How Is International House of Pancake Develop Their Market to China - Case Study Example

International house of pancake develop their market to China Contents Contents 2 Introduction 3 IHOP develop their market to China 4 Conclusion 13 References 14 Introduction The International House of Pancakes (IHOP) was founded in the year 1958 and it is a United States based restaurant. The chain of IHOP specializes in breakfast food. DineEquity is the owner of the International House of Pancakes and almost 99% of the business is operated by franchisees. The headquarters of IHOP is in California, United States. The restaurant mainly focuses on the breakfast items such as French toast, pancakes and omelette’s. The chain has expanded its menu which now includes dinner as well as lunch items. In America the company operates in over 1500 locations. The main founders of IHOP were Al Lapin, Jerry Lapin, and Albert Kallis. The restaurant started with a concept of offering various types of pancakes to the customers and similar kind of food products such as blintzes and crepes at a very reasonable price. The chain gained significance in the market place because of its syrups of various flavours. In 1980 the menu of IHOP was expanded to include lunch and dinner items. The company in order to maximize its revenues and increase the market share in 2012 it opened its franchisee store in Dubai which was a part of its global expansion in the Middle East. In 2013 the company opened a second restaurant in Kuwait in the Middle East. The IHOP restaurant chain for 54 years has served famous pancakes that are preferred by all ages and it is offered at an affordable with a warm and friendly dining experience every day. The mission of IHOP is to make the experience of a breakfast at its restaurant a memorable one and to make its customers realize why is it a major part of everything that they do. The values and vision defines the culture at IHOP and forms the basis of their relationships with the customers, communities, suppliers, etc. IHOP values innovation, collaboration, integrity, and diversity. There are three major areas of importance at IHOP- valuing the employees, supporting their communities, and caring for the environment. IHOP’s global expansion strategy is now focused on China’s market and various tools can be incorporated to make this expansion a success. IHOP develop their market to China China is considered to be one of the biggest markets. The country offers a wide variety scope for most of the companies. The country presents a huge temptation for all kinds of businesses may that be large or small. The global expansion strategy is only adopted by a company when the market it is operating in is highly saturated and it discovers more opportunity in other regions. Similarly is the condition with IHOP when its sets strategies to expand its restaurant chain in other countries and target other market place. The company has expanded its business operations already in the Middle East and now has future plans to develop its operations in the market of China. There are two kinds of environment that needs to be analyzed before the expansion process firstly is the macro environment analysis which focuses on the socio cultural changes and micro environment analysis which comprises of the various internal forces on the company. The expansion strategy is initially supported by the PESTEL analysis of the particular country. The PESTEL analysis of China is conducted to determine whether the company would have long term profits in China’s market. The framework comprises of following factors such as political, economical, social, technological, environmental, and legal factors. The political factors of China are very strong in terms of rules and regulations regarding food and hygiene, health, and food standards. The Chinese government has set some food standards on basis of which a company needs to set up its restaurant business in the country which comprises of quality and hygiene factor in the food that is being offered to the guests (Allen, 2006, pp. 131-132). The best entry mode to the Chinese market is through franchising as the government of the country has some strict regulations in obtaining the licenses to set up a wholly owned subsidiary in the region. There is a continuous check by the Health and Food Ministry department on the food quality that is offered by the restaurant. This kind of governmental policies makes it extremely important for the foreign companies to maintain high quality standards for its food products so as to maintain its operations in the country. However the country has stable political conditions which make it a suitable choice for many foreign companies such as IHOP. The rules and regulations set by the government are standard for the food industry over the years (Henry, 2011, pp. 93-94). The economic factors comprises of various conditions such as the interest rates which is moderate in China for the foreign companies and this indicates that the interest rate would affect the cost of capital of the company. The income level of the population varies from low to high and forms one of the major economic factors of the country that would directly affect the prices of the food items that would be offered by IHOP in the market of China. Since there are different segments of the population that have varying income levels it is very much essential for the company to set different prices so as to capture the