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Marketing Analysis – KFC
Introduction KFC operates in 74 countries and territories throughout the world. It was founded in
Corbin, Kentucky by Colonel Harland D. Sanders. y 1964, the Colonel decided to sell the business to
two Louisville businessmen. In 1966 they took KFC public and the company was listed on the New
York Stock Exchange. In 1971, Heublein, Inc. acquired KFC, soon after, conflicts erupted between the
Colonel (which was working as a public relations and goodwill ambassador) and Heublein management
over quality control issues and restaurant cleanliness. In 1977 a "back-to-the-basics" strategy was
successfully implemented. By the time KFC was acquired by PepsiCo in 1986, it had grown to
approximately 6,600 units in 55 countries and territories. Due to strategic reasons, in 1997 PepsiCo
spun off its restaurant businesses (Pizza Hut, Taco Bell and KFC) into a new company called Tricon
Global Restaurants, Inc.
Reasons for going overseas Companies moves beyond domestic markets into international markets for
the following reasons: *Potential demand in foreign market *Saturation of domestic markets *Follow
domestic customers that go abroad *Bandwagon effect *Comparative advantage - some countries
possess unique natural or human resources that give them an edge when it comes to producing
particular products. This factor, for example, explains South Africa's dominance in diamonds, and the
ability of developing countries in Asia with low wage rates to compete successfully in products
assembled by hand.
*Technological advantage - In one country a particular industry, often encouraged by government and
spurred by the efforts of a few firms, develops a technological advantage over the rest of the world.
For example, the United Sates dominated the computer industry for many years because of technology
developed by companies such as IBM, Hewlett-Packard and Intel Organization structures for
International Markets (Modes of Entry) *The mode of entry affects a company's entire marketing mix
Exporting *Export merchant (Indirect) *Export agent (Direct) *Company sales branches Contracting
*Licensing *Franchising *Contract manufacturing Direct Investment *Joint venture *Strategic alliance
*Wholly owned subsidiaries Criteria for selecting a mode of entry 1.Company's marketing objectives: production volume - time scale (long/short term) - coverage of market segaments 2.Company's size
3.Government encouragement or restrictions 4.Product quality requirements 5.Human resources
requirements 6.Market information feedback 7.Learning curve requirements 8.Risks: political or
economic 9.Control needs Mode(s) of entry for KFC *Franchising/Licensing *wholly owned subsidiary
*Joint venture Firstly, KFC's traditional franchising strategy, which is emphasizing standardization and
reducing financial risk, on the expense of cultural sensitivity and control. Due to China's strict foreign
investment laws such a strategy is not feasible. In addition, KFC will be pioneering in the fast-food
field and thus needs to be highly sensitive to cultural demands. In the past, KFC encountered problems
with aligning corporate planning with franchisee's short-term focus on profitability.
A wholly owned subsidiary represents the second option. Such a strategy relies upon total control over
competitive advantages and ensures complete operational and strategic control. It also involves high
investment expenses with no financial risk sharing. With high levels of resource commitment and little
country-level flexibility and responsiveness, this option is not recommended.
Recommended market entry strategy: joint venture The essence of a joint venture is the synergy effect
of two different entities merging. Such an international business strategy will attempt to; solve many
logistic problems such as access to good quality chicken and other supplies, ease the access to the
Chinese market, share risk with a local entity, and finally serve as a sign of commitment to the host
government increasing goodwill. In addition, due to the complexity of many barriers to entry into
China, a potential partner with sufficient contacts/networks with government agency officials may
smoothen the process of setting-up operations in the nation.
The potential joint-venture partner should be large, well established, provide excellent distribution
channels and have personal network access to government officials. It should also have modern
equipment and a good management record. It is recommended that a partner is found by backwards
integration. In other words, it is a good domestic poultry supplier. In order to ensure total
commitment and balance of power between the two partners, a 55/45 joint venture, with KFC as the
dominant partner should be set-up.
By building on each partner's core competencies, knowledge, and efficiencies, a mutually beneficial
synergy effect could be achieved as a result of joint venture activities. For instance, the local partner
can learn from KFC how to produce a better product at a lower cost and further expand on its new
competitive positioning. KFC, on the other hand, can maintain quality supply which is detrimental to
its success.
