Marketing Analysis – KFC

    Uploaded by FriedChicken on Jun 26, 2005

Marketing Analysis – KFC 

Introduction KFC operates in 74 countries and territories throughout the world. It was founded in Corbin, Kentucky
by Colonel Harland D. Sanders. y 1964, the Colonel decided to sell the business to two Louisville businessmen. In
1966 they took KFC public and the company was listed on the New York Stock Exchange. In 1971, Heublein, Inc.
acquired KFC, soon after, conflicts erupted between the Colonel (which was working as a public relations and
goodwill ambassador) and Heublein management over quality control issues and restaurant cleanliness. In 1977 a
"back-to-the-basics" strategy was successfully implemented. By the time KFC was acquired by PepsiCo in 1986, it
had grown to approximately 6,600 units in 55 countries and territories. Due to strategic reasons, in 1997 PepsiCo
spun off its restaurant businesses (Pizza Hut, Taco Bell and KFC) into a new company called Tricon Global
Restaurants, Inc. 

Reasons for going overseas Companies moves beyond domestic markets into international markets for the
following reasons: *Potential demand in foreign market *Saturation of domestic markets *Follow domestic
customers that go abroad *Bandwagon effect *Comparative advantage - some countries possess unique natural
or human resources that give them an edge when it comes to producing particular products. This factor, for
example, explains South Africa's dominance in diamonds, and the ability of developing countries in Asia with low
wage rates to compete successfully in products assembled by hand. 

*Technological advantage - In one country a particular industry, often encouraged by government and spurred by
the efforts of a few firms, develops a technological advantage over the rest of the world. For example, the United
Sates dominated the computer industry for many years because of technology developed by companies such as
IBM, Hewlett-Packard and Intel Organization structures for International Markets (Modes of Entry) *The mode of
entry affects a company's entire marketing mix Exporting *Export merchant (Indirect) *Export agent (Direct)
*Company sales branches Contracting *Licensing *Franchising *Contract manufacturing Direct Investment *Joint
venture *Strategic alliance *Wholly owned subsidiaries Criteria for selecting a mode of entry 1.Company's
marketing objectives: - production volume - time scale (long/short term) - coverage of market segaments
2.Company's size 3.Government encouragement or restrictions 4.Product quality requirements 5.Human
resources requirements 6.Market information feedback 7.Learning curve requirements 8.Risks: political or
economic 9.Control needs Mode(s) of entry for KFC *Franchising/Licensing *wholly owned subsidiary *Joint
venture Firstly, KFC's traditional franchising strategy, which is emphasizing standardization and reducing financial
risk, on the expense of cultural sensitivity and control. Due to China's strict foreign investment laws such a
strategy is not feasible. In addition, KFC will be pioneering in the fast-food field and thus needs to be highly
sensitive to cultural demands. In the past, KFC encountered problems with aligning corporate planning with
franchisee's short-term focus on profitability. 

A wholly owned subsidiary represents the second option. Such a strategy relies upon total control over competitive
advantages and ensures complete operational and strategic control. It also involves high investment expenses
with no financial risk sharing. With high levels of resource commitment and little country-level flexibility and
responsiveness, this option is not recommended. 

Recommended market entry strategy: joint venture The essence of a joint venture is the synergy effect of two
different entities merging. Such an international business strategy will attempt to; solve many logistic problems
such as access to good quality chicken and other supplies, ease the access to the Chinese market, share risk with
a local entity, and finally serve as a sign of commitment to the host government increasing goodwill. In addition,
due to the complexity of many barriers to entry into China, a potential partner with sufficient contacts/networks with
government agency officials may smoothen the process of setting-up operations in the nation. 

The potential joint-venture partner should be large, well established, provide excellent distribution channels and
have personal network access to government officials. It should also have modern equipment and a good
management record. It is recommended that a partner is found by backwards integration. In other words, it is a
good domestic poultry supplier. In order to ensure total commitment and balance of power between the two
partners, a 55/45 joint venture, with KFC as the dominant partner should be set-up. 

