Research on competitive strategy: Comparative analysis of KFC and MACDONALD’S competitive strategy in China
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? ? ??Bobyeg Patricia Ndiforba
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MASTER THESIS OF BUSINESS ADMINISTRATION
Research on competitive strategy: Comparative analysis of KFC and MACDONALD’S competitive strategy in China
Faculty: School of Economics and Management
Author : Bobyeg Patricia Ndiforba
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For many organizations to survive in the competitive environment and also remain profitable, it is very important for them to be aggressive in searching and developing strategies that will provide competitive advantage as they put up defensive strategies to guide and protect their competitive advantages that have been held. Any organization failing to adopt competitive strategies will find it difficult to make it especially if competition is very aggressive. MACDONALD’s and KFC are two universal fast food eateries who have both extended their organizations on a worldwide scale. Clearly MACDONALD outperforms KFC as far as sales and popularity at the global level. In any case, in China, KFC performs better and has picked up the Chinese market than MACDONALD’s. The motivation and purpose behind the study is to discover how these two organizations have grown distinctively in the Chinese market by making making a comparative study of MACDONALD’s and KFC, their different operation and their competitive strategy theory and how they have used it in their development situation, and also to understand how KFC’s uses its competitive strategy to achieve and maintain competitive advantage in the Chinese market over its main competitor MACDONALD through strategic application of its capabilities as well as efficient utilization of both tangible and intangible resources within the company. The thesis starts with the general information on the industrial situation of Chinese fast food and later looks at the definition of terms and key words, concept of competitive strategy, swot and pest analysis, marketing strategy and marketing mix as well as the theoretical review and previous findings on this study which is the empirical review. After having introduced the background of the two companies, the study will go further to look at the theory of strategy and competitive advantage as the theoretical basis of the thesis. Next, we will compare MCDONALD’s and KFC’s core competitive power, analyze McDonald’s and KFC’s competitive strategy also Michael porter’s five forces, Pest and Swot analysis, marketing segment as well as the marketing mix will be used to compare the strategies employed by MACDONALD and KFC and to show who is the leading fast food in China. In the Research was introduced the qualitative finding, as the main research method that is used. The thesis ended by looking at the summary of findings, the conclusion, and some recommendations were given to other international fast food restaurants as well as suggestions for MACDONALD and KFC.
Keywords: Marketing Segmentation, Marketing Mix Variables, Strategy, Competitive Advantage.
Table of Contents
CHAPTER ONE: INTRODUCTION……………………………………………1
1.1 Background of study……………………………………………………………1
1.2 Statement of issue ………………………………………………………………2
1.3 Research Objectives …………………………………………………………….3
1.4 Research Questions ……………………………………………………………..4
1.5 Significance of Study ……………………………………………………………5
1.6 Organization of the Study ……………………………………………………….6
Chapter TWO: Literature Review ……………………………………………………………….7
2.1 theoretical literatures…………………………………………………………….7
2.2 Definition of Marketing …………………………………………………………8
2.3The Characteristics of Marketing…………………………………………………9
2.4 Marketing Segmentation ………………………………………………………..10
2.4.1 Segmentation ………………………………………………………….10
2.4.2 Targeting ………………………………………………………………10
2.4.3 Positioning ………………………………………………………….…10
2.5 Marketing Mix Variables ……………………………………………………….11
2.5.1 The Product …………………………………………………………..11
2.5.2 The Price ………………………………………………………………11
2.5.3 The Place ………………………………………………………………11
2.5.4 The Promotion …………………………………………………………11
2.6 Definition of Strategy/ History of Strategy ……………………………………..12
2.6.1 Process of Strategy ……………………………………………………12
2.6.2 Definition of Strategy by various Authors ……………………………12
2.7 Conception of Competitive Advantage …………………………………………13
2.7.1 Generic Competitive Strategies ………………………………………13
2.7.2 Cost Leadership Strategy ……………………………………………..13
2.7.3 Differential Strategy …………………………………………………..13
2.7.4 Focus Strategy …..……………………………………………………13
2.8 Swot Analysis …………………………………………………………….……14
2.8.1 Strengths (Internal, Positive Factors) …………………………………14
2.8.2 Weaknesses (Internal, Negative Factors) ………………………………14
2.8.3 Opportunities (External, Positive Factors) ……………………………14
2.8.4 Threats (External, Negative Factors) ………..……………………….14
2.9 Pest Analysis ………………………………………………………………….15
2.9.1 Economic Factors …………………………………………………….15
2.9.2 Political Factors ……………………………………………………….15
2.9.3 Technical Factors ………………………………………………………15
2.9.4 Social Factors ………………………………………………………….15
2.10 Empirical Literature …………………………………………………….…….16
CHAPTER THREE: COMPARISON OF KFC AND MACDONALD ………17
3.1 Company Profile of KFC …………………………………………………..…..17
3.1.1 KFC’s Mission Statement …………………………………..……..17
3.1.2 KFC’s Vision Statement …………………………………………..17
3.1.3 KFC in China ……………………………………………………..17
3.2 MACDONALD’s Company Profile ………………………………………..…18
3.2.1 MACDONALD’s Mission Statement …………………………….18
3.2.2 MACDONALD’s Vision Statement ………………………….…..18
3.2.3 MACDONALD in China ………………………………………….18
3.3 Comparing the marketing segment of KF and MACDONALD ……………….19
3.3.1 Targeting ……………,,,,…………………………………………..19
3.3.2 Positioning ………………………………………………………….19
3.3.4 Product Innovation …………………………………………………19
3.4 Comparison of KFC and MACDONALD’s Marketing Mix …………………….20
3.4.1 Product ………………………………………………………………20
3.4.2 Price …………………………………………………………………20
3.4.3 Place …………………………………………………………………20
3.4.4 Promotion ……………………………………………………………20
3.5 Comparison of McDonald’s and KFC competitive strategy ……………………21
3.5.1 Comparison of McDonald’s and KFC cost leadership strategy ……….21
3.5.2 Comparison of McDonald’s and KFC’s differentiation strategy …….21
3.6 Porters five Forces Analysis between KFC and MCDONALD in China ……..22
3.6.1 Supplier Power………………………………………………………22
3.6.2 Buyer Power …………………………………………………………22
3.6.3 Competitive Rivalry …………………………………………………22
3.6.4 Threat of Substitution ……………………………………………….22
3.6.5 Threat of New Entry …………………………………………………22
3.7 Pest Analysis between KFC and MCDONALD in China ……………………..23
3.7.1 Political ………………………………………………………………23
3.7.2 Economic …………………………………….………………………23
3.7.3 Social …………………………………….…………………………..23
3.7.4 Technological …………………………………….………………….23
3.8 Swot Analysis between KFC and MACDONALD in China ………………….24
3.8.1 Strengths in the SWOT analysis of KFC and MCDONALD ………..….24
3.8.2 Weaknesses in the SWOT analysis of KFC and MCDONALD …………….24
3.8.3 Opportunities in the SWOT analysis of KFC and MCDONALD …………..24
3.8.4 Threats in the SWOT analysis of KFC and MCDONALD …………………24
3.9 Comparing the income statement of both KFC and MACDONALD ………..25
3.9.1 Annual income statement for KFC ………………………………25
3.9.2 Annual income statement for MACDONALD …………….……25
CHAPTER FOUR: METHODOLOGY, DATA ANALYSIS AND DISCUSSION OF RESULTS ……………………………………………………………………26
4.2 Research Approach and Design ………………………………………………27
4.3 Sample Study Setting …………………………………………………………28
4.4 Population …………………………………………………………………….29
4.5 Sample Size ………………………………………………………………….30
4.6 Sampling Techniques ……………………………………………………..…31
4.7 Data Collection Tools ………………………………………………………..32
4.8 Data Analysis and Interpretation ……………………………………………..33
4.8.1 Introduction ………………………………………….……33
4.8.2 Presentation and analysis………………………………….33
4.8.3 Demographic Data ……………………………..…………33
4.8.4 Age of Respondents ………..……………………………..33
4.8.5 Marital status………………………………………………33
4.8.6 How often do you go to KFC or MACDONALD?……….33
4.8.7 Under what circumstances will you go to KFC or MACDONALD? …………………………………………………………….…..33
4.8.8 Comparing the price ………………………………………..33
4.8.9 Convenience of the Dinning environment ……………..….33
4.8.10 which service is more preferable? …………………..……33
4.8.11 which restaurant is cleaner? ……………….………….…33
4.8.12 Advertising ……………………………….………………33
4.8.13 Fast food restaurants people visit asides KFC and MACDONALD………………………………………………………………….33
4.8.14 which one do you think has more negative news ……….33
4.8.15 which one do you like KFC or MACDONALD ………….33
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION ……………………………………………………………….34
5.1 Introduction …………………………………………………………..……34
5.2 Summary of Findings …………………………………………………..….34
5.3 Conclusion ………………………………………………………………….34
5.4 Recommendation ……………………………………………………..……35
5.4.1 Recommendations for international fast-food companies …………35
5.4.2 Recommendations for MACDONALD ……………………………35
5.4.3 Recommendations for KFC ……………………………………….35
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF STUDY
Before we get into the organization profiles of both KFC and MACDONALD, it will be beneficial for us to realize that these two are Fast sustenance eateries in China so how about we attempt and comprehend what is implied by Fast nourishment eateries. In late April 1987 the fast food industry began in China. The KFC fast-food chain store got into Beijing, and presented current Chinese fast food which is quick creating. The GNP of the Chinese fast food industry in the 1990s of the most recent century has had a year-on-year development of 10% which has developed every year to 20% with an industry overall revenue continually signifying 10%-20%, with this, KFC and MACDONALD in China is step by step turning into an imperative power that supports and keeps the development and advancement in the food and beverage industry and also becoming a new growth point for the national economy of China. Before the finish of 1996, the fast food proficient organizations in China had come to around 800, with almost 400 thousand fast-food stores with the yearly turnover of the fast-food industry achieving 40 billion Yuan, which represented around 1/5 of the food and refreshment industry altogether. The national Fast-nourishment endeavors and stores realized more than 800 thousand out of 1999, making the fast-food industry turnover to reach 75 billion Yuan, which represents 1/3 of the aggregate sustenance and the refreshment business. Here looking at its turnover throughout the years, it has become higher and expanded to 20% which is way higher than the normal increment of the nourishment and drink industry of 7%. In the year 1999, the quick improvement and expanding social needs of the fast food industry in China was not able to exist together in agreement, this was mostly a result of the moderate advancement of the assortments of the Chinese fast food, creation which was in reverse and furthermore absence of good innovation, industrialization and association which was low; this couldn’t be conceivable on the grounds that the improvement of Chinese fast food business which was still at the learning stage. Also, they had not yet had a shaped framework and scale that could copy and develop the experience. China’s fast food industry has made a ceaseless and quick advancement since the start of the 21st century. The yearly turnover of the fast food industry in China has been more than 200 billion Yuan as indicated by the exploration, this was after 2000 chain stores have outperformed 1 million, and the quick improvement has achieved a development rate of 20% for every annum. In 2004, China’s fast food industry had been framing its fundamental framework, scale and furthermore its essential state of both the purchaser market and supply market with boundless vitality and quality, among which, with the solid power of the advancement of Western-style fast food, McDonald’s and Kentucky Fried Chicken fast-food had driven the Chinese market. As opposed to the western fast food style, the Chinese fast food business had no way out than to additionally enhance their aggressiveness and competitiveness. As indicated by a Ministry of Commerce inquiry about the fast-food piece of the overall industry in Guangdong region which was as high as 90%, while the offer thereof in the generally created waterfront areas, for example, Jiangsu, Shanghai, Liaoning, Beijing, Shijiazhuang, Zhejiang and Shandong was over half. Notwithstanding these, the Chinese fast food industry had likewise been making a quick improvement which came up because of solid market request and appealing business benefits. The fast-food eatery from Guangdong area, Real Kung Fu (Beijing New World) Global Chinese Dining Chain Store formally opened a store in their capital city toward the beginning of November 2006; this store was one of the 6th stores of the fast food chain endeavors in Beijing that had already centered on the southern market. Mr. Cai Dabiao, leader of the Real Kung Fu, had once declared that “Genuine Kung Fu would open up to 35 stores in Beijing in 2008 and would have up to 1,000 stores across the nation in 2010.” The case above demonstrates that the advancement of Chinese fast food ventures is quick. The macroeconomic strategy of the nation likewise advances the quick development of the Chinese fast food. Head Wen Jiabao marked in February 2007 the State Council Order No. 485, reporting that the Administration of Commercial Franchise Ordinance needs to come into full power on May 1, 2007, with the settlement of retail undertakings, particularly the fast food ventures will confront a noteworthy rearrangement. Franchisee operations would turn into the deciding element model of the fast food industry and its advancement desires would be better. As the Chinese economy was blasting and building up, the fast-food market request began expanding, together with the forceful rivalry originating from McDonald’s and KFC, assisted the Chinese fast food industry with coming into contact with numerous open doors and additionally a few difficulties. The inquiry we are asking ourselves here is that, how is the Chinese fast food market ready to clutch the changing patterns and how is it ready to proceed and keep up its development later on? Through a comparative study of both the business strategy and competitive strategy of McDonald’s and KFC, we will have the capacity to see that the Chinese fast foods can take in a considerable measure from these two western quick nourishments and apply it to their neighborhood quick sustenance’s. Chinese fast food business can likewise make utilization of its relative points of interest and sooner rather than later, change those to focused ones, in that capacity, they will make viable utilization of this intensity and utilize it to protect themselves against McDonald’s and KFC’s who are their rivals and later on in the near future, they will use this to improve and change their leading roles in China’s fast food industry.
1.2 Statement of issue
Organizations achieve competitive advantage by providing their customers with what they want better or more effectively than competitors and in ways which their competitors find difficult to imitate. This means deliberately choosing to perform different activities better than competitors to deliver a unique value mix. In order to survive in the competitive environment, it becomes necessary for firms to be aggressive in their search and development of strategies that provide competitive advantage as they step up defensive strategies to protect their competitive advantages held.
KFC in China faces solid rivalry from other fast food eateries and its fundamental rival is MACDONALD. This is a direct result of the similitude between the two organizations as both are initially American eateries who have spread their wings around the world. There is need in this way to concoct this investigation therefore the present examination tries to answer the accompanying inquiries. What are the challenges of competition that KFC faces which originates from MACDONALD in the Chinese market? What competitive strategies has KFC adopted to defeat these difficulties and utilize it over its rival MACDONALD?
1.3 Research Objectives
My exploration target will be found in two sections that is the main objective and specific objective of the investigation.
The main objective of my work is to know what strategy is all about and when you have a good strategy you already have an advantage over your competition which is now your competitive advantage and we have to know that Sustainable competitive advantage is when one company’s value creating products are impossible to imitate by its competitors. Porter’s model, Pest and Swot analysis together with the marketing mix will help us understand the sources of KFC’s sustainable competitive advantage over MCDONALD in China
The specific objective of this study is to understand KFC’s strategy to achieve and maintain competitive advantage in the Chinese market over its main competitor MCDONALD through strategic application of its capabilities as well as efficient utilization of both tangible and intangible resources within the company.
. 1.4 Research Questions
The goal of this examination is to answer the accompanying exploration questions:
-What sort of strategies is being utilized by McDonald’s and KFC in China market?
-Which organization’s strategies abrogate the other and how can it utilize this to its advantage?
-Which organization is best favored by consumers and why?
