Case 2: Papa John’s International, Inc.: Twenty-First Century Growth Challenges 1) What is your assessment of Papa John’s differentiation strategy? On what bases does the company differentiate? There are a number of bases on which Papa John’s differentiates itself, many of which are interrelated. First and foremost is Papa John’s offering of a higher-quality pizza, which not only allows them to differentiate on the basis of a product feature (i.e. the high quality ingredients used in the pizza), but, even more importantly, on the basis of reputation. While most other pizza chains have their sights set on more of a cost-leader/low-price strategy, and make an less genuine statement of quality, Papa John’s entire organizational culture is focused squarely upon the pursuit of “better ingredients, better pizza”. This commitment has in turn endeared it to customer base, and has resulted in a long string of high customer satisfaction ratings. Papa John’s early adoption of online and mobile ordering technologies allowed it to differentiate itself on the bases of both timing of introduction and distribution channels. Papa John’s was in fact the very first pizza chain to offer both internet- and text-based ordering, and it was able to generate tremendous revenues as a first-mover in these then-untapped channels. Being that Papa John’s is a part of the larger fast food industry, and consumers seek out fast food in large part on the basis of its convenience, the value of such a distribution system obviously lies in how easily accessible it made Papa John’s products. 2) Is Papa John’s strategy sustainable? What is your assessment based on a VRIO analysis?
Obviously the most sustainable base of Papa John’s differentiation strategy is its reputation as a producer of high-quality pizzas. Such has been earned through years of commitment to the goal of producing a “perfect pizza”, which is an outgrowth of a strong organizational culture and well-communicated vision. The relationship between Papa John’s and its dedicated customer base is socially complex, and these customers could not be taken away overnight by a rival who suddenly began using better ingredients. However, the underpinning of this reputation - the product feature of high quality ingredients - is not nearly as sustainable, as it is not too costly for Papa John’s rivals of comparable size to ultimately imitate. In fact, Domino’s and Pizza Hut have demonstrated a shift towards higher-quality ingredients in recent years, and so this point of differentiation is no longer as rare as it once was. However, it will take many more years of making pizzas of similarly high quality for either to actually cement the same reputation as Papa John’s, and reputation does remain a very sustainable base of differentiation.
However, it is worth considering at which price point the value of this reputation begins to diminish, given the nature of the product category itself. Papa John’s is, after all, a fast food pizza chain, and price does play a significant role in the fast food market. Obviously, part of the value of having a differentiated product is the ability to command premium prices for it, and to easily pass increased costs on to a customer base which is relatively price-insensitive. However, the question here is what price ceiling exists on fast food pizza, regardless of its quality. Papa John’s may have a reputation for the highest-quality fast food pizza, and loyal customers may be willing to pay more for this high-quality fast food pizza than a lower-quality fast food pizza, but the price disparity between the two is unlikely to be anywhere near as great as that between, say, a car made by Rolls Royce and one made by Hyundai. Papa John’s may be able to charge a premium, but it must still exist within what is an essentially narrow price range acceptable for fast food. Should Papa John’s prices exceed this reasonable range - perhaps in the event that they cannot continue staving off...
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