1. Student:
PRODUCT Lecturer :
DIFFERENTIATION & PAPA
JOHN’S CASE STUDY

2. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

3. Mission
Product
Objectives
Differentiation
Product differentiation is a business Internal Analysis External Analysis
level strategy in which firms attempt
to create and exploit differences
between their products and those Strategic
offered by competitors. These Choice
differences may lead to competitive
advantage if customers perceive the
difference and have a preference for Business Level Corporate
the difference. Of course, such Strategy Level Strategy
differences will lead to competitive
advantage only if the differences Cost
meet the VRIO criteria leadership
Product
differentiation

4. Firm-
Customer The notion of a base of differentiation is important
Relationship
because it allows a firm to focus its efforts on creating
Product Firm and exploiting a particular difference between its
Attributes Linkages
products and competitors’ products. Managers need to
understand their own bases of differentiation and the
Bases for
Product bases of differentiation of competitors so that they can
Differentiation
make informed strategic choices
Bases for Product Differentiation Definition Example
preferences are created by actual differences • product features
Attributes of the product or in the tangible product or service offered by • product complexity
service the focal firm vis-à-vis competitors’ offerings • timing of product introduction
• location
preferences are created as the focal firm • Product customization
Firm-Customer relationship develops and exploits relationships with • Consumer marketing
customers based on what the focal firm’s • Product reputation
target customers want
preferences are created as the focal firm • linkages among functions within the focal
Firm Linkages combines the competencies of different firm
functions within or across organizations to • linkages with other firms
produce tangible and/or intangible • product mix
differences between the focal firm’s offerings • distribution channels
and those of competitors • service and support

5. Here are how the implementation of V-R-I O to
Product Differentiation
Threat of entry Easy to duplicate. Such as . Organizational
If the company
Imitability
Rare
Valueable
Organizing
product feature
structure,
Threat of rivalry has established a Maybe costly to management control
Threat of differentiated duplicate. Such as Product
systems, and
mix, links with other firm,
substitutes product, which product customizatio, compensation
Threat of suppliers implies that the product complexity, policies can all be
consumer marketing managed to
product is rare
Threat of buyers Costly to duplicate. Such encourage customers
as links between functions, to have a preference
timing, location,
reputation ,distribution for the focal firm’s
channels ,service and products and/or
support services
Product differentiation If a product
can neutralize the differentiation strategy is
threats of the forces costly to imitate, the firm
mentioned in the Five can reasonably expect to
Forces Model enjoy a competitive
advantage.

6. CASE STUDY

7. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

8. Company Snapshot
3,646 612 2,280 754
Stores (2010 data) company- domestic internationa
owned franchise l franchise
% franchised 83%
• John Schnatter opened the first Papa
Public/Private Public John’s in 1985
Headquarter Louisville
• Sold its first franchise in 1986
• Initial Public Offering on June 8,1993
CEO John Schnatter
• Opened its first international restaurant in
Employees 16,336
1998 through acquisition of “Perfect Pizza”
International Yes in UK.
• #1 in American Customer Satisfaction Index
Internet Ordering Yes
from 1999-2008
2007 Sales USD 504 million

9. There are more than 65,000 pizza
restaurants in the United States
$36.286 billion worth of pizza was
sold in the US in 2010
45% of pizza is ordered for carry
out, 36% for delivery, and 20% for
dine-in
The “Big 4” controls some 31% of
the American pizza industry. But it
is still the independent chains that
make up the majority—51.66%–of
all pizza sales in the United States
US Pizza Industry

10. Type of Pizza Channels of Distribution
• Traditional Crust Pizza: The crust is not too thick • Sit-Down Dining - custom pizzas made for in-
and not too thin. Usually it is created by rolling the restaurant diners
dough into a round circle then topping it with sauce • Typical Pizza Restaurant Establishments: Pizza Hut
and cheese. Red Roofs, Independents
• Delivery - custom pizzas made, baked and delivered
Deep Dish Pizza: A thick crust and dense toppings by restaurant personnel to call-in customers
usually characterize deep-dish pizza, also known as
• Typical Pizza Restaurant Establishments:
pan pizza.
Domino’s Pizza, Pizza Hut, Papa John’s
New York Style Pizza: The crust of this pizza tends • Carry Out - custom pizzas made and baked for walk-
to be much thinner than traditional and deep dish. in or call-in customers to pick up
• Typical Pizza Restaurant Establishment: Little
Caesars
• Take ‘N Bake - custom pizzas made for walk-in
customers who then take the pizza home to bake
themselves at their own convenience
• Typical Pizza Restaurant Establishment: Papa
Murphy’s
US Pizza Industry

11. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

12. Element Facts Year
Technology The first pizza company with online ordering & text messages ordering 2001 & 2007
Menu • Pan Pizza 2006 & 2008
• Added desserts to their carryout & delivery menu and chocolate pastry delight
Company growth • High-quality pizza with side items. Proprietary blend of pizza (Menu) 2007
• Lower operating cost & efficient QC center (Efficient Operating System)
• Training programs for corporate members & franchisee, performance-based financial
incentives (Commitment to Team Member Training and Development)
• National advertising campaign, restaurant level-marketing, direct-mail, store-to-door
couponing, community oriented activities, cross marketing activities with third party
companies, sponsorship (Marketing)
• Attract franchisee with experience in retail business and financial resources to open
multiple location. Assistance in restaurant operations
Cost • Net property & equipment value $2 million & property lease $22.4 million. Leasing 2007
Management building space provide the flexibility to move locations quickly
• Leased the trailers used to distribute ingredients
• Cheese contribbute appx 35-40% of food costs
• Partnered with a third-party entity formed by franchisee, BIBO Commodities, Inc. To
reduce cheese price volatility

13. Element Facts Year
Operational Support • Created Operation Support Service and Training (OSST) for training & 2007 & mid-90s
System development of team members
• Printing company for high-quality service
Community Affairs • Sport team sponsorships
• College scholarships ($5 million)
• National FFA, Cerebbral Palsy K.I.D.S Center, Children Miracle Network
Marketing • Coca-Cola (sole supplier in Papa John’s store) Up to 2011,
Partnerships • Endorsement
• Blockbuster Video (30-day trial of free Blockbuster Video online)
Industry • Pizza industry is a mature and saturated industry
• Highly competitive, cost of entry was relatively low and produc
differentiation was difficult

14. “By using a combination of internal and
external resources, Papa John’s was
determined to not compete with its
competition on price. Focusing on quality
product, active participation in the local
communities, and product branding enabled
Papa John’s to hold its own with the other
pizza chains” – excerpt from the case study

15. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

16. (in thousands, except per share data0 Year Ended
Dec. 30, Dec. 30, Dec. 25, Dec. 26, Dec. 28,
2007 2006 2005 2004 2003
Income Statement Data 52 weeks 53 weeks 52 weeks 52 weeks 52 weeks
Domestic revenues:
Company owned restaurant sales $ 504.330 $ 447.938 $ 434.525 $ 412.676 $ 416.049
Financial results:
Variable interest entities restaurant sales 7.131 7.359 11.713 14.337 - • Total revenue CAGR
Franchise royalties 55.285 56.374 52.289 50.292 49.851
Franchise dand development fees 4.758 2.597 3.026 2.475 1.475 was 4.3%
Commissary sales 399.099 413.075 398.372 376.642 369.825
Other sales 61.820 50.505 50.474 53.117 48.541 • International Revenue
International revenues:
Royalties and franchise and development fees 10.314 7.551 6.529 5.010 3.810 contributed the most
Restaurant and commissary sales 20.860 15.658 11.860 10.747 10.572
Total revenues 1.063.597 1.001.057 968.788 925.296 900.123 of the average growth
Operating income
Investment income
52.047
1.446
97.955
1.682
72.700
1.248
36.632
639
55.353
672
(21.3% )than Domestic
Interest expense (7.465) (3.480) (4.316) (5.313) (6.851) Revenue (3.9%)
Income from continuing operations before income taxes and
cumulative effect of a change in accounting principle • Operating Income and
46.028 96.157 69.632 31.958 49.174
Net income had been
Income tax expense (13.293) (33.171) (25.364) (12.021) (13.440)
Income from continuing operations before income taxes and
declining for the last 4
cumulative effect of a change in accounting principle
32.735 62.986 44.268 19.937 35.734 years on average by -
Income from discontinued operations, net of tax - 389 1.788 3.134 3.242 1.5% and -4.0%
Cumulative effect of accounting change, net of tax - - - - (413)
Net Income $ 32.735 $ 63.375 $ 46.056 $ 23.071 $ 38.563