By building on each partner's core competencies, knowledge, and efficiencies, a mutually beneficial synergy effect
could be achieved as a result of joint venture activities. For instance, the local partner can learn from KFC how to
produce a better product at a lower cost and further expand on its new competitive positioning. KFC, on the other
hand, can maintain quality supply which is detrimental to its success. 

A joint venture will also significantly ease the entry to the virgin Chinese market. A new entrant would find it very
difficulty to form local and personal networks between businesses and government agencies, which are crucial to
success and provide access to the local market and domestic suppliers. In addition, local business customs and
laws can be quicker understood and established ways to cut bureaucratic red-tape can be further utilized. Also,
the local knowledge of culture, language and geography is beneficial for any foreign entrant into a relatively
unknown market. 

In order to cope with the significant political risk of investing in China, a local joint venture partner will share this
risk. There is always a risk of domestication measures imposed by the host government, often leading to major
financial losses for the foreign investor. By having a 55/45 joint venture agreement, this risk is potential eliminated,
since only 55 percent of operations are domesticated. If such an unfavorable situation would arise, KFC has
clearly less to loose in such an agreement. In addition, by being the dominant partner, KFC will be able to ensure
cost, quality and strategic control measures. 

The Chinese government may very well find KFC beneficial to the nation, as it is the pioneering western fast-food
outlet. Training the joint venture partner, personnel and other institutions in the value chain can reduce learning
and experience curves. KFC's operations may also inspire local competitors to increase service and quality of
food. It can also help to create a competitive fast-food industry in China as new competitors respond to KFC's
ideas. Moreover, a joint venture agreement commonly produces goodwill and commitment between the host
government and the foreign investor. In such a relationship, the foreign investor is not seen as trying to take
advantage of the nation for profit purposes, but rather show willingness to share. Maintaining good relations with
the host government is a critical success factor as government policy impacts intensely upon business activities. 

Factors that influence marketing decisions Social and cultural forces *Family *Social customs and behaviour
*Education *Language differences Economic environment *Infrastructure *Level of economic development
*Competition Political and legal forces *Trade barriers oTariff oImport quota oDumping oLocal-content law
oBoycott *Trade agreements oGATT oWTO oEU oNAFTA oAPEC oASEAN Information gathering (Marketing
Research) Marketing research - the systematic and objective identification, collection, analysis, and dissemination
of information that is undertaken to improve decision making related to identifying and solving problems
(opportunities) in marketing. It is indeed, has a broad range of applications and plays a crucial role in the
marketing decision-making process. 

The task of marketing research is to assess the information needs and provide management with relevant,
accurate, reliable, valid, and current information to aid marketing decision marking. Company conduct and use
marketing research to stay competitive and to avoid high costs associated with making poor decisions based on
unsound information. 

Marketing research plays a significant part in the development of marketing plans because it allows the
organization to become less isolated from the key trends and changes, which surround their product. To continue
to be successful, organizations must receive information, from the researcher that is clear and accurate. It also
has to satisfy your pre-determined goal for your research. 

Steps in international marketing research: 1.define research problem(s) 2.develop a research design 3.determine
information needs 4.collect the data (secondary and primary) 5.analyze the data and interpret the results 6.report
and present the findings of the study Major research challenges 1.Complexity of research design due to
environmental differences 2.lack and inaccuracy of secondary data 3.time and cost requirements to collect primary
data 4.coordination of multicountry research efforts 5.difficulty in establishing comparability across multi-country
studies Primary Research The use of: - *Focus group *Survey methods for cross-cultural marketing research -
Questionnaire - Sampling (unit, size, procedure) - Contact Methods (mail, phone, personal interview, online
survey) *Collecting information Secondary Research Use of : *Secondary data (data which is already available)
*Primary data (when information is not useful or not exist) *Secondary data sources: government, Lexis/Nexis,
FINDEX, ACNielsen, etc., Problems with secondary data research: *Accuracy of data *Age of data *Reliability over
time *Comparability of data - triangulate - Functional or conceptual equivalence *Lumping of data *The data may
have been collected and manipulated for a specific use, therefore it may be incomplete, ambiguous or out of
context. 

