Big Foot Case Analysis

To:

From: Group 9

Date: October 2, 2005

Subject: BIGFOOT Launch

For years now Pizza Hut, Inc. has been the leader of the pizza industry. We have been privileged to have had the opportunity to perform research on advancements we can make to maintain this reputation. Based upon our Economic Analysis we have decided to not launch the BIGFOOT pizza. The following gives a detailed analysis, offers alternatives to improving the Pizza Hut experience, and gives reasons why we came to this conclusion.

Economic Analysis:

First off, we appreciate the opportunity to have had an important role in Pizza Hut's latest product development, BIGFOOT. As you know, over the past five years market shares for the industry have changed much more drastically than in recent years. Our market share has been stagnant, and sales are down 10% this year in relation to last year's numbers.

During the same period, Little Caesars made a strong push and they have continued to grow. Little Caesars' "two for one" marketing approach was effective in infiltrating the "mom's night off" segment, and is seen by customers as a great value. This is adding direct competition into our niche market share. Little Caesars is surely not making headway with the pizza connoisseurs, but it has effectively targeted a market in which Pizza Hut does not currently have a strong presence. 50% to55% of this market is made up of family dining situations. Our marketing team has conducted multiple data analyses on ways in which we can gain market share from Little Caesars within this market. After much thought and many hours of research, we have devised a marketing plan that will potentially improve our market share.

As previously presented, the new pizza being introduced to the public is the BIGFOOT. This product was conceived as Pizza Hut's primary rebuttal to Little Caesars' "two for one," and from our regional market testing it seems to have a good chance of succeeding. BIGFOOT's price point is set at $7.99 because we determined from our research that Little Caesars' target market appreciates the fact they can feed the entire family for less than $10.

The BIGFOOT $7.99 price point will appeal to the lower to middle class families and potentially win over many of Little Caesars' swing group customers. This is the primary economic factor because the key to reaching the target market is price. Little Caesars has proven that quality is not as much of an importance because they have been able to increase sales despite making a lower quality pizza.

As shown in Exhibit G of the handout data, the anticipated net margin for the BIGFOOT Pizza is $7.67, and the net margin of other Pizza Hut's pizzas is $12.03. It is anticipated with the lower price that it will be easier to sell many more of the BIGFOOT pizzas. However, with price being set so low, it is necessary to understand that Pizza Hut will need to sell 1.63 BIGFOOT Pizzas to every one "Other Pizza." This is significant because it will be difficult to achieve a large enough sales volume to compensate for the difference in margin as well as the lost sales. Exhibit G shows that the difference in gross margin of the two products is $2.73. To compensate for this difference, it will be necessary to penetrate a significant portion of Little Caesars' "love group." History has shown that capturing the hearts of any competitors "love group" is extremely difficulty if not impossible.

Alternative:

The family dining situations, described in the Pizza Hut marketing research, indicate there are alternative sectors in which a marketing campaign could be launched to improve Pizza Hut's overall sales and profitability. We conducted a profile of the different segments of which Pizza Hut currently has customers. One hundred customers where questioned *about their "attitudes towards pizza." These responses were inserted into a correlation matrix and two conclusions were drawn (See Exhibit 1):

1. The first attitude towards pizza 'taste' is highly correlated to four different attitudes: favorite, flavor, serve, and occasion. These have been labeled as "Pizza Fanatics."

2. The second attitude towards pizza 'coupon' is highly correlated to the four remaining attitudes: discount, leave, specials, and money. These attitudes have been labeled "Frugal."

From these two new groups created by our correlation our marketing group then chose to create a scatter plot to get a better understanding of where our customer interests* lie in each segment (See Exhibit 2). This better enabled us to determine who exactly our target markets are and towards who we should be marketing this new product.

With this valuable knowledge in hand, we were then able to profile each of the four segments based upon our customers' survey responses of their "general attitudes" towards sports, politics, travel, and income demographics (See Exhibit 3). While profiling our customers we were also able to determine our *"love groups", or target markets, based upon the frequency of visits to our stores over the past six months (See Exhibit 4). These groups are the 'High/Highs and the 'High/Lows'. They are characterized in the following ways:

High/Low

* Pizza fanatics

* Willing to spend money

* Not active in sports

* Love to travel

o See new places

o Taste new food

* Politically neutral

* Average family size is four

* Income between $90,000+ High/High

* Pizza fanatics

* Extremely frugal

* Enjoy participating in sports

* Love to travel

o See new places

o Taste new food

* Politically