17. CAGR
5 4
Des-02 Des-03 Des-04 Des-05 Des-06 Des-07
CSRP total Returns Index years years
Papa John's International, Inc 100,0 116,7 120,7 213,1 206,3 161,0 10,0% 8,4%
Nasdaq Stock Market (US Companies) 100,0 146,0 160,0 167,8 180,8 197,6 14,6% 7,9%
NASDAQ Stocks (SIC 5800-5899 US
companies) 100,0 137,8 202,4 209,4 225,5 150,3 8,5% 2,2%
eating & drinking places
Stock performance:
• The performance of overall F&B business has been very poor
compared to the overall growth in stock indices
• Despite a better performance compared to its peer in the industry
(CAGR 10%)but Papa John’s stock also under-performing compared
to the overall stock indices
• Meaning, Papa John’s investor would create more wealth investing
in other company than pouring their money in Papa John’s

18. Stock performance:
Papa John’s stock even performed terribly after 2007. Loosing
its value from 2005 by 8% while the restaurant industry has
grown 60% against 2005

19. Key Issues:
• Papa John’s had enjoyed only incremental growth in the new century
(2000-present)
• Schnatter wanted to see Papa John’s return to the days when it opened
200 to 300 stores a year
• Restaurant analysts belived that pizza industry is a mature and
saturated industry
• Despite the growth in revenue (especially from overseas) the company
experience declining operating income meaning that the operating
expense has grown faster than the revenue
• 2010 stock performance compared to 2005 & 2007 showed that the
company is destroying is shareholders wealth
• Learning from Papa John’s 2010 annual report, the company
international operation suffered loss for several years

20. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

21. Value Chain Activity Value for Customer
Inbound logistic • Online sales account for USD 400 million (2007). Papa John’s revenue in 2007 was USD
1.063 billion
Operations Store located in prime areas supported by commissaries as its suppliers
Primary
Outbound logistic Use delivery van
Marketing & sales • National advertising campaign through television, print media, internet, store-to-door
coupon, direct mail and in-store marketing
• Local communities sponsorship
• CSR program in the form of scholarship
• Pan Pizza proprietary & dessert
Service • Customer service available online and via telephone
Procurement • BIBP Commodities procure the cheese for Papa Johns’s
• 10 regional Commissaries supplies Papa John’s store nation wide
Secondary
Technology development • Papa John’s use IT and text messages for customer order
• Also use IT & mobile technologies for promotional services
Human resources management Papa John’s operates Operation Support Service and Training (OSST) for its human capital
development
General adminsitration
Papa John’s Value Chain

22. Resources/ Is it Is it Costly to V-R-I-O Analysis:
Organizing
Capabilities Valuable? Rare? Imitate? • Papa John’s
Inbound Logistic Yes No No
Operation Yes No No
Papa John’s value chain
analysis using the V-R-I-O
Outbound
Yes No No
Logistic shows that actually the
Marketing Yes No No company does not have a
Service Yes No No
strong competitive advantage
Procurement
against the competition thus
Yes Yes No
lack the ability to create
Technology
development
Yes No No value.
HRM Yes No No
GA
V-R-I-O

23. What is it?
Action used by the firm to gain a competitive advantage by exploiting core
competencies in specific product markets
• Papa John’s applies differentiation
strategy as its business-level-
strategy
• They reject the idea of competing in
price
• Their focus is on customer
experience with Pizza made out of
better ingredients & prepared better
thus the marketing slogan came
about (Better Inggredients, Better
Pizza)
Business Level Strategy