maximum market share (Hill and Jones, 2012, pp. 76-77). Only having premium prices for its food items would attract a certain section of the market but would leave out on the major portion of the population. The economic trends of a country serve as an indicator for the profitability and sustenance of a company and helps in developing the marketing strategy for the country. In China the eating habits of the people are favourable for the restaurant industry. People like to eat out at food joints and try different kinds of cuisines. People in China are more prone towards eating healthy foods and are health conscious. They do not prefer to have high calorie foods which make it a factor of concern for restaurants to have such food items in their menu that serves the demand of the Chinese population. The technological factors of the country are favourable in order to support the operations of the food industry. China has one of the best technical infrastructures that would enhance procurement, production and distribution logistic system of the company (Jeannet and Hennessey, 2005, pp. 165-166). The high quality infrastructure of the country would facilitate the company in terms of reducing the cost and wastage that is associated with the business operations. China even offers the best of technology to the restaurant industry so as to deliver the best of food items to its guests and even enhance on the presentation of its outlets. The legal factors in the country comprises of the agreements that the company has to undertake while going in for franchisee option and the tax benefits that the government of China offers to all those foreign companies that collaborate its operations with some local people. The government of China has very strict regulations regarding the environmental factors. The food industry disposes a huge amount of waste into the environment but in China there is a high penalty for such kind of operations resulting even into closure of the business operations. IHOP needs to be very cautious regarding its operations so that it does not cause any impact on the environment and operates as per the environmental standards set up by the China’s government. The PESTEL analysis describes whether the country adopted by the company is appropriate for the expansion of business operation of IHOP (Lau, 2011, pp. 93-94). The framework determines various factors which are suitable for IHOP to set up its operations in the country. The internal analysis of the company is equally important to plan for further strategies in order to expand into the market of China. The internal analysis is done with the framework called as Porter’s Five Forces model. The model comprises of five forces such as the competitive rivalry within the industry, threat of new entrants, bargaining power of supplier, bargaining power of customers, and threat of substitute products. The model is well explained in the diagram below- (Thompson & Martin, 2010, p. 121) International house of pancakes operates in an industry where the competition is very high. The major competitors of the company are Red Robin Gourmet Burgers, Benihana, Buffalo Wild Wings, and Brinker International. These are some of the most competitive players for IHOP and in order to sustain in this competitive market place it becomes very much important for the company to retain on its customer base and acquire new customers through its existing customers, and to value and retain the team members so as to deliver the same quality of food items to its guests. In today’s scenario that customers have a large number of options in the restaurant industry. The customers when they dine out expect the best of services and the best quality food if the company fails to deliver it then the customers have plenty of options to switch to any other restaurants. Since the switching cost is low so the bargaining power of customers is high for International House of Pancakes. The bargaining power of suppliers in this industry is very high because the supply of ingredients for pancakes, then eggs, bread etc are the most important for the smooth flow of operations at IHOP. Since IHOP has a diverse menu so it’s the supplier who has an upper hand on setting the prices. The threat of new entrants is high for IHOP as any player can offer the items that are offered by the company and it is nothing new to the entrants. But the factor that can differentiate IHOP from the new entrants would be a strong brand image that the company has developed from the last 54 years. It would not be very easy for the new entrants to deliver the same kind of services and the food items with such innovative syrups and flavours and that too at a reasonable price like that of international house of pancakes. The threat of substitute products is high in IHOP as there are wide ranges of fast food chains that are available to the customers. Often the customers may not have the time to dine in a restaurant and in such a scenario fast food outlets are the most favourable options to the customers. The similar condition is also prevalent in Chine which has a large number of fast food chains that may give a tough competition to IHOP, but the company can build a strong positioning on the basis of the competencies it has acquired in the last 54 years of its business operations. The global expansion strategies comprise of various market entry modes that are set up by the companies. IHOP has always expanded into global market by