*Data may be compiled in different ways in different countries making comparability difficult. For example, in
Germany consumer expenditures are estimated largely on the basis of turnover tax receipts, in the UK they are
measured on tax receipts plus household surveys and production sources. Similarly with GNP measures, it only
reflects average health per head of population and not how it is dispersed. As seen earlier, bimodalities are
normal, thus introducing bias. GNP may be understated for political reasons and may not reflect education (i.e.
wealth based on minerals). Also infrastructure may reflect channelled funds, say for tourism, rather than society as
a whole - typical of many African countries. 

*Data may be corrupted by methodological and interpretive problems, for example, definitional error, sampling
error, section error, non response error, language, social organizations, trained workers, etc. 

*Data may be nonexistent, unreliable or incomplete thus making inter country comparisons very difficult *Data may
be inflated or deflated for political purposes *Data from documented sources must, therefore, be treated with care
and caution Special problems in international marketing research As well as the difficulties associated with
secondary data described earlier, there are a number of other problems connected with obtaining data in the
global context. These are as follows: *Multiple markets need to be considered each with unique characteristics,
availability of data and research services *Many markets are small and do not reflect the cost of obtaining data for
such a small potential *Methodological difficulties may be encountered like nuances of language, interpretation,
difficulty of fieldwork supervision, cheating, data analysis difficulties (lack of computer technology) *Infrastructure
difficulties - lack of telephones, roads, transport, respondent locations and, *Cultural difficulties - reluctance to talk
to strangers, inability to talk to women or children, legal constraints on data collection/transmission. 

*Many of these facets apply more to developing than developed countries. However using a variety of methods,
outlined in the section, a lot of them can be ingeniously overcome *Whilst the gathering of information in the
international context is fraught with difficulties, without it the marketer would be planning in the dark. The two most
important modes of scanning are surveillance and search, each giving data of a general or specific kind,
invaluable to the strategy formulation process. In all decisions whether to obtain data or not, costs versus benefits
have to be considered carefully SWOT SWOT is a method of analysis which examines a company's Strengths,
Weaknesses, Opportunities and Threats. Often used as part of the development process for a marketing plan, or
to feed the results of a marketing audit back into a revised plan According to the analysis, there are mainly two
weaknesses for KFC. One of them is financial problem and the other one is that KFC concentrates on only one
single market. For its strength, it has its own unique skill in fried chicken and it has established a good brand
name. However, it is now facing a threat. Nowadays, people are more concerned with the healthiness in food and
their demand for high quality of food is increasing. Also, it is now under economic crisis. Nevertheless, it still has
an opportunity in its market. It is because KFC is an leader in fried chicken market. (Fried chicken) The early entry
into international markets placed KFC in a strong position to benefit from international expansion. Most of KFC's
international expansion was through franchises, due to the fact that they were owned and operated by local
entrepreneurs with a deep understanding of local language, culture, customs, law, and marketing characteristics.
In larger markets there was a tendency to build company-owned restaurants. The rationale was that fixed costs
could be spread over a large number of restaurants and lower prices on products could be negotiated. China was
one of the international markets KFC focused on. 

Influences in marketing decisions Cultural factors Cultural: the basic beliefs and values cherished by a society as a
whole and handed down from one generation to the next. 

Let us consider how culture influences the marketing decision. Before we go into detail, should we first consider
the elements contributing to the culture context. 