1.5 Significance of Study
This investigation is expected to:
• Provide a comprehensive analysis of KFC and MCDONALD’s competitive strategies in China
• To give knowledge into the difficulties influencing KFC and MACDONALD’s in their competitive strategies in China
• The after effects of this examination are relied upon to influence us to know how KFC utilizes its strategies and the difficulties it faces in China to conquer its rival MACDONALD
1.6 ORGANIZATION OF THE STUDY
This work is subdivided into five chapters which will include the following:
Chapter 1: Introduction
This chapter will focus on the background of research, statement of problem research objectives and questions and the organization of the study.
Chapter 2: Literature Review
The theoretical and empirical considerations. Here we will be looking at the definition of terms and key words, concept of competitive strategy, swot and pest analysis, marketing strategy and marketing mix as well as the theoretical review and previous findings on this study which is the empirical review.
Chapter 3: Comparison of KFC and MACDONALD
This chapter will focus on the background of both KFC and MADONALD, their vision and mission statement as well as comparing the competitive strategies of Kfc and Macdonald in China, also Michael porter’s five forces, Pest and Swot analysis, marketing segment as well as the marketing mix will be used to compare the strategies employed by Macdonald and Kfc and to show who is the leading fast food in China
Chapter 4: Data Analysis and Discussion of results.
This chapter looks at how the data would be collected and the analysis and interpretation of the data that has been obtained from consumers of both Kfc and Macdonald’s products. The information and secondary data of this research will be collected using Qualitative method through the use of Questionnaires.
Chapter5: countermeasure and suggestion
Summary of findings, recommendations and conclusion. This last chapter considers the summary of findings, conclusions drawn from the findings and recommendations made.
CHAPTER TWO: LITERATURE REVIEW
In this part we will look at the literature review which is divided into two parts that is the theoretical and empirical part.
The theoretical aspect of this work will deal with the definition of terms and concepts of competitive strategy. The empirical part will deal with the findings of others, published works from tutors relating to the International competitive strategy of KFC and MCDONALD in China as well as my deductions and conclusions based on the work.
2.1 THEORETICAL LITERATURE
Before we get into the definitions of strategy and the concepts of competitive strategy, it will be good for us to understand what marketing is all about because before an organization operates in a country, it will have to study the market and know how to segment the market as well as the marketing mix, and also it will have to look at the different techniques that it will implore in order to attract the consumers and this is where strategy which is one of the characteristics of marketing and competition come into play.
2.2 Definition of Marketing
The ‘marketing concept’ proposes that in order to satisfy the organizational objectives, an organization should anticipate the needs and wants of consumers and satisfy these more effectively than competitors. This concept originated from Adam Smith’s book The Wealth of Nations.
2.3 The characteristics of marketing
The characteristics of marketing can turn on three elements namely the techniques of analysis and decision, a philosophy and a strategy. In most cases, company directors use a variety of techniques to determine certain activities that are really important in marketing. This is why we use the technique as a whole. Packaging, consuming, publishing, product development, sales promotion and distribution network animation. It is through these techniques that the marketing activity manages to identify customers and make appropriate decisions To better serve consumers. As a philosopher, marketing adopts the approach that places great importance on satisfying consumer needs. This is why marketing is considered as a thought system. This important place given to the consumer makes it possible to Dissemination of information gathering on the market in the company. This allows managers to direct the activities of other functions of the company, such as finance, production, the creation of new Products etc… Here two important elements can be selected namely knowledge of the market and the actions to be implemented. For the first element, strategic marketing, which focuses on the analysis of the desires of individuals and organizations, can be used. Its objective is to define the mission of the company towards the opportunistic events adapted to its resources and its knowledge make. The actions to undertake as it rely on operational marketing. It is a voluntarism approach to conquering the existing market. It relies on tactical elements of product policing, distribution, pricing and communication.
2.4 Marketing segmentation
It will be good for us to understand that before launching a product on the market, any company must first understand the market in which it intends to launch. Understanding a market is an indispensable part of any economic operation. Study a market before any economic operations if one does not want to expose oneself to problems that will really be fatal for the company. Understanding a market means that the company must know not only the targets to be reached in the market but also the consumers who will be ready to consume the product once it is launched on the market. This can only be done thanks to a strategy of market segmentation according to the famous author PHILIP kOTHER. Market segmentation is an important technique that will enable an enterprise to understand the way in which a market is structured taking into account all the factors that influence it. Bits of knowledge from segmentation analysis are in this way used to help marketing strategy development and planning
Numerous marketers utilize the S-T-P approach; Segmentation? targeting ? positioning to give the structure to promoting marketing planning objectives. That is, a market is segmented, at least one or more segments are chosen for targeting, and items or services are positioned in a way that resounds with the chosen target market or markets. It is that all shoppers have distinctive tastes over a product, they have diverse requirements which are not really the same or the practices that buyers may have before an item are not really the same.In view of this situation, which is of capital importance, the relevant decision that all Enterprises, which wants to operate on a market, is to have its commercial offer adapted to the maximum with the target. That is to say that the company must do everything so much that the consumer is interested in the product or the service offered. But for that, it is obvious that the company must know the people who are called upon to buy its product once launched into the market. Knowledge of its target can only be achieved through segmentation. It is a technique that aims to divide clients into different homogeneous criteria. This technique can allow an enterprise to improve on the market the Competitive advantages because in a given market one can have several enterprises and it is thanks to the advantages of the technique of segmentation that an enterprise can leave a market and get a good part of the market. The opportunity for organizations to give buyers the best services. Segmentation, Targeting, and positioning together contain a three phase process.
We firstly (1) figure out which sorts of clients exist, at that point (2) select which ones we are best off endeavoring to serve and, at last, (3) execute our segmentation by upgrading our products/services for that segment and imparting that we have settled on the decision to separate ourselves that way.
Segmentation can be done under several criteria which are of great importance for any company.
With the demographic criteria, we will proceed to the division of a market taking into account the different territorial units that one can meet as the example of a country, a department, a city or even neighborhood. It can be said here that with the demographic criterion, the importance of commercial exploitation is often different from one place to another.
The socio-demographic criterion
Here, we will focus on other criteria in order to divide the market, namely the age, sex or even the income available to the consumer. Consumer revenue is a very important criterion because consumers will not consume That depending on their income, that is to say, they are dependent on their income, more than the income is important and more than the consumer will consume. There is also the size of the households which can also play on the market. Indeed, more than the size of the family is numerous more than they will be forced to make purchases in food, clothing, medicines etc…
The psychological criterion.
The psychological criterion focuses on the personality of the consumer. The personality of the consumer is an element that can be very complex and difficult to decriminalize because it is truly internal to the person of the consumer and one can Even to say that these are subjective criteria. The psychological criterion will allow the company to know the inside bottom even of the other consumer what the consumer actually likes. For example hobbies and activity centers, customer activities.
The Behavioral Criterion
The aim of the segmentation is to identify the differences and similarities in the behavior of the people who make up the market segment in order to decide on the marketing decision to make. With the behavioral criteria, segmentation will be done on the Behavioral criteria are of great importance to companies in determining their most relevant decisions. These criteria may be taken into account the consumer experience of a given product. The criteria of experience may be relevant to a product already known on the market and well known even to consumers due to experience. Would not know about the product that just has to be launched on the market where the product has to take a long time for consumers to be familiar with.
We decide to target one or more segments. Our decision ought to for the most part rely upon a few variables.? In the first place, how well are existing segments served by different producers? It will be more hard to interest a segment that is as of now very much served than to one whose necessities are not at present being served well. Also, how expansive is the segment, and how might we anticipate that it will develop?? (Note that a drawback to a vast, quickly developing segment is that it has a tendency to pull in competition). Thirdly, do we have qualities as an organization that will enable us to request especially to one gathering of shoppers?? Firms may as of now have a built up reputation. While McDonald’s has an awesome reputation for quick, predictable quality, family amicable nourishment, it is hard to persuade buyers that McDonald’s now offers gourmet food.? Along these lines, McD’s would likely be in an ideal situation targeting families looking for steady quality sustenance in decent, clean restaurants. It is conceivable utilizing to target certain client bunches in light of magazine memberships, past buys, and demographic factors.
A number of list brokers will offer arrangements of names and addresses of property holders in a specific zone (data they get from province enlistment centers) or the supporters of different magazines. Firms will regularly pitch arrangements of their clients to competitors since it is generally put stock in the business that more inventories tend to come about more in incremental deals than in losing share in settled size pie.
One can likewise purchase email records, however it is by and large not lawful to send requesting messages to people with which one doesn’t as of now have a set up business relationship, and these are additionally liable to be disposed of by “spam” channels. In the “merge-purge” process, records from a few sources are consolidated (since none contains each important individual without anyone else’s input), after which copies are evacuated.
Positioning is the final stage in the ‘STP’ process and spotlights on how the client eventually sees your product or service in contrast with your competitors and is essential in gaining competitive advantage in the market. Therefore, customer perceptions have a huge impact on the brands positioning in the market. There are three sorts of positioning that are key in positioning the brand to have a competitive advantage; these are functional positioning, symbolic positioning, and experiential positioning. Functional Positioning is centered on the parts of the products or services that can satisfy customers’ needs or wants. Symbolic Positioning depends on the qualities of the brand that satisfy clients’ self-confidence. Experiential positioning is based around the qualities of the brands that fortify the tactile or passionate association with the clients. A blend of the three is critical to positioning the brand at competitive advantage to its immediate competitors. By and large, positioning ought to give preferred value than competitors and communicate this separation in a viable route to the consumer.
2.5 The Marketing Mix Variables
The ‘marketing mix (also known as the 4 Ps) is a foundation model in marketing. The marketing mix has been defined as the “set of marketing tools that the firm uses to pursue its marketing objectives in the target” Thus the marketing mix refers to four broad levels of marketing decision, namely: product, price, promotion, and place. The 4Ps of marketing is a model for enhancing the components of your ‘marketing mix’ the way in which you take a new product or service to market. It helps you to define your marketing options in terms of price, product, promotion, and place so that your offering meets a specific customer need or demand.
2.5.1 The product
A product refers to an item that satisfies the consumer’s needs or wants. Products may be tangible (goods) or intangible (services, ideas or experiences). For the product, we will need to ask ourselves the following questions.
-What does the customer want from the product /service? What needs does it satisfy?
-What features does it have to meet these needs?
-Are there any features you’ve missed out?
-Are you including costly features that the customer won’t actually use?
-How and where will the customer use it?
-What does it look like? How will customers experience it?
-What size(s), color(s), and so on, should it be?
-What is it to be called?
-How is it branded?
-How is it differentiated versus your competitors?
-What is the most it can cost to provide and still be sold sufficiently profitably? (See also Price, below.)
2.5.2 The price
Price refers to the amount a customer pays for a product. Price may also refer to the sacrifice consumers are prepared to make to acquire a product.(e.g. time or effort)Price is the only variable that has implications for revenue. Price also includes considerations of customer perceived value.
-What is the value of the product or service to the buyer?
-Are there established price points for products or services in this area?
-Is the customer price sensitive? Will a small decrease in price gain you extra market share? Or will a small increase be indiscernible, and so gain you extra profit margin?
-What discounts should be offered to trade customers, or to other specific segments of your market?
-How will your price compare with your competitors?
2.5.3 The Place
Refers to providing customer access. Place also Considers providing convenience for consumer.
-Where do buyers look for your product or service?
-If they look in a store, what kind? A specialist boutique or in a supermarket, or both? Or online? Or direct, via a catalogue?
-How can you access the right distribution channels?
-Do you need to use a sales force? Or attend trade fairs? Or make online submissions? Or send samples to catalogue companies?
-What do your competitors do, and how can you learn from that and/or differentiate?
2.5.4 The promotion
Promotion refers to marketing communications. Promotion may comprise elements such as: advertising, PR, direct marketing and sales promotion.
-Where and when can you get your marketing messages across to your target market?
-Will you reach your audience by advertising online, in the press, on TV, on radio, or on billboards? By using direct marketing mailshots? Through PR? On the Internet?
-When is the best time to promote? Is there seasonality in the market? Are there any wider environmental issues that suggest or dictate the timing of your market launch or subsequent promotions?
-How do your competitors do their promotions? And how does that influence your choice of promotional activity?
2.6 Definition of strategy/ History of strategy
Before we get into the definition of the terms strategy and competitive advantage it will be good for us to look at their history.
Strategy (from Greek ????????? strat?gia, “”specialty of troop pioneer; office of general, charge, generalship”) is an abnormal state intend to accomplish at least one objectives under states of vulnerability and uncertainty. In the feeling of the “specialty of the general”, which incorporated a few subsets of aptitudes including “strategies”, attack make, coordination’s and so on., the term came into utilization in the sixth century C.E. . in East Roman wording, and was converted into Western vernacular dialects just in the eighteenth century. From that point until the twentieth century, “strategy”, came to signify “a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a dialectic of wills” in a military clash, in which the two enemies communicate.
Strategy is essential in light of the fact that the assets accessible to accomplish these objectives are generally restricted. Strategy largely includes defining objectives, deciding activities to accomplish the objectives, and activating assets to execute the actions. A strategy portrays how the closures (objectives) will be accomplished by the methods (assets). This is for the most part entrusted with deciding strategy. Strategy can be planned or can develop as an example of action as the association adjusts to its condition or contends. It includes exercises, for example, strategic arranging and strategic reasoning.
2.6.1 Processes of strategy
Strategy normally includes two noteworthy procedures: formulation and implementation. Formulation includes breaking down nature or circumstance, making a finding, and creating controlling strategies or policies. It incorporates such exercises as strategic planning and strategic thinking. Implementation alludes to the move designs made to accomplish the objectives set up by the managing arrangement. Bruce Henderson wrote in 1981 that: “Strategy relies on the capacity to anticipate future results of present activities.” He composed that the fundamental prerequisites for strategy improvement incorporate, among different components: 1) broad information about the earth, market and contenders; 2) capacity to inspect this learning as an intelligent dynamic framework; and 3) the creative ability and rationale to pick between particular options. Henderson created that strategy was productive and profitable in perspective of: “limited assets, vulnerability around an enemy’s ability and goals; the irreversible duty of assets; need of planning activity after some time and separation; vulnerability about control of the activity; and the idea of foes’ shared impression of each other.”
2.6.2 Definition of strategy by various authors
Strategy has been contemplated for a considerable length of time by business pioneers and by business scholars. However, there is no conclusive answer about what strategy truly is. For example, as per (Gerry Johnson and Kevan Scholes, )creators of “Exploring Corporate Strategy,” Strategy decides the bearing and extent of an association over the long term, and they say that it ought to decide how assets ought to be arranged to address the issues of business sectors and partners. To (Michael Porter), a strategy expert and professor at Harvard Business School, emphasizes the need for strategy to define and communicate an organization’s unique position, and says that it should determine how organizational resources, skills, and competencies ought to be joined to create competitive advantage.
While there will dependably be some advanced component of strategy, at (Mind Tools)s, While there will dependably be some advanced component of procedure, at (Mind Tools)s, we trust that getting ready for accomplishment in the commercial center is vital; and that, to take full advantage of the opportunities open to them, organizations need to suspect and plan for the future at all levels. For the most part, Strategy is a system that gives direction to moves to be made and, in the meantime, is molded by the moves made, and it has nine possible driving forces: Products offered, Market needs, Technology, Production capability, Method of sale, Method of distribution, Natural resources, Size/growth, Return/profit (Benjamin Tregoe & John Zimmerman, 1980).
