Analysis Of External Environment

Dominos Pizza, Inc. is a major pizza delivery company. It has built a network of 9,742 company-owned and franchise stores located in United States and more than 70 countries across the world. The headquarter of the company is based out of Ann Arbor, Michigan, and nearly10,000 people are employed as of January 01, 2012. Revenues recorded over fiscal year 2011 is $1,652.2 million for FY2011, compared FY2010 an increase of 5.2% was observed, even the operating profit went up by 13.8% to $259.1 million FY2011,and the net profit went up by 19.8% over FY2010 to $105.4 million in FY2011.

The strategy of the company resides on 2 factors one is to expand by creating more company owned stores and franchising, and the other is to target the right customer segment through differentiation strategy and by utilizing robust brand equity.

Entire Dominos operation can be divided in 3 different categories: Stores, Supply chain and international

Stores: They include both Franchises (4475) and Company owned stores (454). Both contribute to Revenue through sales and Royalty.

The supply chain segment is comprised of dough manufacturing and supply chain centres that deliver pizza-related food products and complementary side items to all of the stores

The international segment takes care of 4,422 international franchise stores in more than 65countries. It also takes care of supply of international markets. The company has 590 franchise stores in Mexico, 616 franchise stores in the UK, 426 franchise stores in Australia, 345 franchise stores in South Korea, 341 franchise stores in Canada, 364 franchise stores in India, and over 100 franchise stores in each of Japan, France, Turkey, Taiwan, and the Netherlands.

ANALYSIS OF EXTERNAL ENVIRONMENT

PESTEL ANALYSIS

The PESTEL analysis is the tool used to determine the opportunities and risks in the global economy.

Political

The food and beverage industries are increased in their prices, since the government of U.K. has introduced Goods and service tax for fast food markets. The food industries must be certified in the U.K by different certification bodies. The laws and regulations must follow such as tax policy, labour laws and political climate and must know the strength.

Economic

If the GDP of the country is good, the customer’s capital income will be increased and they spend more money on food and beverage industries. Domino’s pizza customers in U.K. not prefer to go out to eat; just they order in and take away. In U.K. the consumption capacity is not limited. The U.K. parliament published that there is increase in consumer spending (DEFRA’S Food Statistics pocket book, 2011).

Social

Domino’s pizza should get the relevant data from the target market not only by the individual customers of the company. The market research should be done before entering the market, so to establish the acts that conform to public policies, good customs and morals of the society. The social values always changes over time.

Technological

Information technology and invention of various product changes the life of customer’s easier in U.K. The marketing tools for Domino’s pizza are advertisement on telemarketing, Google ads, Face book and television advertisements, etc. The technology alliance in the operation of Domino’s pizza likes to add value to the product. The managing information system (MIS) in Domino’s pizza helps to collect data from the customers, daily transactions and decision making.

Environmental

Domino’s pizza should know the environmental management that governs the operations in every market. The main environmental conditions of food and beverage industry are changes in climate and shortage of water. The customers who live in U.K mostly they give order drove online and in the last year 2012 the sales were increased by 5%.

Legal

Domino’s pizza is a food industry so it should follow many regulations and procedures. Some of the legal laws to be followed are business registration, labour and employment laws, any taxes to be paid and it should be certified by the ISO regarding the quality.

Porter’s Five Forces

The porter’s five forces identify the features of an industry which influence the competition. It determines the level of profitability of industry. According to porter (1980), explained about the competition pressure coming from different five forces model of competition.

Competitive Rivalry

Krause, M. (2010) The competitive rivalry means the competitive struggle between the market shares of the companies in the industry. In an industry large number of companies are producing same product and the growth rate of Domino’s Pizza in industry is very slow, since there are lot of other businesses like pizza Hut in the industry. Buyer demand and buyer cost to switch brands are low. In food and beverage industry the members are homogeneous in size, strength, objectives and cost of the origin. Exit barriers are high in the competitive rivalry with in an industry. This leads to the high rivalry among firms in the industry.

Suppliers

Guinness, D. (2012) Bargaining power of suppliers in Domino’s pizza is low since, the products supplying to the Domino’s pizza need high volume but not differentiated. There are more substitutes for the supplier products in the industry. There is high switching cost from one supplier to another and make huge profits out of an industry buy keeping higher prices in the firms of industry. In Domino’s pizza there is no problem for suppliers until now.

Buyers

Buyer cost of switching to competing products are nearly zero for Domino’s pizza because the customer can prefer other substitutes like microwave pizza or frozen pizza. There is no concentration of buyers since they don’t buy huge volume of products. Strong suppliers can gain high profits out of an industry by increasing high prices in the firms of industry. The buyers will have full information about the products and the market. The customers mainly focus on the quality of the product. The customers bargaining power is likely to be low.

Substitutes

Georgopoulos, N. (2005) Substitute products are the products which satisfies the customer needs effectively. The threat that substitute products pose to an industry is based on price to performance ratios of the different types of products to satisfy the needs of the customer. There are lot of substitutes, for example, frozen pizza is main substitute for pizza delivery. If there are more substitutes then the market shrinks and reduces the profits. The threat of substitutes is very high.

New Entrants

The new entrants refers that the firms which are not competing in the industry currently but there is a chance of getting in to the industry. Once the new firms enter the market then the market share of the firms will be reduced and the cost of the products reduces. The threat of new entrants is based on various factors like product differentiation, economies of scale, cost disadvantages and capital requirement. The threat of new entrants is high in the pizza industry.