The elements of culture: *Language *Religion *Values *Attitudes *Manners and Customs *Material culture
*Aesthetics *Education *Social Institutions Language Language can be categorized into verbal and non-verbal
one. For verbal language, messages can be conveyed into words, by the ways the words that are spoken. For
non-verbal language, it refers to gesture, body position and eye contact. 

A new entrant would find it very difficulty to form local and personal networks between businesses and
government agencies, which are crucial to success and provide access to the local market and domestic
suppliers. In addition, local business customs and laws can be quicker understood and established ways to cut
bureaucratic red-tape can be further utilized. Also, the local knowledge of culture, language and geography is
beneficial for any foreign entrant into a relatively unknown market. 

Religion and Superstition Religion is one of most sensitive elements of a culture. 

To appreciate people's buying motives, customs & practices, awareness & understanding of their religion is often
crucial. When marketer has little or no understanding of a religion, it is easy to offend unintentionally. 
In numerous Asian countries, ancient Chinese philosophy of feng shui (wind-water) plays an important role in
design & placement of corporate buildings & retail spaces According to feng shui, proper placement &
arrangement of a man-made structure & its interior objects will bring good fortune to its residents & visitors. 

To avoid conflict against home place's religion is very important. 

Religion has an impact on international marketing that is seen in a culture's values and attitudes toward
entrepreneurship, consumption and social organization. 

Values They are enduring moral beliefs shared by members of a society and contributing to its culture and beliefs
of what is "good," "right," and appropriate in behaviour Attitudes For marketers, a crucial value distinction is a
culture's attitude toward change Societies that are resistant to change are usually less willing to adopt new
products or production processes Local attitudes toward foreign culture will drive product positioning & design
decision. 

In South Africa, goods with American roots are strongly valued - using as a selling point, the amount of affect or
feeling for or against a stimulus. 

KFC uses GM chicken. This arouses a great controversy in many places. In some places, people think that as
long as KFC can give delicious fried chicken, it does not matter what kind of chicken they are using. On the other
hand, some people think that the use of GM chicken will have great influence on the food chain which is very
crucial to the environmental health and nature development. Take China as an example, the people there do not
have very strong and clear idea on GM food. There is not as many problems that has to be faced as in other
advanced placed in the world. 

Different values will influence if the product can be consumed by the market. It will also determine the marketing
segment, like if the selling point has to very verify. Different attitude will determine the ease of entering the market.
According to the above data, the demand and supply of the host country can be known so what the related
produnt decision can be made to match the demand of the market. 

Manners and Customs Potential problem areas for marketers arise from an insufficient understanding of: *Different
ways of thinking *Necessity of saving face *Knowledge & understanding of the host country *Decision-making
process & personal relations *Allocation of time for negotiations When you understand the customs and manners
of the host country, you can determine what kind of promotion and organization is best for that country. Also, the
attitude will also determine what kind of industry can enter the host country. For example, if a place likes having
home made food, it can tell if a fast food shop or take away is more suitable. 

For example, in China, people there begin to try and accept new and foreign stuff. It is a good opportunity to enter
the market at this moment. 

Managers must be concerned with differences in the ways products are used. 

Material culture Results from technology and is directly related to the way a society organizes its economic
activity. It is manifested in the availability and adequacy of the basic economic, social, financial, cultural
convergence, and marketing infrastructures. The basic economic infrastructure consists of transportation, energy,
and communications systems. The degree of industrialization can provide a marketing segmentation variable. 

When KFC first went into the Japanese market in the early 1970's, the company chose to form a joint venture with
a large scale poultry producer with excess capacity. This 50/50 joint venture served the two partners very well, as
KFC was able to ensure a stable supply of quality supplies to its operations, and the local corporation was able
increase efficiencies in production by selling its excess supply. Furthermore, KFC was able to utilize existing
distribution networks serviced by the partner and at the same time, adhere to exiting rules and regulations
imposed by the Japanese government on foreign direct investment. 

