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Dominos case study

Strategic Management (Đại học Kinh tế Quốc dân)

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Domino’s pizza case study

Question 1

PESTEL ANALYSIS

Introduction

PESTEL analysis refers to a tool used in analyzing and monitoring the macro-environment i.e.

the external marketing environment by marketers which have an impact on an organization. The

result from PESTEL analysis are usually utilized by marketers to identify threats and weaknesses

which is used in a SWOT analysis. PESTEL stands for - Political, Economic, Social,

Technological, Environmental & Legal factors that impact the macro environment of any

particular organization. Therefore, Domino's Pizza. Domino's Pizza, Inc. PESTEL analysis is a

strategic tool used by the organization marketing department to analyze its macro environment of

the organization (Yüksel, 2012).

Political factors:

Political factors play a significant role in determining the factors that can impact

Domino's Pizza, long term profitability in a certain country or market. Domino's Pizza, Inc. is

operating in Restaurants with more than 9,300 outlets in 65 countries and expose itself to

different types of political environment and political system risks. The achieve success in such a

dynamic Restaurants industry across various countries is to diversify the systematic risks of

political environment (Zimmermann, Schlimm, Waller & Pestel, 2005). Domino's Pizza, Inc. can

closely analyze the following factors before entering or investing in a certain market. Political

issues affecting Domino’s Pizza operations include regulatory frame work operating in judicial

system which may distress the business in diverse ways.

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Economic Factors:

The Macro environment factors such as – inflation rate, savings rate, interest rate, foreign

exchange rate and economic cycle are some of the economic factors affecting the operations of

Domino’s Pizza in dozens of countries it operates from. Additionally, micro environment factors

such as competition norms are impacting the competitive advantage of the firm. Moreover,

increase in inflation rate in some economies the business is operating from, pointers to increment

of cost of raw material which also leads in the direction of higher prices for goods hence

negatively impacting the firms’ performance (Zimmermann, Schlimm, Waller & Pestel, 2005).

Social Factors:

Domino's is a multinational firm and it is basically inaugurated from America; therefore,

the organization is snowed under by domino's western culture. There are different social forms of

society which consists of, upper class, middle class, middle upper class, and lower class.

Moreover, every single nation, state has their own cultural norms, beliefs, religion, values which

might affect the organization worldwide (Zimmermann, Schlimm, Waller & Pestel, 2005). Also,

demographic changes in market as a result of social belief that pizza causes obesity is negatively

affecting the firms’ performances as people in various societies are turning to organic foods as

means of health eating.

Technological Factors:

Technology is fast disrupting various operations in Domino’s Pizza operations. As such,

the firm is currently using baking and heating ovens will be of new of advanced technology

which are providing efficient service. Due to these innovative technologies there are many latest

ways Domino’s Pizza is employing as means of publicizing, through internet; telemarketing

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through which it can ca advertise their products in much more rapidly than ever before (Yüksel,

2012). The firm has also employed Computer based customer data that is MIS (managing

information system) that helps in collecting customer data, daily transactions, future forecasting

and decision making.

Environmental Factors:

Different markets have different norms or environmental standards which can impact the

profitability of an organization in those markets. Various countries where Domino’s Pizza

operates have different environmental factors that are affecting its overall operations. These

environmental factors may range from include weather conditions, climatic changes, regulations

on environmental pollution, recycling as well as countries regulations in terms of air and water

regulations in restaurants sectors (Yüksel, 2012).

Legal Factors:

In a number of countries Domino’s Pizza is operating from, the legal framework and

institutions are not robust enough to protect the intellectual property rights of an

organization. However, each Domino's Franchisee is independently responsible for its own legal

and regulatory compliance and for the operation of its own Store(s) and all compliance and other

issues arising from any transactions with you and/or Products ordered by you from the Websites

and Apps. This means that each Domino's Franchisee is solely liable for all products purchased at

the Store.

QUESTION 2

PORTER'S FIVE FORCES FRAMEWORK

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Introduction

Porter's Five Forces Framework is a tool used by organizations to analyze competition that exists in

the business sector. The tool is used to assess whether the industry in which the business unit is

operating in is attractive or unattractive. According to Potter, the attractiveness of the industry is

measured interms of the profitability the business. the attractiveness (or lack of it) of an industry in

terms of its profitability. An "unattractive" industry is one in which the effect of these five forces

reduces overall profitability. The most unattractive industry would be one approaching "pure

competition", in which available profits for all firms are driven to normal profit levels (Cernusca,

Gold, & Godsey,2012). Porter refers to these forces as the microenvironment. These factors are

the one close to the organization that affect its ability to serve its customers and make a profit.

