create new kinds of pizza. However, in order to make their product unique, the management has to think about the nutritious values of their pizzas. For instance, they can introduce the low-calories pizza. The advertising campaign can address the fact that, despite pizza is perceived to be junk food, the new Pizza Hut product has beneficial effect on human organism. It should be stated that introducing the tasty pizza, which can be marked by the low calories intake, would be a real breakthrough. The modern communities have become more concerned about the healthy lifestyle and diet. The new product has the potential to obtain the loyal customers, who would buy it for the higher price in order to consume healthy and tasty food. Therefore, the company could increase the variety of its products, obtain new clients, create loyalty, and preserve the revenue.

Conclusion

The eight-year period of performance decline is a rather disturbing sign, especially in the food industry. The desire of Pizza Hut Company to return its popularity and success is understandable. However, the close analysis shows that the strategies applied by the company turned out to be partially efficient. On the one hand, the organization managed to achieve its initial objective and increased the number of customers. On the other hand, despite the fact that the customer base expanded, the revenue was still low. Thus, the anticipated success demands preservation and increase of the profit of the company. In order to change the situation, Pizza Hut had to undertake completely new strategies, which emphasize the quality of the product and increase the loyal clients, who contribute to the profitability of the company.

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