Question

When the first Pizza Hut opened its doors back in 1958, it offered consumers one style of pizza: its Original Thin Crust Pizza. Since its modest beginnings, Pizza Hut has established itself as the leader of the $25 billion pizza industry. Today, Pizza Hut offers six styles of pizza, including Pan Pizza, Stuffed Crust Pizza, and its Hand-Tossed Style. Explain why Pizza Hut has expanded its offerings of pizza over the past five decades, and discuss the long-run profitability of such a strategy.

Answer 1

Because Pizza Hut is operating in a monopolistic competitive market.

Step-by-step explanation:

A monopolistic competitive market is one in which different sellers are selling variations of the same product which are not substitutes.

To stand out and survive , the sellers need to constantly differentiate or evolve their product by producing new styles

Back in 1958 when Pizza Hut opened its door for business, the product 'pizza' was relatively new and was in hot demand.

However as the years rolled by, many more businesses entered into the pizza-making industry causing stiff competition.

As the product remained unchanged, companies like Pizza Huts started making variations to the make up and composition of their pizza to set them apart from others. Hence they started evolving by making pizza styles like the Stuffed crust pizza, hand-tossed pizza etc. The new styles brought them profit in the short term.

2) However because a monopolistic competitive market is an open market with free entry and exist, other pizza making companies started innovating and producing similar new styles introducing competition again. The competition swallowed up the little profit margin hence over time the strategy of producing differentiated product and not an entirely new product is not profitable on the long run

Answer 2

Pizza Hut's recent offering of six styles of pizza is a product expansion strategy aimed at increasing sales ans profit.

Step-by-step explanation:

Pizza Hut's primary intention to expand its product line or add new features is to increase its sales and profits.

When a business employs a product expansion strategy, also known as product development, they increase their sales within the existing market as a result of providing variety .

A product expansion growth strategy often works well when the business dynamics starts to change making a proactive company to add new products as the marginal utility of older ones starts to decline.

In the long run, product expansion offer opportunities for greater overall profitability and keeps potential or current investors interested in the company.