2.7 Conception of competitive advantage
Competitive advantage is a business concept that describes the attribute of allowing an organization to outperform its competitors. These credits may incorporate access to common assets, for example, high-review metals or a minimal effort control source, exceedingly talented work, geographic area, high section hindrances, and so forth. Access to new innovation can likewise be considered as a property of competitive advantage.
Competitive advantage is the leverage that a business has over its rivals. This can be picked up by offering customers better and more prominent esteem. Publicizing items or administrations with bring down costs or higher quality intrigue’s buyers. Target markets perceive these one of a kind items or administrations. This is the explanation for mark devotion, or why clients incline toward one specific item or administration over another.
Value proposition is imperative when understanding competitive advantage. On the off chance that the offer is successful, it can create a competitive advantage in either the item or administration. The value proposition can expand client desires and decisions.
Michael Porter characterized the two manners by which an association can accomplish competitive advantage over its opponents: cost advantage and differentiation advantage. Cost advantage is the point at which a business gives an indistinguishable items and administrations as its rivals, yet at a lesser cost. Differentiation advantage is the point at which a business gives better items and administrations as its rivals. In Porter’s view, strategic management ought to be worried about building and managing competitive advantage.
Competitive advantage tries to address a portion of the reactions of comparative advantage. Competitive advantage lays on the idea that modest work is universal and regular assets are a bit much for a decent economy. The other hypothesis, comparative advantage, can lead nations to have some expertise in sending out essential products and crude materials that trap nations in low-wage economies because of terms of exchange. Competitive advantage endeavors to adjust this issue by worrying on expanding scale economies in products and enterprises that earn premium costs (Stutz and Warf 2009).
The term competitive advantage alludes to the capacity increased through ascribes and assets to perform at a more elevated amount than others in a similar industry or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 refered to by Chacarbaghi and Lynch 1999, p. 45). The investigation of this favorable position has pulled in significant research enthusiasm because of contemporary issues with respect to unrivaled execution levels of firms in the present focused market. “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player ” (Barney 1991 refered to by Clulow et al.2003, p. 221).
Effectively actualized strategies will lift a firm to predominant execution by encouraging the firm with competitive advantage to outflank present or potential players (Passemard and Calantone 2000, p. 18). To increase competitive advantage, a business strategy of a firm controls the different assets over which it has coordinate control and these assets can create competitive advantage (Reed and Fillippi 1990 refered to by Rijamampianina 2003, p. 362). Prevalent execution results and predominance underway assets reflect competitive advantage (Day and Wesley 1988 refered to by Lau 2002, p. 125).
The statements above connote competitive advanatge as the capacity to remain in front of present or potential rivalry. Additionally, it gives the understanding that assets held by a firm and the business strategy will profoundly affect producing competitive advantage. Powell (2001, p. 132) sees business strategy as the device that controls assets and makes competitive advantage, henceforth practical business strategy may not be sufficient unless it has control over novel assets that can make such an exceptional preferred advantage.
Now we will look at some definitions that have been given to competitive advantage. Why competitive advantage? This is because if a company like Nike has a strategy which can help her override her competitors then we say she has competitive advantage over her competitors.
According to (Kimberly Amadeo Updated April 07, 2017) a competitive advantage is what makes you better than the competition in your customers’ minds. The term was first applied to businesses, but it works for anyone, from employees to countries. Before describing your competitive advantage, you’ve got to know these three determinants which are: Benefit which emphasizes on the fact that be it a good or service, you must be clear on the benefit your product provides. Target market. For the target market, you must know who are your customers? And exactly who buys from you, and how you can make their life better. And Competition which includes anything else your customer could do to meet the need you can fulfill.
Michael Porter: the Guru of Competitive Advantage outlines the five forces model which are a primary way companies use to achieve sustainable advantage. They are supplier power, buyer power, and competitive rivalry, threat of substitution and threat of new entrants. Porter identified these strategies by researching companies.
2.7.1 Generic competitive strategies
Michael Porter, an alum of Harvard University, composed a book in 1985 which distinguished three strategies that organizations can use to handle competition. This book was named the ninth most powerful administration book of the twentieth century. These methodologies can be connected to all organizations whether they are item based or benefit based. He called these methodologies generic strategies. They incorporate cost leadership, differentiation and focus. These strategies have been made to enhance and increase competitive advantage over competitors. These systems can similarly be seen as the relative competitive advantage and the differential advantage
2.7.2 Cost leadership strategy
Cost leadership is a business capacity to deliver an item or administration that will be at a lower cost than various competitors. On the off chance that the business can deliver a similar quality item however offer it for less this gives them a competitive advantage over various organizations. In this manner, this gives a value an incentive to the clients. Lower expenses will bring about higher benefits as organizations are as yet making a sensible item on every good or service sold. On the off chance that organizations are not influencing a sufficiently huge benefit, Porter prescribes finding an ease base, for example, work, materials and offices. This gives organizations a lower producing cost over those of different contenders. The organization can increase the value of the client through exchange the money saving advantage to them.
2.7.3 Differential strategy
A differential advantage is the point at which a business’ items or servicess are diverse to its rivals. In his book, Michael Porter suggested making those merchandise or administrations appealing to emerge from their rivals. The business will require solid research, advancement and configuration thinking to make creative thoughts. These enhancements to the products or administration could incorporate conveying high quality to clients. On the off chance that clients see an item or service as being unique and different in relation to different items, shoppers will pay more to get these advantages.
2.7.4 Focus strategy
Focus strategy preferably tries to motivate organizations to go for a couple of target advertises as opposed to endeavoring to target everybody. This strategy is frequently utilized for littler organizations, as they might not have the proper assets and capacity to target everybody. Organizations that utilize this strategy generally concentrate on the requirements of the client and how their items or administrations could enhance their everyday lives. In this method, a few firms may even give customers a chance to give their contributions for their item or administration.
This strategy can likewise be known as the segmentation strategy, which incorporates geographic, statistic, behavioral and physical segmentation. By narrowing the market down to littler fragments, organizations can address the issues of the purchaser. Porter trusts that once organizations have chosen what groups they will target, it is basic to choose on the off chance that they will adopt the cost leadership strategy or differentiation approach. Focus strategy won’t make a business fruitful. Porter specifies that it is critical to not utilize each of the 3 generic strategies in light of the fact that there is a high shot organizations will turn out accomplishing no strategies as opposed to making progress. This can be called ‘stuck in the middle’ and the business won’t have the capacity to have a competitive advantage.
At the point when organizations can locate the perfect balance amongst price and quality, it for the most part prompts a fruitful item or service. A good or service must offer an incentive through cost or quality to guarantee the business is effective in the market. To succeed, it’s insufficient to be ‘similarly in the same class as another business. Achievement comes to firms that can convey an item or administration in a way that is extraordinary, important and in light of their clients’ needs and wants. Settling on the fitting cost and quality relies upon the business’ brand image and what they want to accomplish with connection to their competition.
2.8 SWOT analysis
SWOT analysis is most normally utilized by business entities, yet it is likewise utilized by nonprofit organizations and, to a lesser degree, people for individual or personal evaluation. Furthermore, it can be utilized to survey activities, products or projects. The framework is credited to Albert Humphrey, who tried the approach in the 1960’s and 1970’s at the Stanford Research Institute. Produced for business and in light of information from Fortune 500 organizations, the SWOT analysis has been embraced by associations of numerous kinds as a guide to making decisions. A SWOT analysis is the most important analysis process that allows us to understand the Strengths, Weaknesses and or identifying both the opportunities opens to you and the Threats you face. The SWOT analysis is really useful because it allows a company to survey an important place in the market in business context. Also it allows a person to develop his / her career in distance that takes the best advantage of your talents, abilities, and opportunities, SWOT analysis is a basic which allows to evaluate what a company can and can Not do and its opportunities that a company can have in a market and threat that the company could face. Any company can be confronted with this kind of situation and only through the SWOT that the company can overcome these problems and To anticipate certain situations and even to exploit certain opportunities that may arise. The information that is of vital importance for each company operating in an area where it faces several competitors, SWOT analysis allows This study was first created and used by the author Albert Humphrey in 1960 and 1970 in spite of the fact that, He refuses the authorship of the creation of this important analytical technique which is the SWOT analysis.
2.8.1 Strengths (Internal, Positive Factors)
Strengths depict the positive properties, tangible and intangible , inner to your association. They are inside your control.
-What do you do well?
-What inward assets do you have? Consider the accompanying: Positive traits of individuals, for example, information, foundation, training, credentials, system, notoriety, or aptitudes. Tangible assets of the organization, for example, capital, credit, existing clients or dissemination channels, licenses, or innovation.
-What focal points do you have over your competition?
-Do you have solid innovative work abilities?
– What other positive perspectives, internal to your business, include esteem or offer you a competitive advantage?
2.8.2 Weaknesses (Internal, Negative Factors)
Weaknesses are parts of your business that take away from the esteem you offer or place you at a competitive advantage. You have to upgrade these regions keeping in mind the end goal to contend with your best competitors
-What factors that are inside your control reduce your capacity to acquire or keep up an competitive edge?
-What zones require change to achieve your targets or contend with your most grounded competitor?
-What does your business need (for instance, ability or access to aptitudes or innovation)?
-Does your business have restricted assets?
-Is your business in a poor area?
2.8.3 Opportunities (External, Positive Factors)
Opportunities are external attractive components that represent reasons in your business which is probably going to make the business flourish.
-What openings exist in your market or the condition that you can profit by? Is the perception of your business positive?
-Is the view of your business positive?
-Has there been late market development or have there been different changes in the market that make an opportunity??
-Is the opportunity progressing, or is there only a window for it? As it were, how basic is your planning?
2.8.4 Threats (External, Negative Factors)
Threats incorporate external components outside your ability to control that could put your system, or the business itself, in danger. You have no power over these, however you may profit by having emergency courses of action to address them on the off chance that they ought to happen.
-Who are your current or potential competitors?
-What factors outside your ability to control could put your business in danger?
-Are there challenges made by a negative pattern or advancement that may prompt falling apart incomes or benefits?
-What circumstances may undermine your marketing efforts?
-Has there been a noteworthy change in supplier prices or the accessibility of raw materials? -Shouldn’t something be said about movements in buyer conduct, the economy, or government controls that could decrease your deals?
-Has another item or innovation been presented that makes your items, hardware, or administrations out of date?
2.9 PEST analysis
PESTLE analysis, which is sometimes referred as PEST analysis, is a concept in marketing principles. Moreover, this concept is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service etc. As the environment in which the company carries out its business is important therefore the company must always Control its business environment. Here the analysis will be focused on the external factors that often affected or even influenced a company’s business activities or even its performance. The Pest analysis was created in 1967 by Francis Aguillar who was a professor at Howard. The analysis can be used to better know the prospects of an enterprise that are of great importance to the company and can also provide a big help to the big companies to improve the decisions that will be taken in the A firm can only function normally if and only if decisions are well understood upstream and decisions must be in perfect harmony with the environment in which the company operates. The Pest analysis allows large companies to know each of the four factors external to the company. Knowledge of these four external factors is essential for any company that would like to do business in a given market. Four can be considered as follows: economic factors followed political factors after economic factors there are social factors and finally technology factors.
2.9.1 Economic factors as the name indicates are factors that are really important for the company and that the company has to master well. These economic factors allow the company to properly analyze the economic issues that are external to the company, and that can have a really important role in the succeed in the organization. With economic factors, many elements can be taken into account. But we will only focus on the most important and avoidable elements for All enterprise. It is first what is called the political stability that can play an important role in the evolution of a company because the company will see its production evolve from day to day. That without political stability no enterprise can develop. Workers will not be able to return to their work in view of the danger that is causing them, and this will have an impact on the production of products. There is then the availability Credit which can also allow the company to increase its production every day and even more to have the financial means for the purchase of the raw materials which are indispensable in the production of an article. Economic growth, changes that can be predicted in the costs of raw materials, economic and resources etc….
2.9.2 Political factors are also of paramount importance to the activity of an enterprise in the sense that they can affect the profitability and the success of the enterprise. Here we try to focus on the policies Regulation that host governments can take to control a given market, or legal issues that are also one of the big problems that companies are often confronted with. This is the case of tax laws, On employment, on labor law, on the commercial regulations which enterprises are called upon to respect, failing which the company may be subject to sanctions, be prohibited from operating in the market and even the most serious This is what we call the license withdrawal. Enterprises must face all these regulations and try to negotiate with governments in order to reduce the burden of these regulations and to avoid any negative effect on their activities. Technological factors, for their part, will focus on technological problems that may affect the techniques a company manages, its services or the means it uses to deliver its good in the market.
2.9.3 Technological factors can also play an important role in the firm to such an extent that the company will be called upon to adapt its system or its techniques of operation to the evolution of technologies which are always in perpetual evolution, From which it will always be ahead by its competitors in the market and even more serious it could be seen to draw its customers. Today all major companies of the world give a great importance to the technology that is really mean efface in all domains to know Communication, sales advertising etc… Customers around the world are all connected to the Internet to learn about the products on the market and to get their hands on these types of customers, the company has to get closer to the technology. One can thus cite the economic factors that can affect The Company to know: the technological advances that are the first factors nowadays which affect the policy of an enterprise. To face this kind of problem the companies must always be ready to anticipate the technological change. The role of the Internet today really affects businesses and businesses must also take into account the expectations, the needs of the new generations who are the most sought-after customers, and they themselves use technology the most.
2.9.4 Social factors will focus on the population which is an element of capital importance for the enterprises in the sense that they are the populations who will buy the products of the enterprises and that this will participate in the development of the company and even to its success. Indeed, the more the population buys the product of an enterprise more the company sees its economy develop and when the economy begins to develop, the company becomes increasingly big and to be known everywhere In the world because the product is used or even its product is spoken on all four corners of the world. With these social factors, one can emphasize the rate of population growth which is the first factor that can affect the production of an enterprise. The more important the population is, the greater the demand will be. There is what is called the cultural aspect which is also important because the cultures are the same from one country to another and the products that are loved In one country might be hated in another country. This is how the company must carefully study the cultural aspect before embarking on a market to sell its merchandise. There are also the aspects as the age distribution, the emphasis on safety or the professional attitude.
2.10 EMPIRICAL LITERATURE
As concerns the empirical aspect of this review, we will look at other peoples findings, published works from tutors relating to the competitive strategy that KFC and MCDONALD use in China well as my deductions and conclusions based on the work.
According to Wei Hu & Yuanyuan Xie (28. 04. 2013) In China market, McDonald’s and KFC make continuous development and achieved great success. However, on the contrary to their performances in the global market. In this key market, KFC surpasses MACDDONALD in terms of speed, quality, performance and reputation. The main reasons are KFC emphasizes on how to integrate into the Chinese market and work out a development strategy with strong Chinese characteristics. In short KFC gained a competitive advantage over McDonald’s. It mainly reflected in these two aspects:
? In the aspect of business strategy of growth
1) Based on double win strategy, KFC’s business scale expended rapidly. The way of corporation is in line with the investment psychology of the Chinese people. At the same time, McDonald’s is mainly seeking stability.
2) McDonald’s took the brand extension diversified business strategy adjustment, however, it is not ended in the success.
? In the aspect of competitive strategy of growth
1) KFC has larger scale of business in China. KFC purchased raw material with almost 100% localization. KFC has a cost advantage compared to
2) KFC has deeper localized product than McDonald’s.