Therefore, using Porter model, the attractiveness of Domino’s Pizza in both domestic and

international pizza industry can be analyzed by considering five forces within a market. These

factors are:

Threat of new Entrants:

The competitive threat to Domino’s Pizza business may not only be from existing players

in the pizza market but also from potential new entrants into the market place. Given the fact that

the pizza industry is usually profitable, the industry is likely to attractive to new companies with

the desire to invest in the sector (Grundy, 2006). However, the fact that there doesn’t exist major

barriers to entry in pizza industry, new firms have easily entered the market and changed the

dynamics of the industry. This has posed a threat to Domino’s Pizza despite it being ranked

second in US pizza sales ranking. Other small-scale pizza companies have posed stiff

competition to Domino’s Pizza as they offer the same quality pizza but at a reduced price.

Competitive Rivalry:

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The degree of rivalry between existing companies in the market is one that Porter

describes as an important force. The fact that there are many other pizza companies posing

competition to Domino’s Pizza at both domestic and international stage is a clear indication that

the resulting competitive pressure especially that posed by its main rivals Pizza Hut, Papa John’s

and Little Caesars means that prices and profitability will be affected. The reason why Domino’s

Pizza is considered to be facing great rivalry in pizza market is because there are other similar

sized companies operating in pizza sector, these companies have similar strategies like Domino’s

Pizza and the pizza which these companies offer have similar features as to those also offered at

Domino’s Pizza (Cernusca, Gold, & Godsey,2012).

Threat of Substitutes:

Porter describes substitute products as those that exist in another industry but may be

used to fulfill the same need. Usually, the more substitutes that exist for a product, the larger the

company’s competitive environment and the lower the potential for profit. In pizza industry,

Domino’s Pizza doesn’t have any substitute meaning that it can control the market in this sector.

However, the availability of different pizza brands from other close competitors like the Yum

brand from Pizza Hut is greatly affecting the overall sales at Domino’s Pizza. A high threat of

substitutes pizza brands is impacting Domino’s Pizza ability to set prices that it wants (Cernusca,

Gold, & Godsey,2012). This is because, some pizza brands are priced lower it ends up attracting

consumers towards it and thus reducing Domino’s Pizza sales.

Bargaining Power of Consumers:

The stronger the power of buyers in an industry the more likely it is that they will be able

to force down prices and reduce the profits of firms that provide the product. This case of buyers

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bargaining power has over the past affected Domino’s Pizza as it come under fire from its

customers where they complained about being served low quality pizza with inferior ingredients

that lacked taste. Negative consumer perception can greatly cause harm to the business and thus

Domino’s Pizza had to re-strategize so as to appease its consumers and lock them from switching

to their main rivals in the pizza market.

Bargaining Power of Suppliers:

Suppliers provide the raw material needed to provide a good or service. This means that

there is usually a need to maintain strong steady relationships with suppliers. Depending on the

industry dynamics, suppliers may be in the position to dictate terms, set prices and determine

availability timelines (Grundy, 2006). Powerful suppliers may be able to increase costs without

affecting their own sales volume or reduce quantities that they sell. However, Domino’s Pizza

has over the years maintained proper supplier’s relations and no any noted time has they risked

not being supplied with the necessary raw materials to make pizza.

QUESTION 3

VALUE CHAIN ANALYSIS

Introduction

Value chain analysis is a process where an organization identifies its primary and support

activities that add value to its final product and then analyses these activities to reduce costs or

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increase differentiation. The goal of value chain analysis is to establish which activities are the

most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones

could be improved to provide competitive advantage (Kurttila, Pesonen, Kangas, & Kajanus,

2000). The firm that competes through differentiation advantage will try to perform its activities

better than competitors would do. If it competes through cost advantage, it will try to perform

internal activities at lower costs than competitors would do. When a company is capable of

producing goods at lower costs than the market price or to provide superior products, it earns

profits. In this regard, Domino’s Pizza value chain analysis can be analyzed by undertaking

SWOT analysis of the firm (Pickton, & Wright, 1998). Every organization has its own strengths

and weaknesses as well as threats and opportunities thus Domino’s value chain analysis can be

conducted by understanding its SWOT analysis.