following the franchisee market entry mode. This entry mode is the most beneficial in order to set up operations in a completely new market segment (Tielmann, 2010, pp. 96-97). In such form of entry mode the franchisees are given a bit of independence while performing their operations. It gives more chances for the success of the business by offering some pre-opening support such as construction and design, selection of the site, providing funds, grand opening program and training (Mercer, 1998, pp. 69-71). The ongoing support that is offered by franchises is regional and national advertising, training, management support and ongoing supervision, operations sustenance and procedure, and increase in bulk purchasing and increase in the spending power. The benefits indicate that franchisee would be the best market entry mode to China for its expanded business operations. The market is completely unknown for IHOP and the expertise provided by the franchisee in terms of consumer taste and preferences would be beneficial. On the basis of the influencing factors in the environment the marketing strategy for China’s market would be implemented. STP tool that stands for segmentation, targeting and positioning forms the basis of marketing mix strategy. The market segmentation would be that section of the population in China who enjoys dining out with family and have the required disposable income. In the market segment the targeted market would be all the age groups as it has the food items in its menu to satisfy all the age groups. The positioning of IHOP in China’s market would be as a restaurant chain that has a wide variety items starting from breakfast to dinner having very different taste and flavours, and different kinds of combo that was unknown for most of the population, and that too at the most affordable price. The main strategy behind the branding of IHOP in China’s market is to provide the friendliest and warm experience for its guests and make their breakfast, lunch and dinner a memorable moment with their family (Pringle, 2008, pp. 103-104). The marketing plan for the company would comprise of the 7Ps of the marketing mix such as Product, Price, Place, Promotion, People, Process, and Physical Environment. The product for the new market would be the existing product line of IHOP such as various styles and flavours in omelette’s, the famous pancakes with different appearance and syrups, special breakfast combos with a little bit of touch of Chinese flavours and even some of their dishes, various kinds of French toasts with flavours of berry, bananas, strawberry etc., Belgian waffles with cream and banana, chicken and fruit crepes, different kinds of sandwiches, hamburgers, salads, soups, dinner classics would comprise of noodles, chopsuey and some other Chinese dishes along with the original menu items for dinner, and special dishes for kids in the form of various designs on the pancakes and French toast, more of chocolates and cream utilization in the dishes, and special hygienic and low calorie dishes for the age group of 55+. The place for selling of the products of IHOP would be through outlets of the company that would be opened across all the regions in China and would be on the basis of franchising (Jean-Pierre, 2001, pp. 56-57). The distribution channel can be further extended through an electronic platform which would help in attracting those customers who would want to try out the dishes at IHOP but do not have the time to go to the restaurant. The customers can place the order over the electronic platform or by calling and in turn IHOP would deliver the ordered food items at their place. This would enable the company to target two different market segments in China. The market is completely unexplored by many of the foreign players so the best kind of pricing for IHP would be penetration pricing. Such a wide variety of breakfast, lunch and dining meals is completely new for China’s market (Proctor, 2014, pp. 96-97). This opportunity can be acquired by the company by setting the competitive prices for its food items in comparison to the fat food chains and other restaurants. This kind of pricing would help the company in acquiring a greater market share and build a position that cannot be easily copied by any other new entrants (Smith, 2011, pp. 142-143). The focus of the company would not to be target the premium segment but targeting the major population that is lower and upper middle class who are price as well as quality conscious. The affordable price range would help the company to obtain the desired profit margins from the market of China. The promotion factor would include the various forms of advertisement that can be adopted by IHOP to expand its operations in the market of China (Richter, 2012, pp. 115-116). The company can promote its food items and services through TV ad campaigns, some leaflets with the daily newspaper, even social networking sites can be used such as twitters and facebook. IHOP can also take help of internet ad banners and emails so as to spread awareness about their restaurant chain in China. In order to promote its services the company can offer some combo meals at a discounted rate so that the people get the flavour of their food items. The culture at IHOP is to provide the best of services to their guests and make their experience at IHOP a memorable one, similar approach would be followed by the company in the markets of China and it can even implement a