3) There are small differences in target market positioning between KFC and
McDonald’s. KFC lead McDonald’s in many aspects.
4) KFC pays a lot of attention to brand building localization.
5) KFC develops localized high-level management personnel in order to make better company’s strategic adjustment. McDonald’s personnel diversification is reflected in employing senior staff from the head office.
6) In supplier management, McDonald’s independent spirit advocated by the
United States; KFC integrated into the culture of the Chinese people way of doing business, reflecting the “love and loyalty” in Chinese culture.
From the financial report from 2002 to 2006, KFC considers China market as an explicit separate region, which shows the importance of China market towards to its contribution to the global revenue. In China market, KFC sales growth year after year, the average annual growth rate is 20% while the revenue contributed by franchise is also constantly growth, the average annual growth rate is 22%. These phenomena are indicates that KFC pursuits the long term expansion in the Chinese market. McDonald, however, did not separate China market from its global market division; Instead china market is incorporated into the Asia-Pacific, Middle East and Africa market region. The report shows the sales revenue of McDonald’s in China is about $ 270 million, relatively less than the $ 1.3 billion KFC; McDonald’s franchise revenue is about 2.2Billion while KFC is around $ 800 million.
From the works cited above, it will be good for us to know that the Chinese food market is strongly dominated by these two brands and when it comes to comparing the competitive strategies of these two, we see that Kfc when it comes to their market presence product diversification and brans values amongst many other, they have definitely proved a point to themselves as compared to MACDONALD whose product diversity is much slow as compared to that of KFC giving KFC the upper hand and with this, the customers of KFC know what to expect when they into the KFC store. It lays extraordinary emphasis on its human resource by fulfilling the clients as well as the employees too. Despite the fact that the two organizations are considered opponents in the Chinese market and KFC so far has substantiated itself fruitful as found in the financial analysis above which indicates KFC is financially solid than MACDONALD in China, and the way that KFC utilizes its localization strategy and integrates itself more into the Chinese culture and Chinese method for getting things done, the two organizations should chip away at their inventory management and logistics.
CHAPTER THREE: COMPARISON OF KFC AND MACDONALD
3.1COMPANY PROFILE OF KFC
Kentucky Fried Chicken, more commonly known by its initials KFC, is an American fast food restaurant chain that specializes in fried chicken. Headquartered in Louisville, Kentucky it is the world’s second-biggest restaurant network (as estimated by sales) after McDonald’s, with very nearly 20,000 areas all around in 123 countries and domains as of December 2015. The chain is a subsidiary of Yum! Brands, a restaurant company that additionally owns the Pizza Hut and Taco Bell chains. KFC was established by Colonel Harland Sanders, a business visionary who started offering fried chicken from his roadside restaurant in Corbin, Kentucky during the Great Depression. Sanders distinguished the capability of the restaurant franchising concept, and the primary “Kentucky Fried Chicken” franchise and establishment opened in Utah in 1952. KFC promoted chicken in the fast food industry, differentiating the market by testing the built up predominance of the hamburger. By marking himself as “Colonel Sanders”, Harland turned into a prominent figure of American cultural history, and his picture remains broadly utilized as a part of KFC promoting. Be that as it may, the organization’s fast extension overpowered the aging Sanders and he sold it to a group of investors drove by John Y. Dark colored Jr. and Jack C. Massey in 1964. KFC was one of the primary American fast food chains to extend universally, opening outlets in Canada, the United Kingdom, Mexico, and Jamaica by the mid-1960s.
All through the 1980s, it encountered mixed fortunes locally, as it experienced a progression of changes in corporate proprietorship with practically zero or no experience in the restaurant business. In the early 1970s, KFC was sold to the spirits distributor Heublein, which was assumed control by the R.J. Reynolds food and tobacco conglomerate; that organization sold the chain to PepsiCo. The chain kept on growing abroad, be that as it may, and in 1987, it turned into the first Western restaurant network to open in China. It has since extended quickly in China, which is presently the organization’s single biggest market. PepsiCo spun off its restaurants division as Tricon Global Restaurants, which later changed its name to Yum! Brands. KFC’s unique item is pressure fried chicken pieces, prepared with Sanders’ formula of 11 herbs and flavors. The constituents of the formula speak to a notable trade secret. Bigger bits of fried chicken are served in a cardboard “bucket”, which has turned into an outstanding component of the chain since it was first presented by franchisee Pete Harman in 1957. Since the early 1990s, KFC has extended its menu to offer other chicken items such as chicken filet burgers and wraps, too as salads and side dishes, such as French fries and coleslaw, deserts, and soft drinks, the last frequently provided by PepsiCo. KFC is known for its slogans “Finger Lickin’ Good”, “Nobody does chicken like KFC” and “So good”.
3.1.1 KFC’S MISSION STATEMENT
To maximize profitability, improve shareholder value and deliver sustainable growth year after year.
3.1.2 KFC’S VISSION STATEMENT
To be the leading integrated food services group in the ASEAN region delivering consistent quality products and excellent customer-focused service.
3.1.3 KFC IN CHINA
KFC is a fast food restaurant china that practices in fried chicken and is China’s biggest restaurant network. KFC restaurants in China are owned or franchised by Yum China, a restaurant organization that likewise owns the Pizza Hut and Taco Bell chains in China and was spun off from Yum! Brands in 2016. KFC has 5,138 outlets in China starting at 2017. As per explore by Millward Brown, KFC was the most effective outside and foreign brand in China in 2013. Sam Su is chairman and CEO of Yums Chinese operations. The Zinger burger is the most elevated selling menu item. KFC has adjusted its menu to suit local tastes, with things, for example, rice congee, egg custard tarts and tree fungus salad, with a normal of 50 distinctive menu items for every store. Another thing is the Dragon Twister, a wrap that incorporates fried chicken, cucumbers, scallions, and duck sauce, similar in preparation to Peking duck. Chinese outlets are regularly two or three times bigger than American and European outlets; numerous are open 24 hours every day and give home delivery; and two new menu items are discharged each month. 78 percent of Chinese sites are organization owned, contrasted with 11 percent universally
3.2 MCDONALDS COMPANY PROFILE
MACDONALD’s is an American hamburger and fast food restaurant chain. It was established in 1940 as a barbecue restaurant worked by Richard and Maurice McDonald, in San Bernardino, California.
In 1948, they redesigned their business as a hamburger stand, utilizing production line principles. The main McDonald’s franchise utilizing the arches logo opened in Phoenix, Arizona in 1953. Businessman Ray Kroc joined the organization as a franchise specialist agent in 1955 and in this manner obtained the chain from the McDonald brothers. Based in Oak Brook, Illinois, McDonald’s confirmed plans to move its worldwide central headquarters to Chicago by early 2018.
Today, McDonald’s is the world’s largest restaurant chain, serving roughly 68 million clients every day in 120 countries across around 36,900 outlets. McDonald’s primarily offers hamburgers, cheeseburgers, chicken products, French breakfast items, soft drinks, milkshakes, wraps, and deserts. In light of changing consumerer tastes and in the wake of confronting criticism for the unhealthy nature of their food, the organization has extended its menu to include salads, fish, wraps, smoothies, and fruit. A McDonald’s restaurant is operated by either a franchisee, an affiliate, or the organization itself.
The McDonald’s Corporation incomes originate from the rent, royalties, and fees paid by the franchisees, and also sales in organization-operated restaurants. As indicated by a BBC report distributed in 2012, McDonald’s is the world’s second biggest private employer (behind Walmart with 1.9 million employees), 1.5 million of whom work for franchises.
3.2.1 McDonald’s Mission Statement
McDonald’s mission statement is officially stated as follows: “Our mission is to be our customers’ favorite place and way to eat & drink. We’re dedicated to being a great place for our people to work; to being a strong, positive presence in your community; and to delivering the quality, service, cleanliness and value our customers have come to expect from the Golden Arches – a symbol that’s trusted around the world.”
In its mission statement and or statement of purpose, McDonald’s incorporates details about its market position, as appeared in the “favorite place and way to eat & drink” segment. Likewise, the human resource management approach is featured in the “great place for our people to work” segment. What’s more, McDonald’s mission statement covers its corporate social duty position in the “positive presence in your community” part. Whatever remains of the mission statement indicates McDonald’s brand image and the character of its products. A strategic and vital goal in view of this mission statement is worldwide brand improvement to fortify the company’s capacity to attract clients and investors. A related financial goal based on McDonald’s mission statement is cost minimization to enhance value.
3.2.2 McDonald’s Vision Statement
McDonald’s vision statement is as follows: “Our overall vision is for McDonald’s to become a modern, progressive burger company delivering a contemporary customer experience. Modern is about getting the brand to where we need to be today and progressive is about doing what it takes to be the McDonald’s our customers will expect tomorrow. To realize this commitment, we are focused on delivering great tasting, high-quality food to our customers and providing a world-class experience that makes them feel welcome and valued.”
McDonald’s vision statement covers a number of various business viewpoints. The company implies innovation to fulfil current market needs, as expressed in the “contemporary customer experience” segment of the vision statement. Likewise, McDonald’s characterizes its products in the “great-tasting, high-quality food” segment of the vision statement. In saying “modern, progressive” McDonald’s demonstrates that its vision statement characterizes the kind of business approach it utilizes for organizational improvement. A strategic target goal linked to this vision statement is the innovation of McDonald’s goods and services to match consumer preferences and desires.
3.2.3 MCDONALD IN CHINA
Western-style fast food in China is a current phenomenon, going back to just January 1984 when McDonald’s opened its first outlet in Taipei, Taiwan Province in the Republic of China. The first McDonald’s opened in mainland China in 1990 in the Shenzhen Special Economic Zone. More prominently, the biggest McDonald’s in the world opened on April 23, 1992 in Beijing. It had 700 seats, 29 cash registers, and more than 40,000 on its opening day. By 1996, 29 restaurants had opened in Beijing alone. Initially, predominantly, well-off families ate there to separate themselves and accordingly McDonald’s became a symbol of a new lifestyle of searching out foreign social impacts. One of the most compelling reasons McDonald’s has encountered more success and accomplishments than other fast food restaurants in China is its elevated standards of hygiene and cleanliness. Beijing media reliably praises McDonald’s neatness and frames it against the poor tidiness of its competitors.
3.3 Comparing the marketing segment of KF and MACDONALD
KFC segmented the consumer markets by looking at the 4 major elements: geographic, demographic, psychographic and behavioral variables. KFC utilized multiple segmentation bases to identify and distinguish smaller, better-defined target groups. There are presently KFC branches almost all over China. At the point when KFC first entered China, it was mainly centered around the large and middle-sized urban cities in the eastern coast. Yet in recent years, with a specific goal to maintain its market leader position, KFC in China has begun to extend its business to the central and west China, numerous internal cities and provinces are also their core interest. As the consumers’ tastes, wants and usage rates often differ closely with demographic variables and these variables are usually easier to measure, when segmenting the market, KFC first utilized these componenets to do the segmentation. For instance, KFC in China is centered around young families with 3-4 individuals whose parents are usually well educated with middle to high income. At this point, KFC utilized behavioral segmentation to focus on additional consumer groups. KFC focused and targeted those regular and heavy users who consume in KFC frequently, it used “Return Rate” to differentiate the light and substantial clients and hoped to target on the faithful customers who have positive and enthusiastic attitudes towards KFC. MacDonald’s on the other hand made market segmentation precisely according to the geography, population and the psychological elements and completed corresponding strategies so as to achieve the marketing aim of the enterprise. As far as geography is concerned, At the beginning when McDonald’s got into China’s market, it popularized and advanced American culture and philosophy of life and utilized American-styled beef hamburger to conquer Chinese people. However, as Chinese people like chicken, chicken products cater to Chinese people’s taste more, thus much easier to be accepted by Chinese people. Give such a situation, McDonald’s changed its previous strategy and launched its chicken product. Then McDonald’s who only sells beef hamburger began to sell chicken hamburger. This change was made due to the geographical difference and it also helped McDonald’s accelerate its development pace in China market. In the area of population, McDonald’s made market segmentation mainly according to age and life stage. McDonald’s takes children as its center-its main consumers, paying great attention to developing their loyalty. The children who eat in the restaurants often get a balloon with McDonald’s mark on it and some small gifts like paper folding. In China, there is also Uncle McDonald’s Club, where children aged 3 to 12 can attend. The club holds activities regularly to win the favor of the children to McDonald’s. This is successful market segmentation which grasps the characteristics and positioning of the segment market. Fast food industry basically has two potential segment markets according to people’s way of living: Convenient-oriented and relaxing-oriented. Convenient-oriented people buy McDonald’s products for the convenience of purchase and eating. Relaxing-oriented people buy McDonald’s products in order to relax and kill time. For the convenient-oriented market, McDonald’s put forward ’59 seconds rapid service’, namely the standard time from ordering the food by the customers to leaving the counter with food is 59 seconds. It can’t be over 1 minute. For the relaxing-oriented market, McDonald’s pays great attention to the decoration of the restaurants, make customers feel comfortable and relaxing as much as it can and make its great efforts to let the customers regard McDonald’s as a good place for relaxation with unique culture.
Targeting and Chinese Values KFC targets on “all of the family members” ranging from kids to elders. It made efforts on building a dining environment of family-style in which customers can feel the warmth of home (KFC website, 2012). Elements such as the warmth of family reunion, “caring” among different generations, love and missing between wife and husband, can be found in its advertisements and indoor decorations. Together with its diversified menu and adapted tastes, these concepts made KFC popular within all generations. In addition, compared with McDonald’s, KFC’s commercials are mostly plain and conversational. Instead of using super stars and famous actors as McDonald’s did, KFC tends to introduce a storyline or some funny scene into the commercials, making it closer to normal life and easier to approach (Zhang et al. 2009). Furthermore, noticing the fact that Chinese local cartoon and Japanese Anime are popular within Chinese children, toys offered in KFC kid’s meal are mostly toys of popular Japanese cartoon characters such as 15 Astro Boys, Detective Conan, Doraemon, etc (KFC website, 2012). Before 2003, McDonald’s basically targeted on family with children; while after 2003, it aimed on youths from 4 to 30 years old. With its key word “young, fashionable and lively”, McDonald’s hopes to provide light and happy dining experience for young people (McDonald’s annual report, 2003). Now most of its commercials and restaurant decoration are designed to attract young people from the psychological perspective with some of the main concepts like “sports” and “romance”. It wishes to gain identification from this customer group and stimulate their consumption. For instance, McDonald’s has chosen several sports superstars (i.e. Ming Yao) and pop music singers (i.e. Leehom Wang) as their spokesmen in China (McDonald’s website, 2012); in some of the big cities, music played in the restaurants is mostly recent Chinese pop music with quick rhythm. Different from KFC, Most toys offered by McDonald’s in kid’s meal are mostly toys of American cartoon characters in movies such as Alvin and the chipmunks and Toy Story (Zhang et al. 2009), and not only children can find their gifts in McDonald’s, adults can also find stuff of their interest: In the summer of 2011, McDonald hit the market with a new meal combo called “extra size and extra value menu”, together with this menu, a set of “rainbow” cola cups of 6 colors was also introduced as free gift (you can gather only one cup each time), which set off a surge of collecting these cola cups in China—young people would like to possess the entire set of cups even they won’t really use it, for they think the design of these cups is cool and fashionable (Hexun.com, 2011).
