Consumers Preferences of KFC - Essay Example

? here Communications Plan Project Managing Marketing Module BS29625 January 17, Developing a Marketing Plan for KFC 0 Executive summary The accurate reading of consumers preferences of KFC revealed that healthy eating, animal welfare and ethics are three of the most consumer’ desires KFC are facing today. The issue of animal welfare has intrigued KFC as the People for Treatment of Animals (PETA) in 2008 claimed KFC suppliers exercised unethical treatment for the chickens in their farms. This group believed that KFC suppliers should improve the living conditions of the chicken and address ethical issues in raising them in the farm are needed (KFC Menu, 2010). In other areas, health reforms are being pushed by health organizations to encourage healthy living that advised people to avoid fats and to eat only healthy foods. As these issues are closely linked to the operations that would eventually affect profitability of the KFC, a change of marketing plan that definesits corporate responsibility to its stakeholders is needed. Corporate social responsibility (CSR) has been defined as “the concept that an organization has obligations not just to conduct its business and adhere to legal guidelines, but also to look out for the welfare of “……. the community, and society at large” (ecomii, N. d.). CSR is also viewed as a PR device to gain good favor from customers, and in some point refers to corporate ethics and good governance. As such, a new marketing plan is designed in order to improve the image of the KFC and increase its profitability. This will address the ethical problems in use of caged chicken and a change of direction that illustrates KFC markets and the strategies it is going to use to continue to attract customers and to create a solid revenue system for the company. In effect, this marketing plan is a strategy that determines exactly what the market wants – and coming up with a plan that will satisfy its wants. Organizational structure Kentucky Fried Chicken (KFC) is well known restaurant chains when it comes to chicken. The company’s headquarters are found at Kentucky (where it derived its name) in the U.S. As per company record, KFC has over eleven thousand restaurants located in over eighty countries of world. Some of the countries served outside U.S. are UK, China, Thailand, Kuwait, Spain and Barbados, Puerto Rico, Pakistan and many others. The major product of the company is chicken served in various forms such chunky chicken hot pie, chicken fillets, chicken sandwiches among others. KFC has a total of 300 sets of menus being served in its outlets. As part of YUM! brand that operates a global restaurant system, KFC teams up with other restaurants like Pizza Hut and Taco bell brands (About Us). 1.1. Vision The vision of the marketing plan is to provide customers the ultimate satisfaction of eating healthy foods and to provide choices that respond to their tastes and budget. KFC does this by giving customers options between organic and non-organic chickens in the menu that customers can easily order in many KFC restaurants found worldwide. Management will be committed to the success of the plan and is willing to spend for the necessary resources for its successful implementation; that the marketing plan is in the context of the organization’s overall business plan and that the people in the organization down to the supply chain will share a similar view to the marketing function. 1.3. Objectives The overall objectives of the marketing plan is to create a new corporate image that projects KFC as sustaining ethics in animal welfare as part of its corporate social responsibility to its stakeholder and ultimately increase its profitability Replying to the demands of PETA and other animal welfare pressure groups, the use of organic chicken is proposed along with the standard chicken menu used by KFC in its restaurants. Advantages in using organic chicken are: it is healthy, tastes better and safe to eat. An organic chicken, as opposed to caged chicken, is not fed with routine drugs, growth promoter, feed crops or grass grown with fertilizers and pesticides, and is not raised in nasty conditions and genetically modified organism. (Herris, M. 2010) Moreover, the change of KFC’s basic ingredient is also proposed to cover the Freedom Food indoor reared chicken which is also related to organic chicken raising. Appendix 3 shows the growing market of organic chicken. Specifically, the marketing objectives are designed to achieve the following: * Generate an increase in sales revenue in per unit sales in US by 2%. 2009 KFC annual report showed a decline in unit sales in the U.S. and a slow growth of only 1 percent for the past five years (KFC 2009 Annual Report) * Increase sales by 100% in all franchise units by 2012 * Operate in emerging countries, particularly Brazil, Russia, Indonesia and India by 2012. Chuan Li (2010) describes the importance of these countries as economic powerhouses with large populations, large resource base and large markets. * Increase KFC presence in China by 2012. KFC has over 3,000 restaurants in 650 cities in China. It is the first company who introduced franchising to China in 1987. Large population supports increasing its presence in this market (Yumi! China) 2.0 Target markets KFC’s target markets will be the working group ages 24 to 30, families and the health conscious customers. Customers are typically workers, students and working parents who are busy and have no time for home cooking. 