Aesthetics Each culture makes a clear statement concerning good taste, as expressed in the arts and in the
particular symbolism of colors, form, and music. What is and what is not acceptable may very dramatically even in
otherwise highly similar markets. 

In China, the packing has been well accepted in the worldwide so it can be easily accepted by the people in China.
Moreover, red which is a main color in its package and logo symbolize wealth and happiness. So it can be well
accepted by people in China without much difficult in establishing a good image. 
It will seriously affect how the product is promoted and its design. For example, the original packing might not be
as well as accepted in host country. 

The international firms have to take into consideration local tastes and concerns in designing their facilities. They
may have general policy of uniformity in building or office space design, but local tastes may often warrant
modifications. Respecting cultural traditions may also generate goodwill toward the international marketer. 

Education Education is one of major vehicles to channel culture from one generation to the next Two facets of
education that matter to international marketers include: level & quality of education. 

Education affects employee training, competition for labor and product characteristics - marketers need to exercise
caution such as product labeling, print ads, & survey research. For KFC in China, it has advantage that it is easy
to employ manual labors as there is a large pool of manual workers suitable for it. As this job does not require a
very high education and the general education is not very high yet, this helps to balance the supply and demand in
the market. 

Education in general affects employee training, competition for labor and product characteristics. Marketers need
to exercise caution such as product labeling, print ads, and survey research. The international marketing manager
may also have to be prepared to fight obstacles in recruiting a suitable sales force or support personnel. 

Social Institutions They refer to the positions of men & women in society, family, social classes, group behavior, &
age groups are interpreted differently within every culture. 

Each institution has an effect on marketing because each influences behavior, values, & overall patterns of life
The fitting of an organizational culture for internal marketing purposes to the larger context of a national culture
has to be executed with care. 

The internationally successful companies all share an important quality: patience. They have not rushed into
situations but rather built their operations carefully by following the most basic business principles. These
principles are to know your adversary, know your audience and know your customer. 

Summary Culture is one of the most challenging elements of the international marketplace. The most complicated
problem in dealing with the cultural environment stem from the fact that we cannot learn culture - we have to live it.
Two schools of thought exist in the business world on how to deal with cultural diversity. One is that business is
business the world around, following the model of Pepsi and McDonald's. In some cases, globalization is a fact of
life; however, cultural differences are still far from converging. 

The other school proposes that companies must tailor business approaches to individual cultures. Setting up
policies and procedures in each country has been compared to an organ transplant; the critical question centers
on acceptance or rejection. The major challenge to the international manager is to make sure that rejection is not a
result of cultural myopia or even blindness. 

Political/Legal factors Economic factors Appendix Marketing Research Methods Marketing research plays a
significant part in the development of marketing plans because it allows the organization to become less isolated
from the key trends and changes, which surround their product. To continue to be successful, organizations must
receive information, from the researcher that is clear and accurate. It also has to satisfy your pre-determined goal
for your research. 

"Marketing research is the function which links the consumer, customer and the public to the marketer through
information." Market research identifies issues that have a direct effect on the organization, through the analysis of
the results. The results and obtained information must be collated and presented in a form that is easy to
understand. Instead of raw data, you have a series of graph, charts and tables. 

There are three main types of research, diagnostic, descriptive and predictive. Diagnostic research is used when
you need to analyze the effectiveness of an advertising campaign. Descriptive research is fact finding secondary
data. You would use this when you planned to sample a section of a target audience for a particular product.
Predictive research is about identifying new opportunities in a market place and calculating the effect of marketing
decisions. You would use this if the organization were planning to expand or regenerate their product. 

When conducting research, you have to use a sample of your population. The reason why you use a sample is
because you can't physically research every single person in the country, unless you are the Government and you
are conducting a census. Your sample should consist of people who fit into the research requirements. Sampling
is cost and time effective, which are extremely important to the organisation that is commissioning the research
because they are anxiously waiting for the results of the research. 