The product or service positioning has been described as the place occupied in a particular marketing where product is targeted by customer (Wind, 1980). Generally, Fast food chain has two target consumers. One is the people who live in a busy life. Such as employees who spend whole day in front of computers. These people busy at their working and had no time preparing food. Fast food gives them the chance to eat in a very short time. The other is the consumer who does not like cooking such as young people. KFC and McDonald’s give them the chance to try new. Target on these consumers, these two companies has their special outlets placement strategy. In order to satisfy consumers who have a busy lifestyle, they open their outlets in cities, in which has a higher population density and well-developed transport system. And to those who want to try new and unwilling to cook by themselves, the restaurant always placed close to schools, universities, city centre and commercial areas that young people study at and prefer to go. It has published in McDonald’s official website for the restaurant development. “McDonald’s looks for the best locations within the marketplace to provide our customers with convenience. We build quality restaurants in neighborhoods as well as airports, malls, tollways, and colleges at a value to our customers.”(from McDonald’s official website), while KFC provides customers with the most convenient, desirable and accessible restaurant locations across the country, such as the outlets in the city centre of Beijing and Shanghai, where has shopping mall or commercial street. People go shopping in those place prefer to find a comfortable place to have a rest, drink a cup of tea or coffee and eat some food. KFC and McDonald’s success in choosing location set a good example for other fast food restaurants.
3.3.4 Product Innovation to Cater to Chinese Taste Both KFC and McDonald’s offered some worldwide standardized main products on their menus. However, in terms of product innovation and uniqueness in Chinese market, they differ in several ways. KFC has devoted itself to working on establishing a “Chinese” brand and adjust to Chinese life ever since 14 the middle of the 90s (KFC website, 2012). In order to guarantee the execution of this working guidance, in 2000, KFC invited 40 Chinese state-level nutritionists to establish “KFC-China healthy food advisory committee”, and held a convention annually till now. The aim of this committee is to support its product innovation and work hard to beat the idea that “fast food is all junk food.” In 2004, KFC initiated the product innovation and adaptation strategy in China. According to certain investigation, world widely speaking, the proportion of localized products accounts for 20% among its entire KFC product line. By contrast, on KFC’s menu for Greater China region nearly half of the products are specially designed with Chinese feature among over 50 new products at present (Bian, 2009). Some of these products are particularly popular for featuring the 8 schools of Chinese cuisine, for example: Egg & Vegetable Soup, Dragon Twister (Chicken roll of Old Beijing), and Grass Jelly Milk Tea, etc (KFC website, 2012). These products are improved by adding special seasonings or Chinese ingredients to cater to Chinese tastes. In the summer of 2004, KFC launched Wong Lo Kat herbal tea (the oldest brand of herbal tea in Guangdong) only in Guangdong province; this is the first completely localized product of KFC (Li, 2007). It is reported that KFC kept launching 20 new products each year, providing abundant choices for customers. At the very beginning of entry, McDonald’s claimed that they would not change the menu in China, and always stick to their American style. “We’ll do what we are skilled at,” said Jeffrey Schwartz, CEO of McDonald’s China, “If people come for Chinese food, why will they still choose McDonald’s?” (Bian, 2009) However, facing the challenge from KFC, it’s no longer easy for McDonald’s to stay “outside”. From October, 20th 2004, fried egg and Chinese pancake appeared on the breakfast menu; In the winter of 2007, McDonald’s launched a new hot drink with honey and ginger, for it’s widely believed in China that ginger decoction can help keep coldness away. However, basically these changes are only for McDonald’s to survive rather than to improve. Most of its Chinese products are offered only for a limited period, but its key products are always hamburgers of all kinds (Li, 2007).
3.4 Comparison of KFC and MACDONALD’s Marketing Mix
Fast food is the heart concept of the society and services from fast food chain will attract consumers and change customer’s attitude. KFC obtained the success of fast food market mainly by selling chicken products. KFCs products used standard production, which is selling inexpensive western style items with local favor. KFCs menu changed rapidly to follow the changeable market as they followed product life cycle from introduction, growth to maturity and finally decline. Some products were offered temporally while other permanently. For example since 24th of March in 2014, KFC started to use the new menus. They eliminated seven items, renewed one item and added fourteen items. The total variety has reached to 66 products. The success of KFC is also from its special ingredients, sanders original recipe’ of “11 herbs and spices” is one of the most famous trade secret in the fast food industry (Chartrand 2001). KFC ia also aware of health issue so with that, they came to know according to survey result that Chinese adults are overweight up from 6% in 1982 to 22% in 2002. Relating to health awareness KFC launched new product in 2005. New fast-food which is Nutritious and balanced, instead of supersized item they introduced roast chicken, sandwiches, fish, shrimp, and more fruit and vegetable dishes. KFC maintain the following way to serve their menu.
-Breakfast menu- Offering of Regional Recipes
– Lunch menu focusing on working people with exceptional price
-Afternoon menu small meal + dessert + beverage during the day
– Night menu focusing on student ; over-time workers
– Late night menu focusing on partying people ; night ship workers
The mystery ingredients mixed with local ingredients created a large amount of customers. The manager of KFC realized that the customers in Sichuan, Hunan and Chongqing, Shijiazhuang are preferred while shanghai customers will complain that the dishes are too spicy. So the company adopted the localization strategy in products and finally changed its recipes to suit the region. MACDONALD’s mainly selling hamburger with beef, which is a typical western food style. Chinese prefer chicken to beef for some reasons, firstly, maybe the price, according to the latest price of beef and chicken there is a large gap between them. The average price of beef is 66.60 RMB (approximately 6.5 pounds) per kilogram while the average price of chicken is 19.58 RMB (approximately 1.8 pounds) per kilogram (data from government of China price)
Secondly, the traditional cultivation industry In China raises more chicken than cattle as cattle is so heavy that will eat more and its long growth stage means costly when buying. Due to the price of raw materials, the company will change their recipe to adapt to the region which means product localization. By far MACDONALD’s menu has seventeen types of burger and four types of rice others are beverages and dessert. MACDONALD’s insist on standardization of products and just had little change on some foods such as start to sell soy milk for breakfast from 2011. From the difference in the menu, it is obvious that KFC has more products and local appetite products than MACDONALD. Comparing the products, KFC’s localization strategy is more suitable than MACDONALD’s globalization strategy in China.
The right choice of pricing strategy will benefit a company’s competitive position. KFC and MACDONALD use different pricing strategies in different situations. They mainly choose the price skimming strategy, the process of selling a product or service for a high price initially, then gradually reducing the price to in order to access new market segments (price, 2009) as their pricing strategy in China.
The staple food in KFC contains 10 units (six of burger, two types of rolls and two types of rice). In the latest menu, hamburger price fluctuated around 14RMB approximately (1.3 pound). KFC set the prices at medium to high level. It is still affordable by the Chinese customers, while MACDONALD’s has nine burgers as its staple foods .and the price range from 6 to 16.5 RMB due to different meat. MACDONALD’s mainly sell beef burger around the world but the high price is not suitable in developing countries, therefore it started to sell burger with pork, chicken, duck and fish. KFC and MACDONALD usually face fierce competition which forces them to sometimes adjust their price according to cost and demand. But from the arguments given above we see that KFC’s pricing is more preferable than MACDONALD’s.
Fast food chain has two target customers. One are people who have a busy life for example employees who spend the whole day in front of computers as they are busy the whole day working and have no time to prepare food for themselves. Fast food gives them the chance to eat in a very short time. The other is the consumer who doesn’t like cooking such as young people. KFC and MACDONALD give them the chance to try new things. To target these two groups of consumers, these two companies have their special outlets placement strategy. In order to satisfy consumers who have a busy lifestyle, they open their outlets in cities that have a higher population density and well developed transport system.
For those who want to try new things and are unwilling to cook for themselves, these restaurants are always close to them as they are located close to schools, universities, city Centre and commercial areas that young people study at and prefer to go. KFC provides customers with the most convenient, accessible and desirable restaurant locations across the country, such as outlets in the city Centre of Beijing, Shanghai and a lot more which has a lot of shopping malls and also a commercial area. People who go shopping in those areas prefer to find a comfortable place to have a rest , drink a cup of tea or coffee and eat some food, while MACDONALD’s on the other hand looks for the best locations within the market place to provide customers with convenience. They build restaurants in neighborhoods as well as airports, malls, toll ways and colleges at the value of their customers..
When it comes to promotion, KFC restaurants in China have a large Logo of ‘KFC’ and the portrait of colonel which leaves a very deep impression on the Chinese people. It has changed its old Logo to a new one which stresses on ‘Taste’ and present youthful energy, more friendlier and more welcoming. The promotions of KFC are varied from advertising in television to internet, or distributing coupons in public places. Each year KFC will have new menus to attract customers and provide a whole meal set such as burger with coca cola together it will save money. Sometimes KFC will send gifts as premium to attract customers especially children. It also distributes coupons in the street or one can download KFC’s app then you can get small discount from the product. MACDONALD’s logo is a golden arch of “M” with the slogan “I’m lovin it”. The promotion of MACDONALD is similar to that of KFC, coupons; packaging and digital marketing all create growth in marketing. Despite the fact that promotion is similar between KFC and MACDONALD, KFC has an upper hand because, they offer discount or gift items on special day say Chinese new year, lantern festival, Dragon boat festive etc. For cartoon fans pay only RMB 9.90 for each unit of Doreamon plus toys when purchase either. KFC Chewy Cheese Combo at RMB 9.95 or they hire famous singers and stars to attract to keep young adult customer.
3.5 Comparison of McDonald’s and KFC competitive strategy
Competition strategy: cost leadership strategy, differentiation strategy, and focus strategy. Briefly, it will be good for us to introduce the three competition strategies respectively. The idea of low cost leadership comes in when an organization finds ways to cut their cost and try to become the industrial low-cost producer, When organizations maintain their manufacturing cost at the lowest possible level, they actively look for a high efficiency in the areas of production, marketing and other operations. Through their own innovative designs, the technology’s potential ability or outstanding brand image, enterprise tries to provide distinctive products and unique service. The company therefore makes itself different from its competitors; this strategy is called the differentiation strategy. Porter’s theory thus mentioned that those two competitive strategies seeks competitive advantage in the broad market sense; however, the focused strategy is based on seeking cost advantages (cost leading centralized) or differentiated advantages (differences centralized) in a narrow market. The purpose of focus strategy is developing a narrow market segment or a customer group, rather than trying to serve the broad market. An enterprise can also use the mixed strategy. By using the mixed strategy, it means that a company that has a cost that is lower than the industrial average level can therefore sell products or services on a differentiated basis. The effects of economies of scale or innovation can enable enterprises to use the mixed strategy successfully. McDonald’s and KFC are increasing the scale of their business and development in China. They are using the mixed competition strategy in China, and that is using the cost leadership strategy and the differentiation strategy. They also are seeking a competitive advantage not only amongst themselves but also in the Chinese market as a whole, so that they won’t have to use focus strategy. (Porter, M.E. 1998)
3.5.1 Comparison of McDonald’s and KFC cost leadership strategy
In this section, we want to show that the key of using cost leadership strategy is to gain more profits and to compete with rivals more effectively. We can easily see that a company by using the cost leadership strategy, it could have a lower cost and a high profit and this is assuming that they have same price with that of the competitors in the market. A lot of factors can affect the cost of doing business. The resources that McDonald’s and KFC have invested in are cost-effective, thus they have ensured the standardization of their basic products and services nationwide. Gaining the experience curve effect is another important factor for companies if they want to gain advantages in the cost leadership strategy. According to Peter Marsh, the experience curve effect means that a value of activities with the learning result in their efficiency can increase, and therefore be accumulated over time which will enable its cost to decrease. Practicing and learning over time could reduce the cost of the mechanism, including improving the labour efficiency, improving asset utilization and raw materials suitability for the production process. As the global fast-food industries big brands like McDonald’s and KFC who have extensive experience in the China market. Analysing from a strategic point of view, the major factors affecting the cost of doing business are the economies of scale and the cost of material purchasing price. (Marsh, P.2012) The costs of value activities are often subject to economies of scale. Economies of scale which is produced in the capability of a greater range of activities and in a different manner with higher efficiency. It means that economies of scale could allocate the cost in 33 greater sales. For McDonald’s and KFC, they primarily use the direct sales stores and franchise stores as their expansion mode in China; especially the franchise mode which will more rapidly expand the scale. From a long-term perspective, Kentucky and McDonald’s are able to achieve economies of scale. (Marsh, P. 2012) For the purchase cost, McDonald’s and KFC have a unified procurement and distribution as the supply chain management is there in order to have lower cost. When it comes to procurement and supply of the product, McDonald’s inclined to allow American enterprises to provide the sources, while KFC tends to corporate with the China’s domestic supplier. For example, KFC shares the supply chain with Pizza Hut, which makes the collaborative supply chain sharing more effective and also decreases the cost. In one word, KFC performs slightly better control of their product costs. (China Economics 2006) In pricing aspects, McDonald’s and KFC have set the same price level for the similar products for a long time. This started from June 2003, and this was due to the fact that McDonald’s global performance declined and this led to cost control pressures, it started to decrease the price for ten products. Meanwhile, KFC based itself on reasonable profit pricing.
(Finance Sina 2006) From the arguments given above, we can therefore conclude that the economic scale of KFC in China is greater than McDonald’s with minor difference in cost control. The differences of competitive strategy is not only reflected in cost leadership strategy, but is also reflected in the differentiation strategy.
3.5.2 Comparison of McDonald’s and KFC’s differentiation strategy
For the menu of KFC and McDonald’s, they both have standardized and unified main products not only in China but worldwide. However, from the product innovation and uniqueness points of view, there is a very wide difference between KFC and McDonald’s. KFC has spared no efforts to meet up with the different needs of Chinese consumers. This started from the beginning of Chinese business. From there, KFC was determined to build a brand for the Chinese people to fit their own needs. (Winshang 2007) In 2000 KFC has invited more than 40 national food nutrition experts and set up Chinese KFC Food Health Advisory Committee to ensure the execution of the ideas and direction of their work. They studied how to adapt to the Chinese tastes, diet, eating habits and consumption characteristics. They also developed diversified products to meet up with the different requirement of customer groups. In 2004, the innovation and localization strategy of KFC products broke the boundaries of Western fast food and Chinese fast food and developed a new consumer market. More than 30 types of new products are launched in Chinese markets, of which at least half deal with Chinese characteristics. (Info Food Hc360 2006) There are also many products that are developed according to the Chinese taste, examples include, the hibiscus fresh vegetable soup, mushrooms and chicken porridge, traditional chicken roll, Sichuan spicy hamburger and so on. The local products are often inspired by the Chinese cuisine; however, they are served in a fast food way and with reasonable price and good timing. Image 3 is a type of lunch that KFC serves.
