Introduction:
Marketing strategy is the process of formulating an action plan that most effectively creates and captures customer value to achieve competitive advantage. A company that exhibits a sophisticated marketing strategy is KFC China. Their key approaches involved brand development, optimization of the marketing mix (particularly price and placement) and building brand equity. KFC China has been very successful in penetrating the Chinese market however; they do face potential challenges in the future such as consumer change, threats to their marketing mix and issues with public relations.
Analysis:
The major marketing strategy that KFC China has employed is developing its brand. It is blatant that KFC have undergone drastic brand development to better target Chinese consumers. This primarily involved line extension where they have diversified their products to include food that caters to the tastes of local consumers (Bell and Shelman 2011). This approach has been very successful considering the Shanghai-based division alone generating over $1 billion in profits and opening 889 new restaurants in 2012 (Novak 2012). However, the company is likely to face issues with changing tastes among younger consumers in the future. A trend emerging among younger Chinese consumers is that they prefer western cuisine over traditional foods (Yip, Chan and Poon 2012). Therefore, KFC’s current strategy of appealing to local tastes would cease to yield favourable results in the future when these younger consumers make up the majority of consumers in the Chinese market. However, this is not a pressing threat as factors in China’s macro environment such as the One-Child Policy will actually be raising the average age over the next decade from 34 to 37 (Atsmon et al. 2012). Consequently, the current strategy would remain to be effective in the long term. Nevertheless, KFC China should continue to carefully monitor changing consumer tastes and adjust their product mix accordingly.
Another key strategy is optimising the marketing mix for adaptation to the Chinese market. KFC China has focused considerably on placement and pricing. In terms of placement, the focal discussion points are logistics management and supply chain strategy. KFC China has established a logistics network. This was a very high cost project that was necessary for rapid expansion (Bell and Shelman 2011). Without this undertaking, KFC China would not have been able to quickly introduce their vast menu to all their locations. Developing this network is not a one off task as it has to be maintained and adjusted to ensure efficiency (Hong, Noh and Hwang 2006). This maintenance represents long term costs for KFC China. However, as this network was essential to achieve KFC China’s business goals, the initial cost should be considered as a sunk cost. Furthermore, the revenues drastically exceed the expenses so it is not a major issue. KFC China has been growing at over 10% in the last eleven consecutive years so this initial high cost outlay has brought in more cash inflows and will continue to do so into the future.
In terms of pricing, contrast to western fast-food restaurants, KFC China has not been attempting to position themselves as a low cost restaurant but rather as an experiential dining option (Bell and Shelman 2011). As such, the pricing strategy used is customer value-based. This is an effective strategy as pricing can be used to alter the customer’s perception of value of the product. As their prices are significantly higher than local restaurants, the customer is made to believe that the quality of the food and the utility they would derive from eating at KFC would be greater (Naylor and Frank 2001). However, by considering a basic economic principle, a higher price will lead to less demand indicating that KFC face the threat of losing their market share to competitors such as McDonald’s (Monroe 2012)
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