California Pizza Kitchen Essay

A company’s strategic choices shape how that firm will operate and react to the use of its own resources as well as the affects of external factors. These choices are typically broken down into one of our distinct strategies (cost leadership, differentiation, niche focus, and first mover’s advantage) and applied as management sees fit. In studying California Pizza Kitchen (CPK) literature, one can easily decipher that their main strategy is differentiation with portions of first mover’s advantage tied in.

CPK is very open about the approach as menu innovation is one of their key values. Having identified this strategy this paper looks to review this strategy against recently performed SWAT analysis to see how it is affecting CPK’s strategic choices. It will discuss whether those strategic choices remaining in line with its differentiation strategy. Additionally, this case study will determine whether the differentiation strategy and CPK’s strategic choices create competitive advantages or are they creating weakness that need to be addressed and countered with some of CPK’s strengths.

Finally, a brief discussion on CPK’s mission and vision will be incorporated against the findings to determine what CPK is doing right and what they could possibly change to improve is competitive position. Corporate Strategy Porter tells us that firm’s position themselves by leveraging their strength’s. He argued that strengths ultimately fall into one of two headings: cost advantage and differentiation (Quickmba). CPK chooses and specifically points out differentiation as its main strategy.

In its 2009 financial report, CPK states, “We believe that our concept, attractive price-value relationship and quality of food and service enable us to differentiate ourselves from our competitors”. Differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and/or services relative to the perceived value of other firm’s products and services. Implementation of differentiation strategy means that the value is provided to customers through unique features and characteristics of the company’s products as opposed to the lowest price.

A successful differentiation strategy will create customer value that is perceived as such by its customers. Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. CPK differentiates itself through product quality through the use of quality ingredients, menu design and innovation, and expanded services and offerings beyond their main dining experience. This all falls under subcategory of differentiation known as “Quality Strategy”, which sets CPK apart from its competitors.

As a result of this quality, CPK has branded itself through a very loyal customer base that consistently markets for the company through rave reviews and word of mouth advertising. Firms that succeed in differentiation strategy often have the following internal strengths (QuickMBA): • Access to leading scientific research • Highly skilled and creative product development team • Strong sales team with the ability to successfully communicate the perceived strengths of the product • Corporate reputation for quality and innovation

Due to high levels of rivalry in the food industry there is always an incentive to be innovative and continuously improve. There is also always the chance that any differentiation could be copied by competitors. Therefore, innovation remains a huge part of CPK’s differentiation strategy as well as one of its core values. As proof of this, CPK literature is littered with the idea of menu innovation, expansion of service options such as the new items, smaller express stores and growth/development in the frozen and fresh foods market in grocery stores.

This philosophy is not just talk however. CPK backs this concept with action through the continuous research and evaluation of various food ingredients, products and supplies for consistency and food safety. This research is compared to detailed specifications developed by CPK’s products teams ultimately leading to high food quality standards. As mentioned in this author’s previous studies, this research provides intellectual capital as well as contributes to the innovation capability as CPK remains at the forefront of and often dictates market changes (Haas1).

This capability or competitive advantage is what also gives CPK some of its “First Mover” advantage. CPK operates as one of the pioneers of premium pizza (a niche market). Therefore they were one of the first to develop the products creating benchmark and standards for the market. This provides them with the advantage of potential lower costs (Golder & Teller) from intellectual capital and development experience as well as creates potential barriers for other competitors to switch products.

It also gives them early recognition and consumer preference (QuickMBA) reducing the risk of the threat of ubstitution. This further increases the strategy of differentiation as well in that customer’s become attached to CPK’s differentiating attributes. Additionally, because CPK focuses its main products on a niche market (premium pizza), it has been able to continue to sell its products at a more premium price and better absorb the economic upturn of inflation. Strategic Choices The state of the economy, the downsizing of disposable income and the high unemployment have all posed large threats to the full service dining industry.