According to the image below, we see the launch poster of KFC in (2016)
At the same time, there are also hamburgers, fried chips and cola which is available. In Guangdong province, in 2004 during the summer season, a traditional herbal tea was served officially in KFC which is called Wanglaoji. It was the first time that KFC transited from improving their products to introducing a completely local product. In addition to the deepening localization strategy in China, KFC is now studying the preferences of the regional consumers. They are implementing the regional localization strategy and this is based on the fact that China is country having a very big geographical scale and they vary a lot in their food preferences. In short, KFC is at the top spot of the fast food industry in China, and this is largely due to its localization business strategy. (Media163 2004) For a long time, McDonald’s has mainly been serving hamburger and beef based products, which is much more suitable for the European and American people. After entering the Chinese market, McDonald’s took into account two things which they had to consider. One being that the secret of the long term survival of fast food lies in the standardization and the continuity of product supply everywhere. Another consideration is that it requires large cost inputs to develop new products. Thus, they have not changed their menu for long. (Jctrans 2012) Later on, they started involving themselves in chicken products so as to meet up with the market needs. Usually in China, the chicken is cheaper than beef as such, it causes the cost of raw materials to decrease. As a general concept, the Chinese people think chicken is healthier than beef and are more fond of the chicken meat. McDonald’s therefore declared that it would not change its menu in China and it will always adhere to its own characteristics burgers, which are just like the slogan, ‘I am lovin it’. This was regarded as a strong decision for McDonald’s which embodied their product standardization. (Tiannong 2012) However, when they were faced with the fast expansion of KFC, McDonald’s finally decided to change their menu in 2004 which was the McDonald’s first introduced a localized product in China The Chinese have a style of scrambled eggs and pancakes available on the breakfast menu, which is welcomed by lots of customers. Although McDonald’s insist on standardization of products and services, it made some adjustments of its products in China, but the strength and breadth of its product localization is far behind KFC. Today, McDonald’s global standardization concept is still not reduced.
Below is an image of MacDonald’s launch poster for (2016)
In Chinese market, KFC introduces 1.5 new products every month, while McDonald’s makes some slight changes to its burgers. When McDonald’s insists on the global fast food standardization aspect, KFC launches local products which have diversified characters. Product localization is one of KFC’s key strategies for fast development in China and this is precisely because they have a different approach of treating the localized management, they also have a different development path. Typically, KFC’s success localization in China is regarded as a classic case of international business. (ServiceOcn 2008)
3.6 PORTERS FIVE FORCES ANALYSIS BETWEEN KFC AND MCDONALD IN CHINA
Porter’s five forces analysis is a framework for examining the level of competition inside an industry and business strategy improvement. The Porter’s Five Forces tool is a basic yet effective instrument or tool for understanding where power lies in a business circumstance. This is valuable, since it encourages you understand both the strength and quality of your current competitive position, and the strength of a position you’re thinking about moving into. The Five Forces Analysis accepts that there are five essential forces that determine KFC’s competitive power and control over MCDONALD in a business circumstance in China and in other countries. These are:
3.6.1 Supplier Power:
KFC approaches numerous suppliers for their main product which is chicken. This gives the restaurant adaptability to work with the best suppliers. This gives KFC high ground over MCDONALD in China where the bargaining power of suppliers is low because the materials given by the suppliers to the fast food firms for example flour are for the most part standard products with a large number of suppliers.
3.6.2 Buyer Power:
The buyers of KFC products in China approach numerous comparative products in outlets such as McDonald’s, Subway and Pizza Hurt. This makes it difficult for KFC to raise prices on the grounds that there is stiff competition from the other
3.6.3 Competitive Rivalry:
The fast food market is highly and exceptionally competitive in China. There is certainly extreme competition that KFC always faces from other fast food chains particularly McDonald’s. This has caused KFC to develop mechanisms and a stand out amongst the most popular methods KFC has used to retain clients is by introducing a smart card for kids that offers those discounts in KFC and this guarantees it to compete effectively.
3.6.4 Threat of Substitution:
There are numerous other fast food restaurants in China that offer comparative products as KFC and this gives the fast food chain an opportunity to run for their money. For example MCDONALD which has been one of the best market adverseries for KFC. The fast food restaurant offers side dishes for example rice in addition to providing consumers with mild and spicy chicken alternatives. This has made the fast food restaurant extremely prominent. On the other hand, KFC has increased its game by providing Wi-Fi services and also introducing morning services.
3.6.5 Threat of New Entry:
Although the fast food chain market is difficult to infiltrate in CHINA because of the many competitors. Unlike MCDONALD, another brand SUBWAY has turned out to be very popular because it offers a fresh menu and this has appealed to numerous customers. Notwithstanding, KFC has the advantage of being a well-established and easily recognized household name and this has made it very popular in China. It is easier for clients to choose KFC as compared to other new fast food restaurants unless the new entrants and contestants actually offer diverse menus as compared to the more established restaurants..
3.7 PEST ANALYSIS BETWEEN KFC AND MCDONALD IN CHINA
Basically, a PEST analysis helps you decide how the political, economic, social and technological factors will influence the performance and activities of your business in the long-term. It is regularly utilized as a part of joint effort with other analytical business tools like the SWOT analysis and Porter’s Five Forces as observed above to give a clear understanding of a situation and related internal and external factors. Kentucky Fried Chicken had PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) analysis that can change their International Business strategy and procedure. McDonald’s likewise considers the effects of the political condition on its industry. This aspect of the PESTEL/PESTLE analysis refers to the impacts of governmental action on the remote or macro-environment of organizations.
Kentucky Fried Chicken gives the fast-food service not only in China but all over the world. To accomplish their objectives, they make a political framework that can direct them or they called as a guide service. This political system could change their business strategy and make them gain grounds so as help their company to progress. For instance, they have employees that run the activity and movements in the restaurant. They make a contract of agreement with the employee and make a pension fee. They additionally provide the alternative in buying KFC. McDonald’s has the opportunity to enhance and extend its business in line on improved international trade, which can improve worldwide supply chains It additionally has the opportunity to reform its practices and strategies to decrease the effect of tax collection on the business without violating the law. Be it as it may, public health policy progressively has a tendency to discourage and demoralize individuals from consuming fast foods from firms like McDonald’s.
When we discuss the economy perspective, we talk about the fund or money. Kentucky Fried Chicken gives lower price. They have a food packet; simply like we purchase the packet we can get the discount or something that help us to buy there once more. In this economic analysis we find the economic advantage that changes the strategy of international business of Kentucky Fried Chicken. The business can develop with the lower cost and this will in turn satisfy the customer’s needs. Then again, McDonald’s has the chance to develop, even slowly, in the Chinese economy, which is one of the firm’s greatest markets. Be that it may, the current economic conditions and the slowdown of the Chinese economy threaten and undermines the company’s development in Asia. In this aspect of the PESTEL/PESTLE analysis of McDonald’s, the economic external factors mainly threaten the business.
Kentucky Fried Chicken is one of the greatest Fast Food Company in China. Kentucky Fried Chicken have manufactured a social relationship with other organization or company around the globe. Next to that in their restaurant, they additionally provide food that taste similar with that of the Country whom they are partners and a very typical example is China which is our area of concern. Furthermore, with regards to the employee’s, they employ citizens from that country. MCDONALD on the opposite side McDonald’s can develop because the company’s target consumers are for the most part from medium and low-income family units. It likewise has the opportunity to enhance its products mix to satisfy and fulfill a more diverse target market. Nonetheless, the healthy lifestyle trend is a threat in light of the fact that a significant number of McDonald’s products are often criticized for their negative health impacts.
In this analysis, Kentucky Fried Chicken can leave their home of origin as should be obvious they have a lot of shops in China. They utilize the modernization technology to advertise their product. There are a great deal of transactions that should be possible by the internet for instance the home delivery services they offer and with this, you can sit in your home anywhere in China and request whatever you need from KFC and it will be delivered to the customer’s address. Unlike MCDONALD who also offer these services but most people and consumers in China will prefer ordering and being potential clients as well as consumers of KFC
3.8 SWOT ANALYSIS BETWEEN KFC AND MACDONALD IN CHINA
The SWOT analysis talks about the strengths, weaknesses, opportunities and threats of the leading Fast food companies in China and focus will be on KFC which is the main and most preferred fast food when contrasted with MCDONALD. KFC is known to be a favorite of meat and chicken lovers, and this division is the main success factor of KFC. Notwithstanding, because of its franchise business model, the firm faces a ton of competition from different franchises like McDonalds and Burger king. Other than burgers, backhanded competition in the form of Chinese fast food is ever present. Some of these competitors are PIZZA HUT and SUBWAY.
3.8.1 Strengths in the SWOT analysis of KFC and MCDONALD
KFC has been a market pioneer in chicken foods for fifty years and a stand out amongst the most perceived fast foods in China. It has above fifty percent of the market share and has undisclosed recipe of spice and eleven herbs. It is the most identifiable brand in chicken or fried food in China. It has the well-assembled area, motivated staff, store management and franchises. It has a first-class image not only in China but all over the world and is globally located for many years. Tremendous famous brand name and high brand faithfulness. High number of products, clean food and speedy service, High-quality publicity and promotion when contrasted with MCDONALD whose prices are still high when contrasted with some other local Chinese fast-food restaurants in China. Besides, the price of McDonald’s is still considerably more than numerous people in China can afford; there are many working parents who must set aside before they can afford to take their families to McDonalds.
3.8.2 Weaknesses in the SWOT analysis of KFC and MCDONALD
Detrimental food menu, Franchise management all around the world is a dispute, Unhelpful publicizing, and Elevated employee return. Here MACDONALD has an upper hand and a high ground over KFC in China in light of the fact that McDonald’s understands the significance of strategic placement, and knows about the ways in which to most effectively target and service target consumers. Outlets are put in areas of high footfall, regions that are effectively open to the consumer and areas that have an ideal demographic.
3.8.3 Opportunities in the SWOT analysis of KFC and MCDONALD
When it comes to the opportunities, KFC Launches predominant vegetarian products, they likewise Venture into innovative and creative markets, Growing demand for healthier food, House meal delivery, Beginning new goods to its only chicken choice. Additionally, the numerous numbers of Chinese citizens with disposable incomes is expanding, and incomes are ascending with a development in the Chinese middle class. This adds to the changing ways of life of Individuals in China, which is changing the peoples eating habits and making them more open to Western cuisine and fast good. Opportunities will increase further as more individuals embrace Western culture. Not like MACDONALD in China where their major and most significant ingredient is the cooked beef patty, and according to a study by Watson (2000), the majority of Chinese adults do not like how they taste. The specialty of McDonald’s is the burger everywhere else in the world, but this strength does not translate very well in China. Various feedback and criticism have emerged regarding McDonald’ employment practices, and this added to the health problems that fast food can cause, may prompt a negative public image of the company in China.
3.8.4 Threats in the SWOT analysis of KFC and MCDONALD
KFC has enjoyed relatively few threats in recent years, and the main critical threat in China has been the other fast-food corporation MACDONALD. As common, the threat is from other eating joints or restaurants in China for example MACDONALD, PIZZA HUT just to give some examples, With changing the way of life of the general population because of growing awareness about healthier food individuals now search for something healthy, low calories and delicious at the same time. It gathers a portion of its income from foreign operations and that returns has to be transformed into dollars and may affect the business earnings, fundamentally, when the dollar is appreciating in opposition to other currencies. KFC is an American company that rose up from the American framework, and this appears differently in relation with China’s status as a communist country. This makes KFC every so often subject to criticisms and protests from specific factions and groups.
3.9 Comparing the income statement of both KFC and MACDONALD
3.9.1 Annual income statement for KFC
Annual Income Statement (values in 000’s) Get Quarterly Data
Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/27/2014
Cash and Cash Equivalents
$1,723,000 $862,000 $416,000 $673,000
$0 $0 $0 $0
$400,000 $370,000 $324,000 $325,000
$13,000 $37,000 $40,000 $301,000
Other Current Assets
$371,000 $236,000 $907,000 $254,000
Total Current Assets
$2,507,000 $1,505,000 $1,687,000 $1,553,000
$0 $0 $0 $52,000
$1,697,000 $2,113,000 $2,347,000 $4,498,000
$512,000 $536,000 $571,000 $700,000
$110,000 $151,000 $164,000 $318,000
$346,000 $376,000 $2,701,000 $560,000
Deferred Asset Charges
$139,000 $772,000 $591,000 $653,000
$5,311,000 $5,453,000 $8,061,000 $8,334,000
$1,137,000 $1,240,000 $1,232,000 $2,142,000
Short-Term Debt / Current Portion of Long-Term Debt
$375,000 $66,000 $921,000 $267,000
Other Current Liabilities
$0 $0 $934,000 $0
Total Current Liabilities
$1,512,000 $1,306,000 $3,087,000 $2,409,000
$9,429,000 $9,059,000 $3,007,000 $3,077,000
$704,000 $703,000 $992,000 $1,235,000
Deferred Liability Charges
$0 $0 $0 $0
$0 $0 $6,000 $9,000
$0 $0 $58,000 $57,000
$11,645,000 $11,068,000 $7,150,000 $6,787,000
Stock Holders Equity
$0 $0 $0 $0
$0 $0 $0 $0
($6,063,000) ($5,157,000) $1,150,000 $1,737,000
$0 $0 $0 $0
($271,000) ($458,000) ($239,000) ($190,000)
($6,334,000) ($5,615,000) $911,000 $1,547,000
Total Liabilities & Equity
$5,311,000 $5,453,000 $8,061,000 $8,334,000
3.9.2 Annual income statement for MACDONALD
Annual Income Statement (values in 000’s) Get Quarterly Data
Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/31/2014
Cash and Cash Equivalents
$2,463,800 $1,223,400 $7,685,500 $2,077,900
$0 $0 $0 $0
$1,976,200 $1,474,100 $1,298,700 $1,214,400
$58,800 $58,900 $100,100 $110,000
Other Current Assets
$828,400 $2,092,200 $558,700 $783,200
Total Current Assets
$5,327,200 $4,848,600 $9,643,000 $4,185,500
$1,085,700 $725,900 $792,700 $1,004,500
$22,448,300 $21,257,600 $23,117,600 $24,557,500
$2,379,700 $2,336,500 $2,516,300 $2,735,300
$0 $0 $0 $0
$2,562,800 $1,855,300 $1,869,100 $1,744,600
Deferred Asset Charges
$0 $0 $0 $0
$33,803,700 $31,023,900 $37,938,700 $34,227,400
$2,890,600 $2,696,300 $2,950,400 $2,747,900
Short-Term Debt / Current Portion of Long-Term Debt
$0 $77,200 $0 $0
Other Current Liabilities
$0 $694,800 $0 $0
Total Current Liabilities
$2,890,600 $3,468,300 $2,950,400 $2,747,900
$29,536,400 $25,878,500 $24,122,100 $14,935,700
$3,525,300 $2,064,300 $2,074,000 $2,065,900
Deferred Liability Charges
$1,119,400 $1,817,100 $1,704,300 $1,624,500
$0 $0 $0 $0
$0 $0 $0 $0
$37,071,700 $33,228,200 $30,850,800 $21,374,000
Stock Holders Equity
$16,600 $16,600 $16,600 $16,600
$7,072,400 $6,757,900 $6,533,400 $6,239,100
$48,325,800 $46,222,700 $44,594,500 $43,294,500
($56,504,400) ($52,108,600) ($41,176,800) ($35,177,100)
($2,178,400) ($3,092,900) ($2,879,800) ($1,519,700)
($3,268,000) ($2,204,300) $7,087,900 $12,853,400
Total Liabilities ; Equity
$33,803,700 $31,023,900 $37,938,700 $34,227,400
From the income statements above, we see that Internationally, MACDONALD is leading but our project work is centered on China and looking at the arguments and many documents that have been read, we see that KFC is leading when it concerns Fast food In China. The gross or net profit from the annual reports seen above shows that they both have success though MACDONALD is leading on operating and developing, but the content emphases on China’s market have apparent difference as their initially adopted localization and standardization (globalization) in advent of China. It means the localization strategy of KFC adopted in China market is more suitable than globalization strategy. The great achievement of KFC in China is not an accident while McDonalds’ backward does not mean their strategy is not good. KFC’s success is largely because it realizes the distinctiveness of the Chinese market and emphasis on the local environment and local customers. The graphs below give us a clearer picture of KFC’s position in China as compared to MACDONALD.