2.1 Market definition and segmentation We have two target market segments: one who buys organically produced chicken recipes and is willing to buy it at higher cost and the others who are the regular and loyal customers of KFC. The primary difference between these two segments is the likelihood of willingness of organic minded customers to pay more for the sake of health and eating tastier chicken meat. 2.2. Target market segment strategy Our market segment strategy will be to develop two sets of same menu offered by KFC but one will be using organic chicken as basic ingredients. Upon launching our first set of menu, we will get in touch with our customers via numerous on-line methods, including social media and e-mail marketing as well as the use of regular media. Upon creating these menus, we will be able to market these by promotions and discount offerings to wholesale customers holding events and parties, to the loyal customers of KFC and health conscious customers who will patronize KFC for the first time. Distribution channel The new menu set up will be offered in all branches of KFC worldwide for consistency of approach as needed in a chain store and thru the on line ordering system of KFC. Competitive Forces There are many fast food restaurants offering chicken recipes but very few are considering the organic-chicken approach in serving their food. The unique twist on this approach is also an advantage because the company will not be spending much time and energy on other resources except for the organic chicken and that efforts will only be concentrated on its development. Communications The days when a company could count on creating demand simply by spending a large amount of money in advertising is over. Companies now rely on other low budget sources such as websites to promote a product. The plan will be using internet sources in announcing our marketing plans and up dates on menus thru our website. Aside from this, we will use social communications network such as Facebook, Twitter, and other platforms often used by customers in the demographic market. We will also be using regular tweets and updates via Facebook. Websites, internet and social network sites will be used to generate traffic into the KFC chains. For example, discounts and points can be earned when a customer logs in to KFC websites that could be applied to their on-line ordering and purchases. Possibilities are endless if one is creative. 2. Implications, challenges and constraints arising from the implementation of the marketing plan. In order to portray the implications, challenges and constraints of the proposal, a SWOT, PEST and Porters Five Analysis and matrix for marketing growth strategies are presented. S.W.O.T. analysis outlining the strengths and weaknesses (internal to the organization) of the organization and the opportunities and threats (external to the organization) that the organization faces Strength Name, recognition and reputation. Established in 1954, KFC is the first restaurant to enter into the chain restaurant business. It has developed a stronghold and reputation in the business. It is one of the largest food chains in the world. Weakness Ethical responsiveness Opportunities * Growing of fast-food industry. Potentially profitable markets overseas such as China, Brazil, Indonesia, Brazil, India, Russia and India. * Operating costs has been expanding in KFC. KFC has an advantage of economies of scale in purchasing of supplies and in choosing its store location. It also takes advantage of the presence of Yumi! Brands that houses KFC with Pizza Hut or Taco Bell Brands. By doing so, KFC does not have to wait for a store to be built or to look for a location. By adding KFC brand in an existing Yumi! Retail outlet, increased profit is achieved because of increased customer base. It also saves on advertising and promotions as efforts are combined. Threats Saturation of the US market. Based on slow growth of KFC sales in US, there is a possibility that it has reached maturity of the market. Increasing competition and rising sales of substitute products. Because of the slow growth in sales, other fast food restaurants have offered new menus that included chicken. For example, McDonalds introduced chicken sandwiches and fried chicken, Pizza Hut offered marinated rotisserie-cook chicken. Changing preferences of consumers. Consumers begin to demand healthier foods as well as demands for animal welfare protection. PEST ANALYSIS Politics Economics Social Technological Well-being NHS Financial Crisis Obesity Customers’ awareness of healthy food Customers’ busy life style Investment in technological innovations for quality food Improvement of transportation helps to keep ingredients fresh Certain factors have been observed in the PEST analysis that affects KFC operations. In politics, the combined forces of health pressures groups that demands healthy foods cannot be ignored by KFC as it can destroy the image of the company and tear down the trust of consumers. Lobbyists can also move legislators to issue policies that can affect operation of the fast food. No doubt, that in economics, operations of businesses have been affected by the economic crisis as customers limit their spending for food. 2009 KFC Financial Report shows slow down of sales which could be due to the cut on consumer spending, aside from other factors. On the social side, people are being conscious on health and obesity issues so much so, that KFC must take note of these factors in making a marketing plan. However, a plus factor in the social aspect is the lifestyle of customers that now prefers cooked foods over home cooking because they are busy. On the technological aspect, KFC needs to make investment in research and technology on food to be ahead of competitors and to attract and satisfy consumers. To illustrate this importance, McDonalds in 1980 beat KFC in introducing chicken sandwiches in KFC’s territory (Kentucky Fried Chicken) Improvements in