The current economic environment has particularly played into CPK’s strategic choices recently as they have had to compete to maintain revenue, reduce costs and keep customers who are more and more turning to substitutes such as fast food or home cooked meals in an attempt to save money. This has not deterred CPK completely from its differentiation strategy. In fact, Rick Rosenfield (CPK, Co- CEO) stated the company was working to reverse declining sales by offering a new menu (LATimes), again playing on their strength of innovation.

However, it has forced CPK to consider other approaches in the way that the attack the market and expand their business. This gives CPK an opportunity to address one of its major weaknesses at the same time. CPK has over 40% of its stores located in California. This has created a lack of geographical diversification. Therefore CPK is looking to expand beyond California and has even looked to go outside the US as it believes its full-service restaurants will continue to represent the majority of revenue growth in the near term.

This expansion plays into CPK’s innovative approach to business. For the most part CPK’s management has looked to expand revenues through new markets and menu options. However, the economic downturn has forced CPK to look internally to reduce cost as a means to maintain or increase revenue. Therefore, CPK has decide to not only look at foreign markets as a way to diversify its revenue stream but it will also leverage its brand name and reputation through is expanding in existing markets to consolidate marketing, human resource and supply chain costs.

These choices are a good start, however CPK’s sales have been down and the diversity of the market has not helped CPK to recover its losses. Because CPK works with higher quality ingredients and unique menu items which change regularly there is less room for supply chain cost reduction. The innovative approach that makes CPK unique and differentiates it from its competitors could also potentially be preventing it from reducing costs and improving operational efficiencies. It acts almost as a “Catch 22” if you will.

Further, CPK run the potential pitfalls of risk listed below (Openlearningworld. com): • Customers may decide cost of uniqueness is too high • Means of differentiation no longer provides value to customers • Customers learning may reduce customer’s perception of company’s differentiation • Counterfeit goods convey the same differentiation at a discounted price Ultimately this forces CPK to continue to increase value to customers by means of reducing prices, adding product features without raising prices or developing better efficiency in its value chain.

Mission and Vision As described in previous research (Haas2), CPK does not formally identify its mission and vision by these names, therefore some interpretation is required for anyone looking for such designation. CPK intends to be the leader in authentic California-style cuisine and to be widely known for its innovative menu items. To achieve this, CPK intends to provide a range of creative dishes, from signature California-style hearth baked pizzas, creative salads, pastas, soups and sandwiches to extensive beer and wine lists with a full bar.

In Part 1, Item 1, Business of the 2009 annual report readily identifies the company’s objectives, as: “To extend our leadership position in the restaurant and premium pizza market by selling innovative, high quality pizzas in addition to creative salads, distinctive pastas and related products and by providing exceptional customer service, thereby building a high degree of customer loyalty, brand awareness and superior returns for our stockholders” To reach these objectives, We (CPK) plan to increase our market share by expanding our restaurant base in new and existing markets, leveraging our partnerships in non-traditional and retail channels and offering innovative menu item. ” Reviewing these statements reaffirm that CPK has a solid mission and vision that incorporate its corporate strategy very well. Innovation and quality are the cornerstones of CPK’s mission which are fundamental factors in a strong differentiation strategy.

However, CPK must be care not to become so focused on its current strategy that is forgets to measure pressures of external forces as well as the need for cost reduction that are weighing heavily in its business and profits. Without careful consideration of competitors, economic factors and internal stresses CPK may be forced to look elsewhere for funding which it has considered recently in its attempt to shop the company to new external buyers.

It is suggested that CPK look carefully at its current strategy as compared to that of its competitors to see if it can better leverage its internal strengths and potential for operational efficiencies because price may be the ultimate downfall as many competitors are finding ways to incentivize customer value through lower prices, additional options or more product for the same price to maintain customer base. This could be a battle that CPK could fail at if it does not keep pace or find a way to show consumers its value.

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