A joint venture will also significantly ease the entry to the virgin Chinese market. A new entrant would
find it very difficult to form local and personal networks between businesses and government
agencies, which are crucial to success and provide access to the local market and domestic suppliers.
In addition, local business customs and laws can be quicker understood and established ways to cut
bureaucratic red-tape can be further utilized. Also, the local knowledge of culture, language and
geography is beneficial for any foreign entrant into a relatively unknown market.
In order to cope with the significant political risk of investing in China, a local joint venture partner will
share this risk. There is always a risk of domestication measures imposed by the host government,
often leading to major financial losses for the foreign investor. By having a 55/45 joint venture
agreement, this risk is potential eliminated, since only 55 percent of operations are domesticated. If
such an unfavorable situation would arise, KFC has clearly less to loose in such an agreement. In
addition, by being the dominant partner, KFC will be able to ensure cost, quality and strategic control
measures.
The Chinese government may very well find KFC beneficial to the nation, as it is the pioneering
western fast-food outlet. Training the joint venture partner, personnel and other institutions in the
value chain can reduce learning and experience curves. KFC's operations may also inspire local
competitors to increase service and quality of food. It can also help to create a competitive fast-food
industry in China as new competitors respond to KFC's ideas. Moreover, a joint venture agreement
commonly produces goodwill and commitment between the host government and the foreign investor.
In such a relationship, the foreign investor is not seen as trying to take advantage of the nation for
profit purposes, but rather show willingness to share. Maintaining good relations with the host
government is a critical success factor as government policy impacts intensely upon business
activities.
Factors that influence marketing decisions Social and cultural forces *Family *Social customs and
behaviour *Education *Language differences Economic environment *Infrastructure *Level of economic
development *Competition Political and legal forces *Trade barriers oTariff oImport quota oDumping
oLocal-content law oBoycott *Trade agreements oGATT oWTO oEU oNAFTA oAPEC oASEAN Information
gathering (Marketing Research) Marketing research - the systematic and objective identification,
collection, analysis, and dissemination of information that is undertaken to improve decision making
related to identifying and solving problems (opportunities) in marketing. It is indeed, has a broad
range of applications and plays a crucial role in the marketing decision-making process.
The task of marketing research is to assess the information needs and provide management with
relevant, accurate, reliable, valid, and current information to aid marketing decision marking.
Company conduct and use marketing research to stay competitive and to avoid high costs associated
with making poor decisions based on unsound information.
Marketing research plays a significant part in the development of marketing plans because it allows
the organization to become less isolated from the key trends and changes, which surround their
product. To continue to be successful, organizations must receive information, from the researcher
that is clear and accurate. It also has to satisfy your pre-determined goal for your research.
Steps in international marketing research: 1.define research problem(s) 2.develop a research design
3.determine information needs 4.collect the data (secondary and primary) 5.analyze the data and
interpret the results 6.report and present the findings of the study Major research challenges
1.Complexity of research design due to environmental differences 2.lack and inaccuracy of secondary
data 3.time and cost requirements to collect primary data 4.coordination of multicounty research
efforts 5.difficulty in establishing comparability across multi-country studies Primary Research The use
of: - *Focus group *Survey methods for cross-cultural marketing research - Questionnaire - Sampling
(unit, size, procedure) - Contact Methods (mail, phone, personal interview, online survey) *Collecting
information Secondary Research Use of : *Secondary data (data which is already available) *Primary
data (when information is not useful or not exist) *Secondary data sources: government, Lexis/Nexis,
FINDEX, ACNielsen, etc., Problems with secondary data research: *Accuracy of data *Age of data
*Reliability over time *Comparability of data - triangulate - Functional or conceptual equivalence
*Lumping of data *The data may have been collected and manipulated for a specific use, therefore it
may be incomplete, ambiguous or out of context.
*Data may be compiled in different ways in different countries making comparability difficult. For
example, in Germany consumer expenditures are estimated largely on the basis of turnover tax
receipts, in the UK they are measured on tax receipts plus household surveys and production sources.
Similarly with GNP measures, it only reflects average health per head of population and not how it is
dispersed. As seen earlier, bimodalities are normal, thus introducing bias. GNP may be understated for
political reasons and may not reflect education (i.e. wealth based on minerals). Also infrastructure may
reflect channelled funds, say for tourism, rather than society as a whole - typical of many African
countries.