This diagram says it all as we see that in terms of numbers, KFC is leading in China with 4563 while Macdonald follows with 2000 and the local Chinese restaurant with 479 showing that KFC is more popular in the Chinese market than MACDONALD
From the above diagram, we see that KFC is leading in China as it owns the highest market share of 4.9% in 2007 and in 2016 is still leading with 5% market share while MACDONALD its competitor and rival as of 2007 has a market share of 2.3% and 2016 2.4% while DICOS on the other hand a local Chinese fast food had a market share of 0.8% 2007 and 1.3% 2016. This therefore proves that despite the fact that internationally MACDONALD is leading in terms of income, it can’t compare with KFC in the Chinese market.
CHAPTER FOUR: METHODOLOGY, DATA ANALYSIS AND DISCUSSION OF RESULTS.
Here, we will be looking at the research methods used to generate the empirical data on the research topic. After a brief description of what constitutes the study area. An overview of the research design is provided. A description of the sampling techniques and procedures, which include identification of the target population, sample selection and sample size, the instruments used for the data collection exercise, data collection methods and data sources are then presented. The data handling procedure and the ethical issues considered are also included in this section.
4.2 Research Approach and Design
Research design as we all know is the arrangement of conditions for collecting and analyzing data which would be relevant to the study and in the most efficient and economic manner. The research design serves as a guide to the researcher in the process of collecting, analyzing and interpreting observation. It also defines the domain of generalization; that is, it indicates the extent to which the obtained interpretation could be generalized to different situation or not.
The research design that will be used for this investigation is the Questionnaire and according to (Bell 1999) a questionnaire is essentially a structured technique for collecting primary data. It is generally a series of written questions for which the respondents has to provide the answers. While authors such as Kervin (1999) offer a very narrow definition of questionnaires (whereby the person answering the questions actually records his or her own answers), deVaus (1996) sees a questionnaire in a much wider context (namely as a technique in which various persons are asked to answer the same set of questions). Also, according to (Gill & Johnson 2001) a questionnaire allows the researcher to adopt either an inductive or a deductive approach, or even a combination of these two. Based on these features of the Questionnaire, our research/ study will based on that.
4.3 Sample Study Setting
Considering the number of KFC and MACDONALD fast food restaurants littered nearly if not at each corner in China, this research was restricted and confined to the city of Shijiazhuang which is a city in Hebei Province in China. Shijiazhuang, Chinese: ???), formerly Romanized Shihkiachwang, is the capital and largest city of North China’s Hebei Province. Administratively a prefecture-level city, it is about 263 kilometers (163 mi) southwest of Beijing, and it administers eight districts, two county-level cities, and 12 counties. Starting 2015 it had an aggregate population of 10,701,600, with 4,303,700 in the central (or metro) area comprising the seven districts and the county of Zhengding largely conurbated with the Shijiazhuang metropolitan area as urbanization continues to proliferate. Shijiazhuang’s aggregate population ranked twelfth in mainland China. Shijiazhuang experienced dramatic development after the establishing of the People’s Republic of China in 1949. The number of inhabitants in the metropolitan area has more than quadrupled in 30 years because of industrialization and infrastructural advancements. From 2008 to 2011, Shijiazhuang executed a three-year plan which finished with the rearrangement of the city resulting in an expansion of green areas and new structures and roads. A train station, airport and a subway system have been opened. With the development of this city throughout the years, it made it simple for these two fast food restaurants to make their way in. Other than being familiar to and within convenient reach of the researcher, Shijiazhuang has turned into a political and economic center of Hebei Province, and the city likewise experienced dramatic development after the establishing of the People’s Republic of China in 1949 which made it simpler for western fast food restaurants like KFC and MACDONALD to advance in.
Population refers to the entire group of people, events or things of interest that the researcher wishes to investigate (Sekeran, 1990). The study focuses on the city of Shijiazhuang basically the students and Lecturers of Tiedao University with a population range of 1,000,000-5,000,000 inhabitants. Some students and Lecturers were selected to answer the questions because not every one was available as some had gone on vacations and this formed the basis for the study.
4.5 Sample Size
Sample size is the number of observations used for calculating estimates of a given population. The size of the sample and the way in which it has been drawn from the population. Sampling is concerned with the selection of a subset of individuals from within a statistical population to estimate characteristics of the whole population. (Warr, 1990). The sample forms a good representation of the population since it was impossible to interview everybody to solicit their views for the study. A total of 80 people formed the sample size which was considered appropriate which includes Students and Lecturers of 80.
4.6 Sampling Techniques
Sampling is concerned with the selection of a subset of individuals from within a statistical population to estimate characteristics of the whole population. The three main advantages of sampling are that the cost is lower, data collection is faster, and the accuracy and quality of the data can be easily improved. The main method adopted was the Simple random sampling which is the most basic form of sampling. Every member of the population has an equal chance of being selected. This sampling process is similar to a lottery: the entire population of interest could be selected for the survey, but only a few are chosen at random.
4.7 Data Collection Tools
Deciding on the data collection techniques is one of the most important aspects of any research. It depends on the research question and the researcher’s interest in the topic. Questionnaires are instruments used for collecting data. They usually include a set of standardized questions that explore a specific topic and collect information about demographics, opinions, attitudes, or behaviors. The Qualitative data for this study will be collected through the use of questionnaires which are a Series of questions and other prompts for the purpose of gathering information from respondents.
4.8 DATA ANALYSIS AND INTERPRETATION
This chapter deals with the analysis and interpretation of the responses from questionnaires and interviews administered for the study. The chapter therefore gives detailed information of the textual data collected and the results obtained from the study.
4.8.2 Presentation and analysis
Responses to major questions are presented in tabular form and also in pictorial using graphs. Further explanations are offered to avoid ambiguities for clearer understanding.
4.8.3 Demographic Data
Table1 Sex Distribution of Respondent
Frequency Percent Valid Percent Cumulative Percent
Valid male 50 62.5 62.5 62.5
female 30 37.5 37.5 100.0
Total 80 100.0 100.0
Source: Field study 2017
With respect to the figure above, there are fewer females represented by 37.5%. However, there are 62.5% of males. This is so because most of the respondents from Tiedao University were males. This shows that there are more males than females in this University.
4.8.4Age of Respondents
Table 2 Age Distribution of Respondents
Frequency Percent Valid Percent Cumulative Percent
Valid 18-25 31 38.75 38.75 38.75
26-35 19 23.75 23.75 62.5
36-45 17 21.25 21.25 83.75
46 and above 13 16.25 16.25 100.0
Total 80 100.0 100.0
Source: Field study 2017
According to the figure above, 38.75 percent of the people fall within the ages of 18-25 who were mostly students and this forms the highest percentage of our study. 23.75percent fall within the ages of 26-35 both students and lecturers inclusive. 21.25 percent fall within the ages of 36-45 and 16.25 percent are above 46 this mostly included the lecturers. We thus see that the young people formed the majority of our study because young people are less busy and will love visiting these restaurants more and their mindsets differ from that of the old. KFC’s rather than targeting families and adults, they look for teenagers who are ready to accept new cultures and ideas. They give numerous discounts to high school and college students, hoping to acquire such a group of young adults with a lot of money from their parents to spend as their primary customers and McDonald’s, on the other hand, focuses primarily on children and young parents, spending a lot of money in building playgrounds within the restaurants for kids and giving out toys with kids’ meals, using the same strategy as it does in the U.S.
4.8.5 Marital status
Frequency Percent Valid Percent Cumulative Percent
Valid single 50 62,5 62.5 62.5
Married 30 37.5 37.5 100.0
Total 80 100.0 100.0
Source: Field study 2017
As seen above, 62.2 percent are single forming the majority of our study while 37.5 percent are married.
4.8.6 How often do you go to KFC or MACDONALD?
Source: Field study 2017
From the analysis above, we see that 48% always go to these two fast food restaurants forming the majority. 30% sometimes visit these restaurants while 22% don’t go at all. Those who always go, is due to the fact that KFC and McDonalds are the two major entities operating in Chinese market in western fast food industry because of this, I believe it somehow represents “cool”, “fashionable” in the Chinese people’s mind. At the same time, because KFC and MACDONALD are delicious and fast, busy people can have their meals quickly. Also, it is always located in prosperous region, so customer flow can be guaranteed. These are a few amongst the many reasons why people will always visit these two western fast food restaurants.
4.8.7 Under what circumstances will you go to KFC or MACDONALD?
Source: Field study 2017
From the table above, 26% responded that they visit these fast food restaurants when tired after a long day of shopping presumably due to the fact that they are spacious and are located in areas that can easily be accessed. 54% go there to chat and have a good time with friends and this as seen above formed the highest majority of our study and we can assume that this brings a lot of old and long lost friends together and here while having a bite or two, they can make up for the times they’ve not been able to see each and so on.. Also, the other 20% go there to relax with family this acts as a kind of picnic for both the parents and the kids.
4.8.8 Comparing the price
Source: Field study 2017
According to the figure above, we see that 59% think the price of KFC is more affordable as compared to that of MACDONALD whose prices are believed to be higher than that of KFC which has 41%. This is because KFC set their prices at a medium level which is considered very affordable by the Chinese customers. With this, KFC try their best and make sure people can eat something no matter how small at their restaurant because in China it is easy to get food at 10 RMB. They also give discount offer or gifts on special days for example the Chinese New Year, the lantern festival, the Dragon boat festive etc. For cartoon fans pay only RMB 9.90 for each unit of Dore Amon plus toys when you purchase either of them. KFC also gives out the Chewy Cheese Combo at RMB 9.95 or they hire famous singers and stars to attract and to keep young adult customer.
4.8.9 Convenience of the Dinning environment
Source: Field study 2017
From the figure above most people went in for KFC which had 57% because according to them they believe KFC is more convenient than MACDONALD 43%. Most people believe that every KFC restaurants has a special area for children and the decorations in those areas are jolly and colorful and they have bigger kitchens and more floor space where customers can linger. In some festivals, KFC would prepare some toys and presents for family customers and they have changed their menu in order to suit the Chinese taste which makes the environment and food very convenient for the Chines people unlike MACDONALD who thinks that the customers who come to McDonalds are going to enjoy the Western-style fast food, so it does not plan to change their core product to suit the Chinese taste. These two restaurants represented a new and unfamiliar design of dining environment, a novelty associated with consuming Western culture. In fact, diners found the novelty and environment of these two restaurants very attractive and convenience has become the top attraction of something associated with the fast food chains back at their origins. But, over time, as reported by the majority of our informants, the restaurants have incorporated Chinese foods into their menus. KFC has done very well as seen from the explanations above.
4.8.10 which service is more preferable?
Source: Field study 2017
From the above chart, we see that most people prefer the services of KFC with 69% to that of MACDONALD with 31%. This is because KFC has high standards that guarantee service, quality, and reliability to its customers. The acronym CHAMPS, which stands for “cleanliness,” “hospitality,” “accuracy,” “maintenance,” “product quality,” and “speed,” are the goals that KFC has accomplished. KFC’s employees, both management and storefront, must undergo strict training and pass inspections in order to actually work for the restaurants, and the management level holds impromptu employee activities to facilitate store-to-store communication and relations, and where they could learn from each other, therefore improving overall quality. Not only do these establish a good reputation for KFC and its customers, they also set a standard in the eyes of the Chinese population that competitors like MACDONALD whose service philosophy is QSCV as Quality: Accurately selected raw materials; Time is the money. Service: 100% customer satisfaction; the service request is to facilitate fast, friendly, attentive; Cleanness: Serve the customers safely meals. Clean for stores Value: Understand customers ‘ needs and wants Provide nutrition products which have similar characteristics are expected to reach.
4.8.11 which restaurant is cleaner?
Source: Field study 2017
From the above figure KFC with 61% dominates MACDONALD with 31%. Foreign fast food brands such as McDonald’s and Yum’s KFC have long enjoyed a reputation for cleanliness, quality and safety. From the analysis in 4.2.10, most people preferred the services of KFC to that of MACDONALD, it includes cleanliness as well as seen from the acronym CHAMPS, which stands for “cleanliness,” “hospitality,” “accuracy,” “maintenance,” “product quality,” and “speed,”. Despite the fact that the two have enjoyed a reputation of cleanliness, our study has proven KFC is cleaner following the percentage that we got.
Source: Field study 2017
As seen above, MACDONALD with 55% was chosen over KFC with 45%. McDonald’s, ties its products closely with what’s really popular at the time. Its slogan, “I’m Lovin’ It,” incorporates more than just food, but everything else. It hired very popular Chinese and American singers, such as Wang Lee Hom and Destiny’s Child, that do advertisements for them and provide appealing images for its brand. McDonald’s also tries to make itself more personal to the customers by offering an “open-door” event on a daily basis, where the kitchen is open to the public and the customers can ask the employees about the products on the menus. KFC on the other hand focuses mostly on its food. Its slogan is “Finger-licking good” and it lacks tie-ins with what is current and popular in the teenage society, and does not seize things already accepted as popular as their marketing tools.
4.8.13 Fast food restaurants people visit asides KFC and MACDONALD
Source: Field study 2017
From the above, it is seen that majority with average of 35% went in for Ting Hsin International Groups fast food restaurant commonly known as Dico’s which ranks third among China’s top three fast-food enterprises. This majority shows that asides going to KFC and MACDONALD’s, they will prefer Dico’s to all other fast food restaurants as seen above Pizza Hut with 15%, Burger King with 20% and Subway with 30%. This is because most people believe Dico’s puts in a lot of efforts to meet the demands of consumers by trying to provide safe fast food with assurance without blindly following the western trends. Dico’s not only introduces new products on an ongoing basis, but also changes the style of its decoration to meet the changing expectations of the consumers at large. There are also purple yam taiyaki and Japanese curry chicken rice that are absent from the menus of KFC and McDonald’s, but has attracted an extremely high order rate at Dico’s outlets. And here we see that despite the fact that KFC and MACDONALD are the most popular Western Fast food restaurants in China, they will still face challenges coming from local Chinese fast food restaurants like Dico’s. Reference (hktdc.com/business-news/article/Success-Stories/Fast-food-chain-Dicos-offers-homegrown fare/ss/en/1/1X000000/1X09VIC6.htm)
4.8.14 which one do you think has more negative news
Source: Field study 2017
As seen above, it is believed that MACDONALD with 67% has more negative news than KFC with 33%. In July 2014, a local reporter in Shanghai secretly captured footage of contaminated meat being processed inside a factory – Shanghai Husi Food – a subsidiary of American-based OSI group. Apart from bad meat being processed, the video also captures workers using expired meat products. The video went viral in the country, forcing the Shanghai Municipal Food and Drug Administration to investigate the processing unit. Upon investigation, the officials found that expired meat products (chicken and beef) were repackaged and processed with new expiration dates, with around 3,000 cases of contaminated beef cases already sold. This affected all MACDONALD restaurants in China as the news went viral and Shijiazhuang was no exception. The scandal has built a negative reputation from then until date among the Chinese customers, leading to a drastic decline in customer count. Also, a number of criticism have emerged regarding McDonald’ employment practices, and this added to the health problems that fast food can cause, has led to a negative public image of the company in China. This shows that MACDONALD has more negative news than KFC. (www.forbes.com/sites/greatspeculations/2014/09/11/mcdonalds-faces-declining-sales-in-asia-after-china-food-scandal/#647358096de1)
4.8.15 which one do you like KFC or MACDONALD
Source: Field study 2017
From the figure above, many people liked KFC more as seen with 79% than MACDONALD with 21%. This is because they believed that, as Chinese living not only in China but also across the world, love food that is deep fried – and this is the main cooking method used by KFC. Also, they prefer chicken to beef. For years, the two most popular products that were sold by KFC China included hot chicken wings and hot and spicy chicken sandwiches made from deep-fried, de-boned drumsticks that were then placed in hamburger buns. The local consumers have been able to find a wide variety of fare customized for local tastes, such as Chinese-style porridge for breakfast, spicy diced chicken for lunch and Beijing chicken rolls with Chinese scallion and seafood sauce for dinner, corn, vegetables (salads), and deserts. KFC China has kept on launching new products. All of which have been designed with local Chinese characteristics in mind, from content and taste to appearance and name. Products such as golden butterfly shrimp, fragrant mushroom rice, four seasons fresh vegetable salad, tomato egg drop soup, preserved Sichuan pickle and sliced pork soup, mushroom chicken congee, etc., have been in and out of KFC China’s menus ever since. Adding to the reasons above, most people argues that the price of KFC is more moderate and affordable as compared to that of MACDONALD whose prices are still high when compared to some other local Chinese fast-food restaurants in China. Not only the food and price were given as reasons to why most people preferred KFC to MACDONALD, others included their services as people loved the services of KFC more.