transportation have also been observed to be advantageous to KFC as chicken supplies retains its freshness because it is delivered fast. Porters Five Forces Analysis Industry rivalry and current competitors Bargaining power of suppliers Threat of new entrance Bargaining power of buyers Threat of substitute products/services Very high Strong Low Strong High (except chicken products) The competitive landscape of KFC can be considered as very high as it competes with other restaurants that serve prepared foods including grocery stores, warehouse clubs and convenience stores. Among its top competitors are AFC Enterprises, Inc., Chick-fil-A, Inc. and Cajun Operating Company, to mention some (Hoovers, n.d.) . Bargaining power of suppliers for organic chicken could also be strong because there is very little supply. As of 2007, according to the Organic Farming Research Foundation, there are only 13,000 certified organic producers in the U.S. The threat of buyers’ power is also strong because there are substitute products they could turn to and the presence of too many fast foods and restaurants offering chicken menus. Threat of new entrants is low because of high cost of capital required to put up an international food chain. To define alternative corporate growth strategies, a matrix is presented where there are four possible product market combinations within which products and new products are expected to grow in existing markets and new markets. Existing Products New Products Existing Markets Market Penetration Product development New Markets Product development Diversification Source: Ansoff Matrix Under the market penetration, KFC seeks to achieve growth with existing products in their current market segments, aiming to increase its market value. This means KFC will not change its basic ingredients and maintain the regular chicken it has been using in its restaurant chains. In its present set up, KFC in US, as reported by the YUM CEO admitted that “rejuvenating its ubiquitous image will take some time” and noted an 8 per cent drop of its sales in U.S. restaurants (Shreiner, 2010). In market development, suggested plan is targeting new markets offering KFCs existing products. The Yum! Market report (Schreiner, 2010) describes disparity of sales of KFC in U.S. with that of other countries. For instance, there is a slow sales growth in U.S., while that of China and Japan, KFC enjoys robust sales. Appendices 1 and 2 show growth of sales Yumi! Sales in US, China and other parts of the world. As noted, Yumi! Sales in China showed growth in sales in 2008 but slightly declined in 2009. Comparing this with US sales, Yum! Sales showed negative growth in 2009 which declined from previous 2008 sales. Chart also shows China leads the sales by region followed by U.S., and the international countries. Under product development, KFC will develop new products targeting its existing market segments. This plan calls for the change of KFCs basic ingredients from standard chicken to organic chicken. The constraints however, under this plan is that the cost of the organic chicken is more expensive and will be an added expense for the company. For instance, an ocular inspection from the supermarkets and from the internet show the price of organic chicken as triple-priced, that is $6.86 per lb. for organic and $1.75 per lb. for chicken. In diversification, KFC will grow by diversifying into new business by developing new products for the new markets. For instance, serving of new menu that adheres to healthy food desires of consumers. A combination of the four product combinations is proposed as action plan as follows: a. In the US market, where maturity of the KFC chicken seemed to be arrived at, a combination of market penetration and product development is proposed, that is the offering of the organic and non-organic KFC menu. In a sense it will achieve the image rejuvenation process of the brand. This will be a pilot project targeting the 24-30 year old customers who are the health conscious group and families in the U.S. The cost of the KFC chicken will necessarily increase because the cost of organic chicken is three times the cost of the standard chicken; however, there will be choices available for healthy conscious customers and regular customers as the old recipe is still retained. This will be a test whether consumers will prefer healthy food over the price. b. Targeting new markets such as China, Indonesia, India, Russia and Brazil is the proposed plan for market development. Chuan Li (2010) describes the importance of these countries as economic powerhouses with large populations, large resource base and large markets. In market development for these countries, the franchise approach which is consistent with KFC Strategy is suggested. 3. Risks associated with the marketing plan its impact on the organization a. Increased costs associated with the change from standard chicken to organic chicken 1. Cost of organic chicken 3 times higher than standard chicken. The impact to the organization is the increase in the direct cost of production. 2. Promotional costs in advertising and promotions on the change of brand image will be an added up cost to the company but is not an assurance of consumer patronage. 3. Growth of sales uncertain 4. Profitability is affected. b. Source of supply is not reliable. The number of suppliers raising organic chicken and freedom food chicken are not sufficient for the need of KFC restaurants worldwide. Insufficient supply is also one cause of high price of the commodity and operations will be affected because of lack of supply. c. Scarcity of reports on health behavior and tastes of consumers from emerging markets. Research is limited on the subject to become basis of market report. 