24. What about the products? Do
Papa John’s products own an
edge compared to its
competitors?

25. Papa John’s products
• Create your own pizza & specialty pizza
Pizza • All pizzas are made from good quality dough (better ingredients)
• Each pizza accompanied by special garlic sauce and 2 pepperoncinis
Sides • Chicken wings, chicken strips, breadsticks
Drinks • Softdrinks
Desserts • Applepie, cinnapie
Extras • Dipping sauces, pepperoncinis, parmesan cheese, crushed red pepper

26. Despite its Pizza uniqueness, Papa John’s products are not unique enough to
be considered sustainable
Is it Is it Costly to
Products Organizing Conclusion
Valuable? Rare? Imitate?
Despite its rarity, Papa John’s pizza is
Pizza Yes Yes No Yes
not costly to imitate
Papa John’s side dishes can be found
Sides Yes No No Yes
anywhere else
Drinks Yes No No Yes No differentiation at all
The dessert is quite rare but not
Desserts Yes Yes No Yes costly to imitate and the variation is
not enough
Rare but not too valuable as they’re
Extras No Yes No Yes considered to be “extras” & cannot
produce too much value
V-R-I-O

27. And how do the valuable
activities stand on the scale?
Are they rated high?

28. Scale
Valuable Activities Reason
0-3
Commissaries/Centrali Having a regionalized commissaries allow the company to control its stock low (not
2
zed quality control having too much stock per store), maintain quality control
Operation Support Nowadays, a training center for franchisee and staffs are very common in the industry
Service Training 1 thus having OSST does not mean give too much edge for the company. But the
(OSST) existence is definitely necessary
BIBP Commodities, Inc This is very important for the company since cheese is one of the main ingredients for
Pizza and in the case of price increase the company cannot immidiately raise their
3
prices thus having a stable purchasing price of cheese is necessary. And not many
companies have this
Internet & mobile Papa John’s is one of the pizza company that generates 80% of its sales through
technology 1 internet or mobile technologies but this technology is not distinctive and already
applied by other companies in the industry
Pan Pizza, Dessert The pizzas are not sold cheaper than its competitor because Papa John’s uses better
3 ingredients and prepared the dough seriously. Despite its quality, the menu or taste is
somewhat similar to any pizza available in the market
Franchise system Franchise has contributed to the firm expansion but the system itself is very common
1
and has beem practiced by so many players
Likert Scale

29. Conclusion on the
Analysis
• Papa John’s Key valuable activities are not considered to be distinctive
or special thus the company does not have a sustainable competitive
advantage
• Despite the uniqueness of the products itself (better ingredients,
better pizza), the startegy seems to be not to costly to duplicate
• The firm implement its strategy by doing 2 major activities:
• Focus on product quality (Better Ingredients, Better Pizza)
• Marketing Campaign through advertising, publicity, etc
• Expanding through franchise and expanding internationally
• Its international strategy seems not to work out very well. The number
showed that the international business experienced loss for several
consecutive years

30. Theory
Background
Facts
Key issues
Analysis
Course of action
Recommendation

31. Threat of New entrants
It is easy for new pizza parlor or pizza business to set up
Threat of Rivalry
Small differences in terms of product amongst rival business. Each claim to have better products but customers perceiption is
various
Threat of Substitutes
Pizza is not a staple food. It is easy for customers choose other food
Threat of Suppliers
Our biggest concern is the supply & volatility of cheese price but this has been mitigated through the creation of procurement
center & hedging
Threat of Buyers
The firm does not have a highly differentiated product, customers can choose different pizza restaurant
Determine the threats

32. Type of
• Mature
industry
• Earnings and sales grow slower in mature industries than in
growth and emerging industries
Characteristic • earnings may be stable, growth prospects are few and far
between
• The company can differentiate established products by
What can the “refining” the product - new and improved
• Or differentiate by offering new levels of service to
company do? accompany the product
Determine the industry

33. The answer to the question of rareness
can safely be assumed at this point in
the analysis. The assumption is that
Papa John’s must establish a
differentiated product, which implies
that the product is rare
Is the product rare?

34. Cost to imitate? Strategy Reason
Easy Product features
May be costly to imitate • Product mix
• Links with other firms
• Product customization
• Product complexity
• Consumer marketing
Usually costly to imitate • Links between functions
• Timing
• Location
• Reputation
• Distribution channels
• Service and support
If a product differentiation strategy is costly to imitate, the company can
reasonably expect to enjoy a competitive advantage.
What about to cost to imitate?