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
This chapter discusses the summary of findings from the study and offers some recommendations. It ends with a conclusion on the study.
5.2 Summary of Findings
The Data collected and analyzed indicated that most people who visited KFC and MACDONALD, were young people and they will go here to chat with friends and this links to the target consumers of both restaurants as KFC will focus on children based family because China’s one child policy make parents over attentive to their kids, and they will also target teenagers who are ready to accept new cultures and new ideas. Chinese families also visit fast-food restaurants in order to please their children. Even though they target the teenagers and families, old people also like KFC rather than other fast food restaurant showing their level of preference. We also see that McDonald’s, on the other hand, focuses primarily on children and young parents, spending a lot of money in building playgrounds within the restaurants for kids and giving out toys with kids’ meals, using the same strategy as it does in the U.S. This shows that both restaurants target almost if not the same customers and are thus doing their best to meet up with the demands of their various customers.
Also, from the data collected, we came to the conclusion that most people go to these restaurants to chat with friends. Asides going to chat with friends, our questionnaires were focused on what consumers think about the services, price, convenience, space and other factors which will be discussed below about these two restaurants and which restaurant they will prefer in terms of the factors that have just been listed above. From the results that were gotten, we see that most people preferred KFC to MACDONALD. I believe you can’t go to chat with friends in an area where you don’t feel comfortable or enjoy the services that are being offered. The arguments that were gotten as to why they chose KFC is because KFC set their prices at a medium level which is considered very affordable by the Chinese customers. With this, KFC try their best and make sure people can eat something no matter how small at their restaurant because in China it is easy to get food at 10 RMB. They also give discount offer or gifts on special days for example the Chinese New Year, the lantern festival, the Dragon boat festive etc. For cartoon fans pay only RMB 9.90 for each unit of Dore Amon plus toys when you purchase either of them. KFC also gives out the Chewy Cheese Combo at RMB 9.95 or they hire famous singers and stars to attract and to keep young adult customer. Unlike Macdonald whose prices are a little higher. Also, most people believe that every KFC restaurants has a special area for children and the decorations in those areas are jolly and colorful and they have bigger kitchens and more floor space where customers can linger. In some festivals, KFC would prepare some toys and presents for family customers and they have changed their menu in order to suit the Chinese taste which makes the environment and food very convenient for the Chines people unlike MACDONALD who thinks that the customers who come to McDonalds are going to enjoy the Western-style fast food, so it does not plan to change their core product to suit the Chinese taste. The respondents also believed that KFC has high standards that guarantee service, quality, and reliability to its customers. The acronym CHAMPS, which stands for “cleanliness,” “hospitality,” “accuracy,” “maintenance,” “product quality,” and “speed,” are the goals that KFC has accomplished. KFC’s employees, both management and storefront, must undergo strict training and pass inspections in order to actually work for the restaurants, and the management level holds impromptu employee activities to facilitate store-to-store communication and relations, and where they could learn from each other, therefore improving overall quality. MACDONALD on the hand has its own philosophy which is QSCV as Quality: Accurately selected raw materials; Time is the money. Service: 100% customer satisfaction; the service request is to facilitate fast, friendly, attentive; Cleanness: Serve the customers safely meals. Clean for stores Value: Understand customers ‘ needs and wants. Provide nutrition products. Both fast food restaurants are trying so hard to impress their customers but here it’s a matter of preference and why consumers think they will choose one to the other.
Again, we saw that asides KFC and MACDONALD Chines people also loved visiting Ting Hsin International Groups fast food restaurant commonly known as Dico’s. Even though they will want to learn more about the western culture and new ideas and way of doing things, they will still enjoy their local fast foods. This therefore brings us to an example of the challenges that both restaurants are facing in China from the local fast food restaurants. Dico’s for example makes a lot of efforts to meet the demands of consumers by trying to provide safe fast food with assurance without blindly following the western trends thus challenging the Western fast food restaurants like the two giants KFC and MACDONALD. Dico’s not only introduces new products on an ongoing basis, but also changes the style of its decoration to meet the changing expectations of the consumers at large. Dico’s has also chosen Show Luo, a young and energetic star who has many “fans” as its ambassador. Flash cards featuring the picture of Lo have been favourably received by young and trendy consumers in general. They also offer purple yam taiyaki and Japanese curry chicken rice that are absent from the menus of KFC and McDonald’s, but has attracted an extremely high order rate at Dico’s outlets. Dico’s has set itself the target of becoming China’s No. 1 catering franchise with 10,000 outlets by 2030. This proves as a serious Challenge for KFC and MACDONALD and especially KFC who is the leading fast food restaurant to step up its game in order to maintain its position if not local fast foods like Dico’s will take over.
Furthermore, from the results as to which restaurant has more negative news, MACDONALD according to the respondents has more negative news than KFC. Due to the incident that occurred in July 2014, where a local reporter in Shanghai secretly captured footage of contaminated meat being processed inside a factory – Shanghai Husi Food – a subsidiary of American-based OSI group. Apart from bad meat being processed, the video also captures workers using expired meat products. The video went viral in the country, forcing the Shanghai Municipal Food and Drug Administration to investigate the processing unit. Upon investigation, the officials found that expired meat products (chicken and beef) were repackaged and processed with new expiration dates, with around 3,000 cases of contaminated beef cases already sold. This affected all MACDONALD restaurants in China as the news went viral and Shijiazhuang was no exception. Also, a number of criticism have emerged regarding McDonald’ employment practices, and this added to the health problems that fast food can cause, has led to a negative public image of the company in China. . As alarm mounts in China about what Western diets are doing to the health of the local population, KFC has reacted with a healthier menu and by sponsoring exercise and youth events. This proves the reason why MACDONALD has more negative news than KFC.
Finally, as to which fast food restaurants most consumers like and why, KFC scored 79% as opposed to MACDONALD’s 21%. Most of the respondents explained that they prefer KFC’s services more and the dining environment is more convenient and their pricing is more affordable. This is because they believed that, as Chinese living not only in China but also across the world, love food that is deep fried – and this is the main cooking method used by KFC. Also, they prefer chicken to beef. For years, the two most popular products that were sold by KFC China included hot chicken wings and hot and spicy chicken sandwiches made from deep-fried, de-boned drumsticks that were then placed in hamburger buns. They also argued that many fast food franchises in Asia always try to duplicate a Western experience, but KFC made a difference by deciding to promote itself as a local organization rather than as an outside presence. So instead of KFC importing Western managers, it hires college students who understand the Chinese consumers more but who also have experience in the American way of doing business. All food is locally sourced. Also we see that according to Wei Hu & Yuanyuan Xie (28. 04. 2013 KFC surpasses McDonald’s in terms of speed, quality, performance and reputation. The main reasons are that KFC emphasizes on how to integrate into the Chinese market and work out a development strategy with strong Chinese characteristics. In short, KFC gained a competitive advantage over McDonald’s. It mainly reflected in these two aspects: In the aspect of business strategy of growth, based on double win strategy, KFC’s business scale expended rapidly. The way of corporation is in line with the investment psychology of the Chinese people. At the same time, McDonald’s is mainly seeking stability. Also, in the aspect of competitive strategy of growth, KFC has larger scale of business in China. KFC purchased raw material with almost 100% localization. KFC has a cost advantage compared to McDonald’s, KFC has deeper localized product than McDonald’s, there are small differences in target market positioning between KFC and McDonald’s. KFC lead McDonald’s in many aspects. KFC pays a lot of attention to brand building localization, KFC develops localized high-level management personnel in order to make better company’s strategic adjustment. McDonald’s personnel diversification is reflected in employing senior staff from the head office. In supplier management, McDonald’s independent spirit advocated by the United States; KFC integrated into the culture of the Chinese people way of doing business, reflecting the “love and loyalty” in Chinese culture. All of these arguments coupled with summary of the data above prove that KFC is the leading Fast food in China and MACDONALD as it competitor has a lot to do in order to meet up with KFC.
As discussed above about the competitive strategy that both MACDONALD and KFC use in China, we have tried to find out the reasons for KFC’s success and how KFC does to place itself number one in China market in terms of speed, quality, performance and reputation. The main reason gotten from the data collected and previous works done on our study is that KFC emphasizes on how to integrate into the Chinese market and work out a development strategy with strong Chinese characteristics. They just established their brand image all over in China. While on the other hand MACDONALD still focuses more on the western way of doing things. If we look at both of them then we can see that KFC China has made a great revolution within the years since they started their business and they have not looked back since then. We can therefore conclude by saying that, the differences of the competitive strategy between KFC and McDonald’s in China is clear: the Localization of KFC through its multidimensional policies to caring for the Chinese consumers has greatly helped it to achieve and to become the winner of the fast food industry in China; we also see that the ideas of McDonald using the standardization and globalization policies has helped it to ensure high uniformity and high quality which has helped them maintain a good image. The standardized production of McDonald’s has shown a constant taste, a great service and has also brought in the United States cultures to the Chinese customers. The aims of both companies are very clear and this is clearly what makes them competitors as they are all expected to build their own brand loyalty and to expand their market share in China. But in every step of this study, we see that KFC has captured the Chinese taste and this has given KFC the market leading position in recent years in China.
5.4.1 Recommendations for international fast-food companies
Through our study based on a comparative analysis of McDonald’s and KFC development in China focused on competitive strategy, we would like to give some suggestions for other fast food restaurant abroad that desire to expand their business in the Chinese market but it will be good for us to note that cultural adaptation is an important issue that one needs to pay high attention to.
Competitive strategy: They should provide good services and more of health products, they should place high standards in each process so that they can have great achievement in areas of service, they should try to establish a brand image that penetrates into the culture of the people and also language adaptation is another important factor which includes the name of the brand and products so as to keep a good communication and understanding between the employees and the consumers, they should set a target market that has clear personalized positioning and cuts across every age of the people wether old or young and this includes advertising and public communication that are to be designed in order to attract the attention of the target market and to meet the consumers’ interest. Improving the services that are being offered daily by well-trained local employees, as well as innovating new product designs that meet up the markets currents taste.
5.4.2 Recommendations for MACDONALD
The recommendation I will like to give the McDonald’s management is that, they should work on their brand image which not only includes changing and or adding more products to their menu but also making it healthier. They also can attract new and more customers by adding products of a more specific nature, an example is the gluten or the lactose free products. By doing this, it shows their interest in health issues and this will boost their chances of gaining points of approval from consumers in China. However, they should know that changing products and implementing new ideas is costly, but in the long run it will pay off. They should also try to integrate into the Chinese culture to understand what the people really need considering the difference in the Chinese culture which makes it difficult for the people accepting a product that pays no regard to their culture, language and customs.
5.4.3 Recommendations for KFC
For KFC to promote more spending at, the company should bring up different levels of membership as well as offer different privileges that are meant to reward frequent customers. For example offering cheap park tickets, which are granted to all members. KFC can also develop a system, where by a certain number of points are required of the customers in order for them to rise to the next level of membership. In addition, KFC can also associate itself with what is trending and popular for the teenagers with this, they can create many complementary goods to its products, like tickets for concerts and for amusement in parks.
KFC should also have a thought about its customers in the middle age as most middle age Chinese people who are not of the teenage age have appreciated the healthiness of KFC food as such they can try to add more vegetables to their menu. This will make KFC to expand not only its customer base in which the middle age customers will be included but will also be ready to keep up with the changing preferences of their customers as they grow older. To add to what has just been said, KFC should periodically update their menu in order to keep fresh tastes and make sure there is always the availability of new products.
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SHIJIAZHUNAG TIEDAO UNIVERSITY
QUESTIONNAIRE FOR STUDENTS/LECTURERS
The purpose of this questionnaire is to look at the challenges that KFC faces from MACDONALD in China and which one is best preferred by the consumers and why with the case of Shijiazhuang Tiedao University. It would be greatly appreciated if you could support this study by completing this questionnaire and your candid response will be very much appreciated.
You are assured of the anonymity of your identity and confidentiality of your response.
Kindly tick (?) where appropriate and write your response where applicable.
1. Sex: Male ( ) Female ( )
2. Age: (years) 18-25 ( ) 26-35 ( ) 36-45 ( ) 46 and above ( )
3. Marital status: a. Single ( ) b. Married ( )
4. How often do you go to KFC or MACDONALD: a.always ( ) b. sometimes ( ) c. not at all ( )
5. Under what circumstances will you go to KFC or MACDONALD: a. Tired after a long day of shopping ( ) b. To chat with friends ( ) c. To relax with family ( )
6. Comparing the price of MACDONALD and KFC, which fast food do you think is more affordable? : a. KFC ( ) b. MACDONALD ( )
7. Which dinning environment do you think is better and more convenient: a. KFC ( ) b. MACDONLAD ( )
8. Which service is more preferable: a. KFC ( ) b. MACDONALD ( )
9. Which restaurant is cleaner: a. KFC ( ) b. MACDONALD ( )
10. Which restaurants advertising will influence you to go to it: a. KFC ( ) b. MACDONALD ( )
11. Apart from KFC and MACDONALD’s, which other fast food restaurants do you visit in China? a. Pizza Hut ( ) b. subway ( ) c. Burger King ( ) d. Ting Hsin International Group ( )
12. Explain the reason for your choice in question 11
13. Which one do you think has more negative news: a. KFC ( ) b. MACDONALD ( )
14. Which one do you like KFC or MACDONALD: a. KFC ( ) b. MACDONALD ( )
15. According to your choice in question 14, explain why you choose this restaurant
First of all I will like to thank the almighty God for everything he has done in my life. I would like to express my gratitude to my supervisor Prof. YinghuiWang for his guidance and suggestion throughout process of my thesis writing. I feel so lucky to have him as my supervisor.
Also I will like to extend my utmost thanks to my mom Mrs. Wirisiy Ruphine Yujika who has seen me through and assisted me both financially, physically and mentally through the process of my MBA course right up to the realization of the final paper.
Last but not least, I would like to thank my friends and loved ones who have been there through out and have helped me in the realization of my project work.