INTERNAL ANALYSIS

Value Chain of Domino’s Pizza:

Value chain of Domino’s Pizza involves the combination of primary activities such as inbound activities, operation, outbound logistics, marketing and sales and services and the secondary activities such as procurement, human resource, technology and infrastructure of the firm. The company has a specific system which effectively uses the size and weight of the product to be shipped and the loading capacity of the truck is analysed so as to ensure the maximum quantity is loaded thus paving way for the reduction of cost.

Marketing strategy of the company has a few innovative thoughts for instance in the initial stages of their operation they had a system of delivering the pizzas in 30 minutes or else the customer gets a free pizza. This increases the chances of boost of sales figures and the reach of the product to the customers also increased.

The company has various types of services to its customers, for instance the company has payment module which helps the customers to make their orders online via credit card and gift card options are available which helps customers to gift someone with pizzas. Delivery order system enables the customers to place the order sitting at their own place for which the product delivered at their own convenience.

Competency Framework:

In an overall perspective food industry is a competitive and matured industry. Dominos has an excellent brand name when compared to its competitors. Some of the competitors such as McDonalds, Papa John’s and the arch rival Pizza hut give a tough game for Dominos. Customer retention plays a significant role in the development of the company in a longer run.

VRIO ANALYSIS:

VRIO is an efficient tool for analyzing the internal environment of Dominos pizza. The following four characteristics are analyzed. They are as follows: VALUE, RARITY, IMMITABLE, and ORGANISATION. If the company has lesser value then it has a competitive disadvantage in the market. If the value is good and it is not rare to find then the company faces an equal competency in the market. If the value is high and very rare to find in the market, then the company has a competitive advantage over other companies

in the market.

VALUE – Dominos has a brand value which is considered as the major strength of the company. Dominos is second largest pizza chain brand which operates in about 65 countries. (Hoovers,2002)The popularity of the company has leaded itself to mark its presence globally. The franchise expansion of the company has several hundreds of outlets all over the world.

RARITY- Dominos has its own value chain system and its own strategies which is rare in the industry. For instance, Dominos has a special strategy by utilizing the technology is by teaming up with AT & T network which helps the company by identifying the incoming calls which tracks the address of the nearby outlets which enables quicker delivery of pizza. The tracking of nearby outlet location takes about 7-11 seconds.

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IMITABLE- It is costly to imitate the system of Dominos since the company has its own system which helps in the efficient management of the company right from production to logistics division of the company. The supply chain of the system is designed specifically for the effective utilization of the company’s resources to the maximum potential which involves more cost for other companies to imitate.

ORGANISATION- Dominos effectively utilizes its resources from raw materials to finished goods. Dominos relies on honesty and integrity of its employees at all grades which results in good will of the company to the investors and share holders of the company (media.coporate-ir.net, July 2007).

SWOT ANALYSIS

Strength

Opportunity

Diverse and strong network of Franchises

Great Brand value which gives distinct advantage when compared with Peers

Global frozen food market growth

Dominos need to identify new market to increase revenue e.g. German markets

Weakness

Threat

International presence is not as appealing as compared to peers

Increase in health awareness and consciousness

Increased competition effecting market share

Strict regulations pose threat to company’s development plans

COMPETITIVE STRATEGY OF DOMINO’S INC (PORTER’S GENERIC STRATEGIES)

A perfect generic strategy is one which can give company a competitive advantage over other companies in the market and has the ability to help the company to maintain its level of growth in the market.

A company or a business organization should always identify its requirements, needs and also should analyse the trends prevailing in the market and then select a strategy. There are various strategies that company can choose from depending upon their needs and wants.

In case of Domino’s Pizza Inc. the strategy they have selected is product differentiation and innovation in the products and technology. Domino’s offer variety of things which helps the company stands above its competitors (Alpert, 1993). They have continuously introduced different flavours, add on products, crusts, shapes and textures in the market. Domino’s has increased its sales of its add-on products in UK by 12 pounds to 15 pounds per head spending. They had also introduced pizzas free of trans- fat in year 2007.

Innovation in core product has always been a major innovation designed by Domino’s. Apart from innovation in the core product, they have focused on finding innovative ways to improve their services. They always make sure their pizzas are delivered hot, for this they launched “Heat wave” box to ensure that pizzas are delivered hot (Alpert, 1993).

Generally ordering pizza is done by customers on telephone. Domino’s has an effective and efficient telephonic network which helps them maintain their brand image (De Souza, 1989). As giving orders on telephone is still the norm in the market, what domino’s has done is whenever you call, you can choose store near your place. They have also launched a national SMS service, through which customers can place their orders just by sending a message (Haywood, 1989).

In the year 1999, Domino’s took another step by innovating an effective ordering technique which helped them gain advantage over competitors. They launched online ordering service via internet. They achieved weekly sales figures of GBP 1 million through its online network. By the year 2008 their total sales over the online network jumped to an impressive GBP 55.9 million annually. They have always tried something new to improve their service to bring comfort to their customers (Gabay et al, 2009).

The reason for success of Domino’s is that they have always targeted families with children, students and young professionals. They had their association with television shows like the Simpson’s and America’s got talent. (Haywood, 1989).

CONCLUSION

Internal analysis, External analysis and SWOT Analysis suggest the strategy of the company is to create a brand value in the market and expand through franchising which is consistent with the strategy of the company.