*Data may be corrupted by methodological and interpretive problems, for example, definitional error,
sampling error, section error, non-response error, language, social organizations, trained workers,
etc.
*Data may be non-existent, unreliable or incomplete thus making inter country comparisons very
difficult *Data may be inflated or deflated for political purposes *Data from documented sources must,
therefore, be treated with care and caution Special problems in international marketing research As
well as the difficulties associated with secondary data described earlier, there are a number of other
problems connected with obtaining data in the global context. These are as follows: *Multiple markets
need to be considered each with unique characteristics, availability of data and research services
*Many markets are small and do not reflect the cost of obtaining data for such a small potential
*Methodological difficulties may be encountered like nuances of language, interpretation, difficulty of
fieldwork supervision, cheating, data analysis difficulties (lack of computer technology) *Infrastructure
difficulties - lack of telephones, roads, transport, respondent locations and, *Cultural difficulties reluctance to talk to strangers, inability to talk to women or children, legal constraints on data
collection/transmission.
*Many of these facets apply more to developing than developed countries. However using a variety of
methods, outlined in the section, a lot of them can be ingeniously overcome *Whilst the gathering of
information in the international context is fraught with difficulties, without it the marketer would be
planning in the dark. The two most important modes of scanning are surveillance and search, each
giving data of a general or specific kind, invaluable to the strategy formulation process. In all decisions
whether to obtain data or not, costs versus benefits have to be considered carefully SWOT is a method
of analysis which examines a company's Strengths, Weaknesses, Opportunities and Threats. Often
used as part of the development process for a marketing plan, or to feed the results of a marketing
audit back into a revised plan According to the analysis, there are mainly two weaknesses for KFC. One
of them is financial problem and the other one is that KFC concentrates on only one single market. For
its strength, it has its own unique skill in fried chicken and it has established a good brand name.
However, it is now facing a threat. Nowadays, people are more concerned with the healthiness in food
and their demand for high quality of food is increasing. Also, it is now under economic crisis.
Nevertheless, it still has an opportunity in its market. It is because KFC is an leader in fried chicken
market. (Fried chicken) The early entry into international markets placed KFC in a strong position to
benefit from international expansion. Most of KFC's international expansion was through franchises,
due to the fact that they were owned and operated by local entrepreneurs with a deep understanding
of local language, culture, customs, law, and marketing characteristics. In larger markets there was a
tendency to build company-owned restaurants. The rationale was that fixed costs could be spread
over a large number of restaurants and lower prices on products could be negotiated. China was one
of the international markets KFC focused on.
Influences in marketing decisions Cultural factors Cultural: the basic beliefs and values cherished by a
society as a whole and handed down from one generation to the next.
Let us consider how culture influences the marketing decision. Before we go into detail, should we first
consider the elements contributing to the culture context?
The elements of culture: *Language *Religion *Values *Attitudes *Manners and Customs *Material
culture *Aesthetics *Education *Social Institutions Language can be categorized into verbal and nonverbal one. For verbal language, messages can be conveyed into words, by the ways the words that are
spoken. For non-verbal language, it refers to gesture, body position and eye contact.
A new entrant would find it very difficult to form local and personal networks between businesses and
government agencies, which are crucial to success and provide access to the local market and
domestic suppliers. In addition, local business customs and laws can be quicker understood and
established ways to cut bureaucratic red-tape can be further utilized. Also, the local knowledge of
culture, language and geography is beneficial for any foreign entrant into a relatively unknown market.
Religion and Superstition Religion is one of most sensitive elements of a culture.
To appreciate people's buying motives, customs & practices, awareness & understanding of their
religion is often crucial. When marketer has little or no understanding of a religion, it is easy to offend
unintentionally.
In numerous Asian countries, ancient Chinese philosophy of feng shui (wind-water) plays an important
role in design & placement of corporate buildings & retail spaces According to feng shui, proper
placement & arrangement of a man-made structure & its interior objects will bring good fortune to its
residents & visitors.
To avoid conflict against home place's religion is very important.
Religion has an impact on international marketing that is seen in a culture's values and attitudes
toward entrepreneurship, consumption and social organization.
