Viva la (Facebook & Smartphone) Revolución!
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Social media advertisement and smartphone apps have revolutionized old school marketing. Costs of advertising and ultimately costs of doing business have been reduced. While almost every other corporation is adapting to this new ecosystem, there are some businesses that are making the most out of it.
I’ll avoid getting into financial analytics and forward P/Es and PEGs or comparing competitors to make a recommendation. Since the following two stocks are both recommended ‘buys’ right now, I’ll leave the comparison between the two for the next time. This time my focus is going to be on their marketing models.
Two famous pizza brands have recently beaten Wall Street’s earnings forecasts and their stocks have since been opening higher than the previous close each passing day. Both stocks, Papa John’s Pizza (NASDAQ: PZZA) and Domino’s Pizza (NYSE: DPZ), are hot picks right now with one of the two (Domino’s) also landing in Jim Cramer’s portfolio.
Star analysts have especially upped their ratings for Domino’s Pizza, which was recently upgraded by Goldman Sachs from neutral to buy, setting a price target of $45 for the stock. Experts say Domino’s future growth will mostly come from its international operations, especially emerging markets. Last year, Domino’s Pizza had global sales of over $6.9 billion, of which 51%, or $3.5 billion, came from the international markets with Japan’s 50% of sales, the UK’s nearly 50% and Australia’s 40% coming from online orders. Today, 30% of Domino’s total sales revenue comes from mobile and traditional online ordering. Such is the power of internet!
The Facebook Factor
Domino’s saw its Facebook and Twitter fan base growing by more than 400% in just one year last year. The pizza company has been able to attract an average of 500k fans every month since the beginning of the year. User growth got a bit sluggish in the last three months yet its Facebook page, which had around 6.3 million followers back in April, has attracted another 800k fans—though outpaced by Yum! Brands' Pizza Hut (NYSE: YUM), which saw a faster fan growth over the same period.
Domino’s was able to earn $1 billion in total online sales during a one year period in 2011, and to celebrate this it announced the half-price pizza deal that offered 50% off its pizzas. The major marketing platform for this promo was Facebook itself. Domino’s ran sponsored stories and premium ads on Facebook days before the campaign was launched. The campaign, which ran on over 19 country-specific Domino’s Facebook pages, broke the company’s own sales records in many countries. The trick was to attract customers to like their Facebook page. Once they did, Domino’s added the 50% discount offer to their shopping carts on Domino’s website. The result was a huge number of Facebook users liking the page—who, to this date, continue to receive promotional updates from the company daily on their news feed.
A somewhat similar kind of marketing strategy was employed by Pizza Hut earlier last year when its Facebook fan base was only half of what it is today. Fans who liked the official Pizza Hut Facebook page received a free $5 P’Zone with every online purchase.
Another rather interesting way in which Domino’s utilizes its Facebook presence is via its game app. Ok, I confess that at first it felt like a complete waste of time, but then I noticed I was contributing to charity. Against every three levels you clear, Domino’s Pizza donates $1 to a cancer research hospital for children. You can play it here to donate. So far, the app users’ donations have reached $7,521.
As of now, Domino’s Facebook page has over 7.1 million likes. Pizza hut has over 8 million and Papa John’s is behind the two with only 2.4 million. What makes the former two more likable is their page admins who keep the users engaged daily with their interactive shares and statuses, to keep them coming back. Note, fans who like and comment on these pages, have their activity made visible on their friends’ news feeds; thus the pages' message reaches an even wider audience than actual subscribed fans. Papa John’s lags behind the two peers in this department because of a not-so-engaging (a subtle way of saying boring) admin, but that’s where smartphones do the trick for this brand.
The Smartphone Factor
Papa John’s is the pioneer in the mobile space, the first to generate $1 million in mobile sales back in 2008. Pizza Hut followed with $1 million in sales via its iPhone app in 2009, which reached over 3 million downloads. Domino’s entered the app market a little late, with its first iPhone app releasing and generating $1 million in sales in 2011. Better late than never!
According to Domino’s chief marketing officer, Russell Weiner, sales from apps are now approaching $140 million per year. Domino’s has just launched its pizza ordering app for Amazon’s Kindle Fire, which Pizza Hut doesn’t have, thus making an addition to Domino's mobile ordering apps portfolio. The Kindle Fire app does crash every now and then and thus hasn't received many good reviews, but that's another issue. It still pushes Domino's a step ahead. Papa John’s pizza leads with its apps available on android, iPhone, iPad, Windows Phone, Blackberry and Kindle Fire. The pizza brands have also been running mobile ads with Pandora.
The smartphone apps make pizza ordering a unique experience via phone. For me, Domino's has by far the best app. It allows you to choose your base sauce in addition to a wider range of crusts, sizes and toppings. You can place an order in advance for a future date and even track your order while it's being processed. Pizza Hut's app also lets you customize your own pizza, but the choices are comparatively narrower.
And then there are these partnered marketing schemes with smartphone manufacturers. One employed by Domino’s is the ‘Free Android Smartphone’ giveaway, in which the company has partnered with Google and telecom service providers like Verizon and Sprint to give free Android phones to its customers. All they need to do is sign up for a two year service plan with any telecom operator they like and download Domino’s Android pizza ordering app on the free phone.
Needless to say, the Facebook/smartphone era has us witnessing many businesses booming. And while Facebook stock gets ditched and smartphones fight for market share, many corporations like these pizza brands continue to win at their expense.
Long live the Facebook/Smartphone Revolution!
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Papa John’s International. Motley Fool newsletter services recommend Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.