4. Framework for evaluation and control that will measure the successfulness of the project. Project evaluation is considered important in the business first because owners should know whether there are some changes to be done or supplemental factors to be added in the marketing plan. Illustrated below is a proposed framework for evaluation and control in the implementation of the new KFC marketing plan. Goal Objectives Benchmark Measure Enhanced KFC image Increased profitability Global presence in emerging countries To change basic KFC ingredients using organic chicken All franchise units of KFC will increase sales To take advantage of the emerging economies as opportunity for growth Establish China as a growing market Sales in US to increase by 2% in 2011 100% increase in sales of all KFC franchise units by 2010 Establish operations in Brazil, India, Indonesia and Russia Increase present number of retail chains Sales increase in US Percentage of sales growth in 2010 as compared to prior years. Number of retail stores established by 2012. 10% increase in existing number by 2012 In the first goal, that is enhancing the KFC image, basic measure is the percentage of the sales increase in the US. It is measured against a benchmark target of 2% to be attained by 2012. After initiating the marketing plan, immediately thereafter, sales should be tracked in KFC outlets in U.S. Evaluation should be done regularly, quarterly to observe changes. Sales results will show if the marketing plan is working well in achieving the target. A low sales turnout means adjustment is needed and a study should be done on areas that need improvement. The same thing should be observed in the second goal that is achieving 100% increase of sales in all KFC outlets. Measuring sales of each outlet and comparing it with each area or region will depict which area has sales growth. Again, a low performing sales outlet needs to be evaluated so that proper solutions can be done. Penetrating the emerging countries is measurable by the number of outlets established in each country. However it is not enough that there are KFC establishments in this area as evaluation is also needed in terms of sales generated in each area. Comparison is also needed to know the strength of the company in every country. At present, there are 3000 KFC restaurants in China. A 10% increase means additional 300 retail outlets should be established in China by 2012. If by 2012, target is not reached, evaluation is necessary to find out the problems encountered. Impact of the marketing plan. The unique selling proposition embodied in this plan is in the form of the benefits to customers in reaching its emotions through value pricing, convenience, and health consciousness. In offering KFC customers alternative choices of organic and standard chicken –gives them a different kind of experience – one featuring natural products; at the same time solving the CSR responsibility of KFC. Over time, results of sales of this plan would show if the marketing plan is on the right track. Evaluation should be done regularly to form control of the marketing plan so that corrections or adjustments could be done along the line. It is expected that by 2011 and years onwards, the Corporate Social Responsibility Report of KFC will include management approach and environmental performance indicator that will indicate the change of materials (chicken) used in the menu. This indicator is the percentage of materials used in the menu for an indicated period. Appendix 5 is pertinent portion of the Corporate Social Responsibility of KFC for 2010. Appendix 1. Source: Jeremy Philipps (2010) Introducing my 3 favorite American Stocks http://www.fool.com/investing/general/2010/11/11/introducing-my-3-favorite-american-stocks.aspx Appendix 2 Yum! Financial Data Historic Sales Growth CHINA DIVISION SYSTEM SALES GROWTH (Local Currency)** (Mainland China)   2009 2008 1st Quarter 12% 28% 2nd Quarter 8% 28% 3rd Quarter 11% 18% 4th Quarter 8% 15% Full Year 10% 20% INTERNATIONAL DIVISION SYSTEM SALES GROWTH (Local Currency)   2009 2008 1st Quarter 10% 9% 2nd Quarter 5% 8% 3rd Quarter 4% 7% 4th Quarter 2% 9% Full Year 5% 8% U.S. SYSTEM SAME-STORE SALES GROWTH   2009 2008 1st Quarter -2% 3% 2nd Quarter -1% 2% 3rd Quarter -6% 3% 4th Quarter -8% 2% Full Year -5% 2% Yum! Financial Data, Historic Sales Growth, http://www.yum.com/investors/historic_sales.asp Appendix 3 Appendix 4 GRI Standard Disclosures and Key Performance Indicators, 2010 YUM Annual Report Pertinent portion of the CSR report relating to environment issues Source: About 2010 Report, http://www.yum.com/responsibility/default.asp References About us (n.d.), KFC..com. viewed 09 January 2011 http://www.kfc.com/about/ “Ansoff Matrix”, MBA Knowledge Base, viewed 09 January 2011 Chuan Li (2010), What are emerging markets? The University of Iowa Center for International Finance and Development, viewed 09 January 2011 ecomii, nd. Corporate Responsibility definition, viewed 09 January 2011 Granter, B. (2004), Sales of RSCPA Freedom Food Chicken vs. ‘standard’ chicken, viewed 09 January 2011 Hoovers (n.d.) KFC company description, viewed 09 January 2011 KFC 2009 Annual Report, viewed 09 January 2011 KFC Menu (2010). Ethics at KFC, viewed 09 January 2011 http://kfcmenu.info/ethics-at-kfc/ Kentucky Fried Chicken (n.d.), viewed 09 January 2011 Organic Farming Research Foundation (2008), About Organic, viewed 09 January 2011 Schreiner, Bruce (2010), Yum! CEO: No ‘quick fix’ at KFC in US, AP Business, Signon San Diego, viewed 09 January 2011 “What are emerging markets?” (n.d.) The University of Iowa Center for International Finance and Development, viewed 09 January 2011 “What is Organic Chicken? “(2010),Buzzle.com. viewed 09 January 2011 Read More