Values They are enduring moral beliefs shared by members of a society and contributing to its culture
and beliefs of what is "good," "right," and appropriate in behaviour Attitudes For marketers, a crucial
value distinction is a culture's attitude toward change Societies that are resistant to change are usually
less willing to adopt new products or production processes Local attitudes toward foreign culture will
drive product positioning & design decision.
In South Africa, goods with American roots are strongly valued - using as a selling point, the amount
of affect or feeling for or against a stimulus.
KFC uses GM chicken. This arouses a great controversy in many places. In some places, people think
that as long as KFC can give delicious fried chicken, it does not matter what kind of chicken they are
using. On the other hand, some people think that the use of GM chicken will have great influence on
the food chain which is very crucial to the environmental health and nature development. Take China
as an example, the people there do not have very strong and clear idea on GM food. There is not as
many problems that has to be faced as in other advanced placed in the world.
Different values will influence if the product can be consumed by the market. It will also determine the
marketing segment, like if the selling point has to very verify. Different attitude will determine the ease
of entering the market. According to the above data, the demand and supply of the host country can
be known so what the related product decision can be made to match the demand of the market.
Manners and Customs Potential problem areas for marketers arise from an insufficient understanding
of: *Different ways of thinking *Necessity of saving face *Knowledge & understanding of the host
country *Decision-making process & personal relations *Allocation of time for negotiations When you
understand the customs and manners of the host country, you can determine what kind of promotion
and organization is best for that country. Also, the attitude will also determine what kind of industry
can enter the host country. For example, if a place likes having homemade food, it can tell if a fast
food shop or take away is more suitable.
For example, in China, people there begin to try and accept new and foreign stuff. It is a good
opportunity to enter the market at this moment.
Managers must be concerned with differences in the ways products are used.
Material culture Results from technology and is directly related to the way a society organizes its
economic activity. It is manifested in the availability and adequacy of the basic economic, social,
financial, cultural convergence, and marketing infrastructures. The basic economic infrastructure
consists of transportation, energy, and communications systems. The degree of industrialization can
provide a marketing segmentation variable.
When KFC first went into the Japanese market in the early 1970's, the company chose to form a joint
venture with a large scale poultry producer with excess capacity. This 50/50 joint venture served the
two partners very well, as KFC was able to ensure a stable supply of quality supplies to its operations,
and the local corporation was able increase efficiencies in production by selling its excess supply.
Furthermore, KFC was able to utilize existing distribution networks serviced by the partner and at the
same time, adhere to exiting rules and regulations imposed by the Japanese government on foreign
direct investment.
Aesthetics
Each culture makes a clear statement concerning good taste, as expressed in the arts and in the
particular symbolism of colors, form, and music. What is and what is not acceptable may vary
dramatically even in otherwise highly similar markets.
In China, the packing has been well accepted in the worldwide so it can be easily accepted by the
people in China. Moreover, red which is a main color in its package and logo symbolize wealth and
happiness. So it can be well accepted by people in China without much difficult in establishing a good
image.
It will seriously affect how the product is promoted and its design. For example, the original packing
might not be as well as accepted in host country.
The international firms have to take into consideration local tastes and concerns in designing their
facilities. They may have general policy of uniformity in building or office space design, but local
tastes may often warrant modifications. Respecting cultural traditions may also generate goodwill
toward the international marketer.
Education
Education is one of major vehicles to channel culture from one generation to the next Two facets of
education that matter to international marketers include: level & quality of education.
Education affects employee training, competition for labor and product characteristics - marketers
need to exercise caution such as product labelling, print ads, & survey research. For KFC in China, it
has advantage that it is easy to employ manual labors as there is a large pool of manual workers
suitable for it. As this job does not require a very high education and the general education is not very
high yet, this helps to balance the supply and demand in the market.
Education in general affects employee training, competition for labor and product characteristics.
Marketers need to exercise caution such as product labelling, print ads, and survey research. The
international marketing manager may also have to be prepared to fight obstacles in recruiting a
suitable sales force or support personnel.
Social Institutions They refer to the positions of men & women in society, family, social classes, group
behavior, & age groups are interpreted differently within every culture.