Domino’s Strengths:

Currently Domino's is the market leader in providing wide range of pizzas, in a manner

that there is no much competition in this sector. There admirable image has made the

organization more worth full. Moreover, Domino's is render pleasing taste, quality products with

qualified staff, splendid ambience and hygienic surroundings. They are specialized in pizzas.

Moreover, Motivation level of staff is very high which make the organization more prosperous.

They are ISO (International Standard Organization) certified. They have equipped with plenty of

resources for operating different activities of the organization. They are providing free home

delivery service. They have created monopoly in this sector (Kurttila, Pesonen, Kangas, &

Kajanus, 2000). Another big Strength and even a Competitive Advantage is the fact that they

have a full service restaurant as well as delivery services. Most of domino's competitors do not

have restaurants. Because of the restaurant, Domino's can market too many different segments

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that other pizza chains cannot. For example, Domino's can market to families much easier than

Pizza Hut or Little Caesar's.

Domino's weaknesses:

As far as domino's weaknesses is concerned, domino's holding a restaurant to run is also

the major weakness that it has, because of it has higher overhead cost than that of competitors as

competitors don't have a restaurant to deal with therefore their overhead cost is quite lower than

that of Domino's. As a result of higher overhead cost domino's charge higher prices. Obviously,

Domino's is not the low cost producer. As they charge higher prices so that's why they are

accountable for quality pizza and good service (Pickton,& Wright, 1998). They are providing

less range of products comparatively with high prices. They are more focused on western taste

instead of Eastern.

Domino’s Opportunities

Domino's has a high potential therefore it has numerous opportunities likewise, if it come

across new markets then new opportunities will be born. Considering eastern test of the people

like Mc Donald’s, Domino's can come up with new products. Market share can be increased by

bringing variety of new products. Prices can be reduced because of more domino's.

Domino’s Threats:

Currently major threat that Domino's can face are from competitors, as their immediate

competitor which is pizza hut, is working over to open their branch hastily. But competitive

advantage that Domino's have over pizza hut is their lower price (Pickton,& Wright, 1998).

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QUESTION 4

ANSOFF’S PRODUCT & MARKET MATRIX

Introduction

The Ansoff Product and Market Matrix is a strategic planning tool that provides a

framework to help executives, senior managers, and marketers devise strategies for future growth

of their business. The tool was developed by Igor Ansoff. Ansoff’s product/market growth

matrix suggests that a business’ attempts to grow depend on whether it markets new or existing

products in new or existing markets. The output from the Ansoff product/market matrix is a

series of suggested growth strategies which set the direction for the business strategy. Ansoff

identified four product marketing strategies; market penetration, market development, product

development, and diversification (Rezaei, Khavarian, & Ghafurzadeh,2016). When displayed

visually, these four areas create the Ansoff Growth Matrix Sutherland (2008). Therefore, the

Domino’s Pizza growth matrix can be examined by looking at the four major aspects as

suggested by Igor Ansoff.

Market Penetration:

The first quadrant in the Ansoff matrix is market penetration. Domino’s Pizza can easily

adopt this as a strategy since it has an existing product with a known market and they only need a

growth strategy within that market. Domino’s used Ansoff Matrix in 2009. Domino’s by then had

shares of the pizza sales and delivery market and they strove to increase their sales in the future

by updating their Recipe. Here we can identify how Domino’s has targeted an already utilized

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market with a similar product (Rezaei, Khavarian, & Ghafurzadeh,2016). The new recipe was

accompanied with promotional campaign to drive up sales through Advertisement.

Market Development:

Market development is the second market growth strategy in the Ansoff matrix. Domino’s Pizza

can adopt this strategy as it targets a new market with existing products. In this situation,

Domino’s Pizza might leverage its strengths by developing a new product targeted to its new

customers. As revealed, over the years Domino’s Pizza has expanded into new markets where it

has received quite okay in terms of its overall performance. In particular, the company has

expanded its consumer base setting up more than 9,300 outlets in over 65 countries hence getting

deep in its market development.

