Harvard Case - Domino's Pizza Japan: Fortressing or Market Expansion?
"Domino's Pizza Japan: Fortressing or Market Expansion?" Harvard business case study is written by Paul W. Beamish, Colette Southam, Alex Beamish. It deals with the challenges in the field of Strategy. The case study is 11 page(s) long and it was first published on : Mar 18, 2021
At Fern Fort University, we recommend Domino's Pizza Japan pursue a hybrid strategy combining market expansion with a focused approach on innovation and technology within its existing markets. This strategy aims to leverage Domino's existing strengths in technology and analytics, while simultaneously exploring new growth opportunities through strategic alliances, acquisitions, and expansion into emerging markets.
2. Background
Domino's Pizza Japan, a subsidiary of Domino's Pizza, Inc., has achieved remarkable success in the Japanese market since its inception in 1985. The company has established a strong brand presence, a robust delivery network, and a loyal customer base. However, facing increasing competition and market saturation, Domino's Japan must decide between focusing on strengthening its existing position (fortressing) or pursuing new growth avenues (market expansion).
The case study focuses on the leadership team of Domino's Japan, led by President and CEO, Masahiko Ogawa, who grapples with this strategic dilemma.
3. Analysis of the Case Study
Strategic Analysis:
Porter's Five Forces: Analyzing the Japanese pizza market reveals:
- High threat of new entrants: The low barriers to entry in the pizza industry attract new competitors, especially in the delivery segment.
- High bargaining power of buyers: Consumers have numerous choices and can easily switch between brands, leading to price sensitivity.
- Moderate bargaining power of suppliers: Domino's Japan relies on a diverse supply chain, reducing supplier leverage.
- High threat of substitutes: Other fast food options, home-cooked meals, and delivery services offer alternatives to pizza.
- Intense rivalry among existing competitors: The market is highly competitive, with established players like Pizza Hut and local chains vying for market share.
Ansoff Matrix: Domino's Japan can explore various growth strategies:
- Market Penetration: Further penetrate existing markets by increasing customer loyalty and frequency of orders.
- Market Development: Expand into new geographic regions within Japan, targeting untapped markets.
- Product Development: Introduce new menu items, flavors, and product variations to cater to diverse customer preferences.
- Diversification: Explore new business models like partnerships with restaurants or delivery services.
BCG Matrix: Domino's Japan can classify its offerings based on market share and market growth:
- Stars: Products with high market share in high-growth markets. Domino's Japan could leverage its existing strengths to further penetrate these markets.
- Cash Cows: Products with high market share in low-growth markets. Domino's Japan can focus on cost optimization and profit maximization in these segments.
- Question Marks: Products with low market share in high-growth markets. Domino's Japan needs to invest strategically to build market share in these segments.
- Dogs: Products with low market share in low-growth markets. Domino's Japan may consider divesting or restructuring these segments.
Financial Analysis:
- Key Performance Indicators (KPIs): Domino's Japan needs to track KPIs like sales growth, profitability, customer acquisition cost, customer lifetime value, and market share to assess the effectiveness of its growth strategies.
- Resource Allocation: Domino's Japan needs to prioritize resource allocation based on the potential return on investment and strategic alignment with its overall goals.
- Scenario Planning: Domino's Japan should develop different scenarios for market growth, competition, and economic conditions to assess the potential risks and opportunities associated with different growth strategies.
Marketing Analysis:
- Brand Management: Domino's Japan needs to maintain a strong brand image and differentiate itself from competitors by focusing on innovation, quality, and customer service.
- Marketing Strategy: Domino's Japan should leverage a multi-channel marketing approach, including digital marketing, social media, and partnerships with local businesses.
- Pricing Strategy: Domino's Japan needs to balance price competitiveness with profitability, considering customer price sensitivity and competitor pricing.
Operational Analysis:
- Supply Chain Management: Domino's Japan needs to optimize its supply chain to ensure efficient procurement, production, and delivery of its products.
- Manufacturing Processes: Domino's Japan can explore automation and technology to improve efficiency and reduce costs.
- IT Management: Domino's Japan needs to invest in robust IT infrastructure and systems to support its online ordering, delivery tracking, and customer management processes.