Each institution has an effect on marketing because each influences behavior, values, & overall
patterns of life The fitting of an organizational culture for internal marketing purposes to the larger
context of a national culture has to be executed with care.
The internationally successful companies all share an important quality: patience. They have not
rushed into situations but rather built their operations carefully by following the most basic business
principles. These principles are to know your adversary, know your audience and know your customer.
Summary Culture is one of the most challenging elements of the international marketplace. The most
complicated problem in dealing with the cultural environment stem from the fact that we cannot learn
culture - we have to live it. Two schools of thought exist in the business world on how to deal with
cultural diversity. One is that business is business the world around, following the model of Pepsi and
McDonald's. In some cases, globalization is a fact of life; however, cultural differences are still far from
converging.
The other school proposes that companies must tailor business approaches to individual cultures.
Setting up policies and procedures in each country has been compared to an organ transplant; the
critical question centres on acceptance or rejection. The major challenge to the international manager
is to make sure that rejection is not a result of cultural myopia or even blindness.
Political/Legal factors Economic factors Appendix Marketing Research Methods Marketing research
plays a significant part in the development of marketing plans because it allows the organization to
become less isolated from the key trends and changes, which surround their product. To continue to
be successful, organizations must receive information, from the researcher that is clear and accurate.
It also has to satisfy your pre-determined goal for your research.
"Marketing research is the function which links the consumer, customer and the public to the marketer
through information." Market research identifies issues that have a direct effect on the organization,
through the analysis of the results. The results and obtained information must be collated and
presented in a form that is easy to understand. Instead of raw data, you have a series of graph, charts
and tables.
There are three main types of research, diagnostic, descriptive and predictive. Diagnostic research is
used when you need to analyze the effectiveness of an advertising campaign. Descriptive research is
fact finding secondary data. You would use this when you planned to sample a section of a target
audience for a particular product. Predictive research is about identifying new opportunities in a
market place and calculating the effect of marketing decisions. You would use this if the organization
were planning to expand or regenerate their product.
When conducting research, you have to use a sample of your population. The reason why you use a
sample is because you can't physically research every single person in the country, unless you are the
Government and you are conducting a census. Your sample should consist of people who fit into the
research requirements. Sampling is cost and time effective, which are extremely important to the
organisation that is commissioning the research because they are anxiously waiting for the results of
the research.
The research data, which has been collected, can be categorized into two main sections, qualitative
research and quantitative research. Usually most research contains particles from both sections.
Qualitative research is when the information is open to broad interpretations. It is not concerned with
finding statistics, which relate to the product but focuses on the reasons lying behind certain areas,
for example consumer feeling and motivation.
Qualitative research is a more flexible approach as it explores customer behavior, it identifies and
analyses their emotions. This research is usually conducted on small samples because the finding will
be divers and full of 'richness'. This research cannot be generalized as it deals with complex issues
that tend to be unique to the individual, human emotions.
When using Qualitative research, there are several research techniques that you can use. The
techniques must be on a more personal scale, in comparison with quantitative research, as the
research requires that source of information. Primary data is excellent as it is specifically designed to
address the problems identified in the research objectives. Primary data includes information that is
'first hand', as it is collected directly from the respondent. Examples are surveys, group discussions,
interviews and observations.
Surveys are an excellent form of researching. The survey has been carefully designed to address your
objectives. It can be quick and accurate in pinpointing the information required because there is no
room for distraction. Respondents either chose an answer or make their own. It is relatively cheap and
less time consuming. The results are excellent to interpret, evaluate and are affectively displayed in
several formats.
Group Discussions (Focus Groups) is when six to ten people, who are recruited according to the predetermined criteria, exchange experiences, attitudes and beliefs about certain topics. It is a semi
controlled environment and a moderator lead the conversation flow. The whole discussion is recorded
and everyone is informed about the recording, following ethical guidelines. With a group environment,
the respondents are less intimidated because they are not alone, Observational research is when a
person, who satisfies the criteria, is being observed and recorded. The observer will note the person's
body language and behavior and will analyze it in order to understand the problem. The observer will
either be conducting this research in a controlled or non-controlled environment. A controlled
environment would be a room with only the observer and subject present. A non-controlled
environment would be a busy street. Most observational research is conducted in controlled
environments because fewer ethics are involved. Ethics are breached when someone is being recorded
against their will or are unaware. High street clothing companies, such as Arcadia, Mark and Spencer's
and Next all carry out observational research. The research is through a 'mystery/test shopper'. The
researcher takes on the role of a customer and rates the staff's performance. Again I have been
involved in an observational research campaign. I was asked to look at several different types and
styles of packaging for "Southern Comfort" whiskey. The researcher recorded my expressions and
feelings towards each packaging idea.