Product Development:

Product development in the Ansoff matrix refers to firms which have a good market share in an

existing market and therefore might need to introduce new products for expansion. Domino’s

Pizza undertook Product development strategy as it has a good customer base and knows that the

market for its existing product has reached saturation. In this case, the market penetration

strategy is might not be applicable to Domino’s Pizza. Therefore, the firm must design new a

new product development strategy that caters to the existing market. Domino’s Pizza has overall

been successful in this strategy as its marketing strategy is effective thus customers are able to

get proper information regarding the new products which have been introduced by Domino’s

Pizza.

Diversification:

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The diversification strategy in the Ansoff matrix applies when the product is completely new and

is being introduced into a new market. Usually, this is the most risky part of all the four growth

strategies since it requires both product and market development and maybe outside the core

competencies of Domino’s Pizza. Domino’s Pizza over the years has undertaken diversification

strategy in order to expand its market base. However, Domino’s Pizza has been very attentive

when implementing this strategy by diversifying into related markets using existing resources

and capabilities (Thijsen, Tong, & van Leer, 2014).

Recommendations for Domino’s Pizza Future Growth

Majority of Domino’s Pizza growth strategies adopted by the company started back in 2009, as

part of an ambitious program to increase its competiveness in the market and in the industry as a

whole. Since 2009 the overall growth rate of Domino’s Pizza has gone up and the company has

been competing effectively with its main competitors especially Pizza Hut in the market.

However, in order to ensure further future growth, I would recommend Domino’s Pizza to

undertake the following measures:

1. To establish a value proportion: Domino’s Pizza should strive to understand what sets it

apart from the pizza market competition. In this regard, the management should identify

why customers prefer their pizza and how their products and services are different from

other players in the market. By identifying this, Domino’s Pizza management should

convince other smaller pizza outlets to do business with them and thus achieving future

growth.

2. Identifying their ideal customers: Domino’s Pizza should major down in identifying

their key customers. Through this, the company should first concentrate in satisfying

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these customers after which they should embark on others and thus stimulating their

future growth.

3. Define key indicators: Domino’s Pizza should embark on a comprehensive reevaluation

of its overall performance. Through this, the management will be able to identify areas

where necessary change is required and implement effective strategies in regards to these

changes which will propel them to future growth.

4. Verify their key revenue streams: Management of Domino’s Pizza should identify their

key revenue streams. With this, they should identify new revenue streams which they

should capitalize on to make their business more profitable and thus achieving long term

growth strategies.

5. Focusing on their strengths: Domino’s Pizza should capitalize on majoring on their key

strength areas especially which they do better than their major competitors. With this,

they should work upon these identified strengths to grow their business.

Conclusion

It is evident at this point that Domino's Pizza Incorporation has a good brand image, which is one

of its strongest points. In addition, the company has had a good history despite a few criticisms

on taste as mentioned in the case study. Domino's advertising strategies are quite effective and

have worked to improve the sales of the company as well as its competiveness in the market.

However, the company faces major threats that might put the future of the company to dire test.

The sociocultural changes that continue to occur in the world today require that the company

make rapid changes and continuous monitoring of the lifestyles of the people in various parts of

the world: especially where they operate. Their level of competition in the fast food industry is

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growing stronger by day and maintaining loyal customers is the ultimate strategy for any

business in the industry today.

References

Cernusca, M. M., Gold, M. A., & Godsey, L. D. (2012). Using the Porter model to analyze the

US elderberry industry. Agroforestry systems, 86(3), 365-377.

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Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic

Change, 15(5), 213-229.

Kurttila, M., Pesonen, M., Kangas, J., & Kajanus, M. (2000). Utilizing the analytic hierarchy

process (AHP) in SWOT analysis—a hybrid method and its application to a forest-

certification case. Forest policy and economics, 1(1), 41-52.

Pickton, D. W., & Wright, S. (1998). What's swot in strategic analysis?. Strategic change, 7(2),

101-109.

Rezaei, M., Khavarian, A., & Ghafurzadeh, M. (2016). The Development of Industry in Yazd

Province by Using the SOAR Strategic Framework and ANSOFF Matrix.

Thijsen, T., Tong, T., & van Leer, J. (2014). Ansoff Model. Marketing.

Yüksel, İ. (2012). Developing a multi-criteria decision making model for PESTEL

analysis. International Journal of Business and Management, 7(24), 52.

Zimmermann, O., Schlimm, N., Waller, G., & Pestel, M. (2005). Analysis and Design

Techniques for Service-Oriented Development and Integration. In GI Jahrestagung

(2) (pp. 606-611).

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