The research data, which has been collected, can be categorized into two main sections, qualitative research and
quantitative research. Usually most research contains particles from both sections. 

Qualitative research is when the information is open to broad interpretations. It is not concerned with finding
statistics, which relate to the product but focuses on the reasons lying behind certain areas, for example consumer
feeling and motivation. 

Qualitative research is a more flexible approach as it explores customer behavior, it identifies and analyses their
emotions. This research is usually conducted on small samples because the finding will be divers and full of
'richness'. This research cannot be generalized as it deals with complex issues that tend to be unique to the
individual, human emotions. 

When using Qualitative research, there are several research techniques that you can use. The techniques must be
on a more personal scale, in comparison with quantitative research, as the research requires that source of
information. Primary data is excellent as it is specifically designed to address the problems identified in the
research objectives. Primary data includes information that is 'first hand', as it is collected directly from the
respondent. Examples are surveys, group discussions, interviews and observations. 

Surveys are an excellent form of researching. The survey has been carefully designed to address your objectives.
It can be quick and accurate in pinpointing the information required because there is no room for distraction.
Respondents either chose an answer or make their own. It is relatively cheap and less time consuming. The
results are excellent to interpret, evaluate and are affectively displayed in several formats. 

Group Discussions (Focus Groups) is when six to ten people, who are recruited according to the pre-determined
criteria, exchange experiences, attitudes and beliefs about certain topics. It is a semi controlled environment and a
moderator lead the conversation flow. The whole discussion is recorded and everyone is informed about the
recording, following ethical guidelines. With a group environment, the respondents are less intimidated because
they are not alone, Observational research is when a person, who satisfies the criteria, is being observed and
recorded. The observer will note the person's body language and behavior and will analyze it in order to
understand the problem. The observer will either be conducting this research in a controlled or non-controlled
environment. A controlled environment would be a room with only the observer and subject present. A non-
controlled environment would be a busy street. Most observational research is conducted in controlled
environments because fewer ethics are involved. Ethics are breached when someone is being recorded against
their will or are unaware. High street clothing companies, such as Arcadia, Mark and Spencer's and Next all carry
out observational research. The research is through a 'mystery/test shopper'. The researcher takes on the role of a
customer and rates the staff's performance. Again I have been involved in an observational research campaign. I
was asked to look at several different types and styles of packaging for "Southern Comfort" whiskey. The
researcher recorded my expressions and feelings towards each packaging idea. 

The remaining section from your collected data is quantitative research. This type of research involves a mass
collection of measurable information, which is not open to interpretation. This type of research can be conducted
through the use of telephone interviews, face-to-face interviews and mail questionnaires. Quantitative research
also utilizes secondary data sources. 

The types of secondary data sources are information that has already exists, from an external body. Government
published data, trade press or association files, press articles or report commissioned by independent authorities
or watchdogs. However secondary information is complicated, it may take a long time to get relevant information
that you can use. The majority of the information may not be relevant to your research. This is an example of low
cost research, most sources are available free of charge to the public. 

When using quantitative research the methods differ from qualitative methods. Quantitative methods tend to be
more impersonal, and direct to the point. Telephone interviews are excellent because the survey 'script' has been
designed to combat the issues that the research is trying to find out. The speed of the interview must be fast and
last no longer than ten minutes. You have to keep the respondent interested in order to get a response. 

Individual interviews are another form of research. The process can last up to an hour. During this hour the
 researcher is recording your responses and is able to expand on your answers because a rapport has been built
up. This form of research is more common as you see the researcher, with their clipboards on most high streets. 

Mail questionnaires are a more popular form of research. It involves sending out self-completion surveys to a
population sample. The sample is then supposed to fill them out and return them to the researcher. With mail
questionnaires you can cover a vast amount of your sample, as you are able to send out thousands of
questionnaires. The only problem is that response rate tends to be low, With the types of research available, I
personally believe in qualitative research because there is a greater need to expand and develop your research.
This is useful because it allows your finding to be more accurate and richer in source. When conducting research I
suggest that you use both types of data. Secondary data will allow you to build up a background and may even
hold some relevant information to your research. 