mechanism in its system through which the company can collect a feedback from their guest who visits their restaurant on the quality of service, the food quality, ambience, and certain areas of improvement that IHOP can implement in its business operations (Spulber, 2007, pp. 74-75). The initiative for collecting customer feedback would help the company to improve upon the customer service. The company can even incorporate some quality awards for its team so that quality of its food items is never compromised by IHOP. The employees and management of IHOP are focused towards improving on the customer service and to offer different varieties of food items so that its guests cherish the moments spend at IHOP. The process for the operations of the company would be procurement of raw materials from its supplier base in China itself, then the franchisee will have the necessary equipments for producing the final food items for its customers, and then developing a pleasant ambience in the restaurant in the form of friendly services and a well designed infrastructure as per the preference of the Chinese consumers. The Physical environment of the service would be the well structured restaurants of IHOP in various locations in China, a warm and friendly facility to the guests, and a place where the guests can enjoy their meals with their family. The marketing strategies of IHOP should be very innovative so as to attract more number of Chinese consumers. The taste and preferences of the consumers in China is not similar to that of United States. However the concept of hamburgers and pancakes is not very new in the market of China. The competitive advantage of IHOP is the creativity that it incorporates in its menu. It does not believe in just offering a tasty dish to its customers but also offers the most exceptional taste and appearance of its product line that cannot be easily adoptable by other players. The menu for the Chinese customers should also include some traditional dishes of China along with pancakes and French toasts, such as dumplings, soup, noodles, hamburgers and sandwiches prepared from duck meat as it is highly preferred by the Chinese, and IHOP should incorporate more of spices and aromatic flavours so as to attract that segment of the population who prefers to have a taste that they are familiar with, and this would generate the desired outcome for the company. The pricing is the most important aspect that leads towards success or downfall for many restaurants. The prices for the products that are included in breakfast and lunch meals would be reasonable for all the age groups and the prices for the drink and desert items would be marginally high so as to strike a balance between the varieties offered by IHOP. The consumer demand of the Chinese market is high and specially for the food industry as the population has a desire to try out different food items which would in turn offer a great scope for the international house of pancakes to promote their menu in this market (Webster, 1995, pp. 176-177). The company can even adapt some loyalty programs such as sending special invitations to its regular customers and offering them discounts on various combo meals and even by implementing its gift card scheme by which the guest can send out some cards to dine at IHOP at free of cost to its relatives and friends on special occasions. This would in turn help the company to expand on its customer base by simply retaining its existing customers and delivering the best services to increase customer loyalty. Conclusion In the highly competitive business environment it is very much essential for companies operating in which ever sector or industry to set out plans for its global expansion when it has acquired significant amount of market share in its home country. International House of Pancakes is operating in the restaurant industry from the last 54 years. It has gained a competitive position in the United States through its wide variety of food items and very unique taste and flavours. The company has opted for global expansion strategy long back and has even expanded its operations in the Middle East. The next country that the company opts for expanding its business is China. The host country offers a lot of opportunities for the company even it is explored well and the marketing strategy to be developed should be aligned with the consumer demand of the market of China. A penetrative pricing strategy with an innovative product line incorporating some of the traditional tastes of the host country would attract more of the potential customers and even help the company to maximize its returns and obtain sustainability in the highly competitive market place of China. References Allen, M. 2006. Analysing the Organizational Environment. UK: Select Knowledge Limited. Henry, A. 2011. Understanding Strategic Management. New York: Oxford University Press. Hill, C., and Jones, G. 2012. Strategic Management: An Integrated Approach. Canada: Cengage Learning. Jeannet, J. P., and Hennessey, H.D. 2005. Global Marketing Strategies. New Delhi: Dreamtech Press. Jean-Pierre, J. 2001. Global Marketing Strategies, 5th edition. London: Routledge. Lau, J.Y.F. 2011. An Introduction to Critical Thinking and Creativity: Think More, Think Better. Canada: John Wiley & Sons. Mercer, D. 1998. Marketing Strategy: The Challenge of the External Environment.UK: SAGE Pringle, H. 2008. 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