4. Recommendations
Focus on Innovation and Technology: Domino's Japan should continue investing in disruptive innovation and technology to enhance its customer experience, streamline operations, and gain a competitive advantage. This includes:
- AI and Machine Learning: Implement AI-powered ordering systems, personalized recommendations, and predictive analytics to optimize operations and customer satisfaction.
- Digital Transformation: Enhance its online ordering platform, mobile app, and delivery tracking systems to provide a seamless digital experience.
- Data Analytics: Leverage data analytics to gain insights into customer preferences, market trends, and competitor activities to inform strategic decision-making.
Expand into Emerging Markets: Domino's Japan should explore opportunities to expand into emerging markets within Asia, where the demand for pizza is growing rapidly. This can be achieved through:
- Strategic Alliances: Partner with local businesses or franchisees to establish a presence in new markets and leverage their expertise.
- Mergers and Acquisitions: Consider acquiring existing pizza chains or restaurants in emerging markets to accelerate market entry and gain access to existing infrastructure.
Develop a Focused Growth Strategy: Domino's Japan should prioritize strategic alignment and resource allocation to support its chosen growth strategy. This involves:
- Market Segmentation: Identify specific customer segments and target them with tailored marketing campaigns and product offerings.
- Product Development: Introduce new menu items and flavors that cater to local tastes and preferences in emerging markets.
- Pricing Strategy: Adapt pricing strategies to reflect local market conditions and customer purchasing power.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Domino's Japan's core competencies lie in its technology, analytics, and operational efficiency. These strengths can be leveraged for both market expansion and innovation.
- External customers and internal clients: The recommendations address the needs of both external customers (through innovation and expansion) and internal clients (through efficient operations and resource allocation).
- Competitors: The recommendations aim to differentiate Domino's Japan from competitors by focusing on innovation, technology, and market expansion.
- Attractiveness: The recommendations are expected to generate positive returns on investment, increase market share, and enhance brand value.
6. Conclusion
Domino's Pizza Japan can achieve sustainable growth by pursuing a hybrid strategy that combines market expansion with a focused approach on innovation and technology. By leveraging its existing strengths, exploring new markets, and adapting its offerings to local preferences, Domino's Japan can maintain its leadership position in the Japanese pizza market and expand its global footprint.
7. Discussion
Alternatives:
- Fortressing: Focusing solely on strengthening its existing position in Japan may lead to stagnation and vulnerability to competition.
- Aggressive Expansion: Rapidly expanding into multiple new markets without proper planning and resource allocation can lead to overstretching and financial strain.
Risks:
- Competition: The pizza industry is highly competitive, and new entrants or existing competitors may disrupt Domino's Japan's market position.
- Economic Downturn: Economic downturns can impact consumer spending and reduce demand for pizza.
- Cultural Differences: Expanding into new markets requires understanding local tastes, preferences, and cultural nuances.
Key Assumptions:
- Domino's Japan can successfully implement its innovation and technology initiatives.
- Emerging markets offer significant growth potential for pizza.
- Domino's Japan can secure the necessary resources for market expansion.
8. Next Steps
- Develop a detailed strategic plan: Outline specific goals, objectives, and action plans for both market expansion and innovation.
- Conduct market research: Identify potential target markets, assess competitive landscape, and analyze consumer preferences.
- Pilot test new products and services: Introduce new menu items and technologies in specific markets to assess customer response and refine strategies.
- Secure funding and resources: Allocate resources for market expansion, technology development, and marketing campaigns.
- Monitor progress and adjust strategies: Regularly track key performance indicators and make necessary adjustments to ensure the success of the chosen growth strategy.
By implementing these recommendations and taking a proactive approach to growth, Domino's Pizza Japan can continue its success story and become a leading player in the global pizza market.
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Case Description
In late 2018, the chief executive officer and president of Domino's Pizza Japan Inc. was convinced that a substantial expansion in the Japanese market was needed and feasible for continued growth. His company had already grown to nearly 550 stores across Japan, which was over double the number only five years earlier. The company had numerous opportunities to grow further, including opening new markets; opening stores closer to the company's customers; and building on customer insights, new menu offerings, and a new marketing approach. In particular, the chief executive officer wondered whether priority should be given to new markets in Japan that the company had not yet entered, or if priority should be given to greater penetration in Japanese locations where it already operated. What strategy was the best option for expansion in the Japanese market?
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