35. Key points for Papa
John’s consideration
• Papa John’s weaknesses in the industry are: the business does
not have a difficult barrier to enter. Anyone can open a pizza
joint and being a food industry meaning that customers have a
lot of choice of substitutes in the market
• The industry itself is mature meaning that in order to have an
edge, the company must differentiate its level of services and
refine its existing products
• In order to have a product which is costly to imitate than Papa
John’s must improve its link between functions, build brand
reputation, conduct innovation in its distribution channels and
service support

36. Background
Facts
Key issues
Analysis
Course of action
Recommendation

37. Opening 200-300 4,000 stores in 5 6,000-7,000
stores per year year from 2007 worldwide
Ensure steady
Reduce company- stream of revenue
run stores despite difficult
environment
Let’s revisit Schnatter goals

38. Papa John’s sets-out these • Partner with local
producer
strategy to achieve its Internatio
nal • Franchise
goals (stated previously) Expansion • Accomodate sit-
down dining are
Grow &
Maintain
domestic
• Co-branding efforts
markets
• Develop or acquire
Diversifica
tion
additional
restaurant chain
How the firm plan to bring about?

39. Goals Critics Advise
Despite its experience in international market, • The company should maintain its core values of
the opportunity looks very promising but the producing quality pizza at a premium price and its
company will have to sacrifice its identity as a business model which is a carry-out & delivery
carry-out & delivery pizza restaurant • Despite the lure of international opportunity, the
International
company should refrain from going into asian
Expansion market since the characteristic are very much
different. Other option would be to focus on North
America (Canada & Mexico) which share
resemblance
Reducing company-run store would turn • The company should maintain a healthy ratio
Maintain disastrous because the company will lose its between company-run & franchisee store because it
domestic sense of the business. needs to make sure that the franchisee business
market remain profitable
• Co-branding with renown brand
• Acquisition, based on various studies often • Acquisition can be done for expansion to
New business failed because the differences in the culture international market. By acquiring brand that
and over-pricing the value of acquiree already established in the international market. It
(acquisition or • If the business is totally different from Pizza can be a pizza restaurant or any restaurant business
development) business then the company needs to acquire
new knowledge in the new industry
Critics to Company’s Goals

40. Strategy Implementation Example
New & improved products • Pizza with high quality inggredients, • Original Pizza, the one that originates
imported inggredients from Italy
• New line of esserts • Chocolate melted, tiramisu cake,
• Italian beverages cheese cake
• Health concious • Cappucinno, lattes
• Products which contains low calorie,
fresh ingredients & healthy
New level of service and support Catering services For private parties or birthday party
Links between functions Store expansion through tripartite (Bank, Using the company’s guarantee, help
the company & franchisee) franchisee expand their business
through stores opening
Location Expand to Canada & Mexico. Market Open new franchise
that resembles US.
Distribution channels Modern outlet (supermarket) Sell “create your own pizza” and “ready
to make pizza” in supermarkets
Reputation Health conciuous, not only better Pizza Marketing campaign that focus on
healthier Pizza, not only better
Business-Level Strategy Recommendation

41. The Organization question of the VRIO Model is perhaps even more important with a
product differentiation strategy because of the relationship between the company
and customers
Strategy Implementation Reason
Organizational Structure • U-form Eash business manager, must be
• Not too many layers responsible for the profitability of their
• Profit oriented regional business area respective area. Not only that, they also
must have the knowledge to expand
their business locally
Management Controls • KPIs not only based on financial The main idea behind using management
indicators but also on business controls in the implementation of a product
growth & innovation differentiation strategy is that of flexibility.
Not only must managers and employees have
the freedom to be flexible, they should also be
encouraged to be creative and adaptable
Compensation Policies • Rewards for successful Compensation policies should be
experimentation structured to reward managers and
• Absence of punishment for failed employees for cooperating within cross
experimentation provide strong functional teams and being creative in
incentive to be creative the process
Business-Level Strategy Recommendation

42. THANK YOU