The remaining section from your collected data is quantitative research. This type of research involves
a mass collection of measurable information, which is not open to interpretation. This type of research
can be conducted through the use of telephone interviews, face-to-face interviews and mail
questionnaires. Quantitative research also utilizes secondary data sources.
The types of secondary data sources are information that has already exists, from an external body.
Government published data, trade press or association files, press articles or report commissioned by
independent authorities or watchdogs. However secondary information is complicated, it may take a
long time to get relevant information that you can use. The majority of the information may not be
relevant to your research. This is an example of low cost research, most sources are available free of
charge to the public.
When using quantitative research the methods differ from qualitative methods. Quantitative methods
tend to be more impersonal, and direct to the point. Telephone interviews are excellent because the
survey 'script' has been designed to combat the issues that the research is trying to find out. The
speed of the interview must be fast and last no longer than ten minutes. You have to keep the
respondent interested in order to get a response.
Individual interviews are another form of research. The process can last up to an hour. During this
hour the researcher is recording your responses and is able to expand on your answers because a
rapport has been built up. This form of research is more common as you see the researcher, with their
clipboards on most high streets.
Mail questionnaires are a more popular form of research. It involves sending out self-completion
surveys to a population sample. The sample is then supposed to fill them out and return them to the
researcher. With mail questionnaires you can cover a vast amount of your sample, as you are able to
send out thousands of questionnaires. The only problem is that response rate tends to be low, With
the types of research available, I personally believe in qualitative research because there is a greater
need to expand and develop your research. This is useful because it allows your finding to be more
accurate and richer in source. When conducting research I suggest that you use both types of data.
Secondary data will allow you to build up a background and may even hold some relevant information
to your research.
Sources of global information Sources of information include documented sources, human resources
or perceived sources.
Documented sources In recent years there has been an information explosion, especially in the
documented or "secondary" source area. (Primary data collection will be dealt with later). Various
sources of documented data are available including: i) Governments *Central office of information (UK)
*Central Statistical Office (Zimbabwe) *EU documentation centres *Boards of trade, or Ministry of
Commerce ii) International bodies *the UN Statistical Yearbook *World Bank - general statistics *OECD
- general statistics *ITC - Geneva (information service) iii) Business, trade, professional *Chambers of
Commerce *Institute of Marketing *American Management Association *The Market Research Society
iv) Foreign embassies, trade missions *Commercial newspapers *Financial agencies - Price Waterhouse
*Kompass Register of companies *Economist Intelligence Unit (UK) v) Other *Libraries, universities,
colleges.
There are excellent sources of overseas data, in the horticultural industry, giving information on
markets, prices and produce required for those wishing to sell into Europe. Examples of these are
given below: *International Trade Centre (ITC) Geneva *COLEACP, Paris *Natural Resource Institute
(NRI) UK *GTZ, Germany *CBI, Netherlands *IMPOD, Sweden *Chambers of commerce *Food and
Agriculture Organization of the United Nations Conclusion This analysis is focused by exploring,
through different perspectives, the pros and cons of KFC investing in China. What can make this
region attractive to so many companies? First, the size of the market - it has a population of more
than 1.6 billion. Second, most countries are becoming fully functional democracies. Third, most
countries are successfully stabilizing their economies. These factors make investment in this market
less risky.
In a competitive market, companies are not only dependent on their strategy but also on the strategy
of their competitors. If the competition is exploring the China market and you aren't, can't that be
risky? For example, if McDonald's invest in the risky market X and KFC doesn't, two situations may
happen. First the investment succeeds, in which case McDonald's gains the advantage. Second the
investment fails, in which case KFC gains the advantage from McDonald's misfortune. To playing safe,
KFC can follow the competition into the new markets. That way the chance of all loosing or all winning
is quite the same.