Sources of global information Sources of information include documented sources, human resources or perceived
sources. 

Documented sources In recent years there has been an information explosion, especially in the documented or
"secondary" source area. (Primary data collection will be dealt with later). Various sources of documented data are
available including: i) Governments *Central office of information (UK) *Central Statistical Office (Zimbabwe) *EU
documentation centres *Boards of trade, or Ministry of Commerce ii) International bodies *the UN Statistical
Yearbook *World Bank - general statistics *OECD - general statistics *ITC - Geneva (information service) iii)
Business, trade, professional *Chambers of Commerce *Institute of Marketing *American Management
Association *The Market Research Society iv) Foreign embassies, trade missions *Commercial newspapers
*Financial agencies - Price Waterhouse *Kompass Register of companies *Economist Intelligence Unit (UK) v)
Other *Libraries, universities, colleges. 

There are excellent sources of overseas data, in the horticultural industry, giving information on markets, prices
and produce required for those wishing to sell into Europe. Examples of these are given below: *International
Trade Centre (ITC) Geneva *COLEACP, Paris *Natural Resource Institute (NRI) UK *GTZ, Germany *CBI,
Netherlands *IMPOD, Sweden *Chambers of commerce *Food and Agriculture Organization of the United Nations
Conclusion This analysis is focused by exploring, through different perspectives, the pros and cons of KFC
investing in China. What can make this region attractive to so many companies? First, the size of the market - it
has a population of more than 1.6 billion. Second, most countries are becoming fully functional democracies.
Third, most countries are successfully stabilizing their economies. These factors make investment in this market
less risky. 

In a competitive market, companies are not only dependent on their strategy but also on the strategy of their
competitors. If the competition is exploring the China market and you aren't, can't that be risky? For example, if
McDonald's invest in the risky market X and KFC doesn't, two situations may happen. First the investment
succeeds, in which case McDonald's gains the advantage. Second the investment fails, in which case KFC gains
the advantage from McDonald's misfortune. To playing safe, KFC can follow the competition into the new markets.
That way the chance of all loosing or all winning is quite the same.

Developing Objectives
Objectives are what organizations want to accomplish—the end results they want to
achieve—in a given time frame. In addition to being accomplished within a certain
time frame, objectives should be realistic (achievable) and be measurable, if possible.
“To increase sales by 2 percent by the end of the year” is an example of an objective
an organization might develop. You have probably set objectives for yourself that you
want to achieve in a given time frame. For example, your objectives might be to
maintain a certain grade point average and get work experience or an internship
before you graduate.
Objectives help guide and motivate a company’s employees and give its managers
reference points for evaluating the firm’s marketing actions. Although many
organizations publish their mission statements, most for-profit companies do not
publish their objectives. Accomplishments at each level of the organization have
helped PepsiCo meet its corporate objectives over the course of the past few years.
PepsiCo’s business units (divisions) have increased the number of their facilities to
grow their brands and enter new markets. PepsiCo’s beverage and snack units have
gained market share by developing healthier products and products that are more
convenient to use.

A firm’s marketing objectives should be consistent with the company’s objectives at

other levels, such as the corporate level and business level. An example of a
marketing objective for PepsiCo might be “to increase by 4 percent the market share
of Gatorade by the end of the year.” The way firms analyze their different divisions or
businesses will be discussed later in the chapter.

Formulating Strategies
Strategies are the means to the ends, or what a firm’s going to do to meet its
objectives. Successful strategies help organizations establish and maintain a
competitive advantage that competitors cannot imitate easily. PepsiCo attempts to
sustain its competitive advantage by constantly developing new products and
innovations, including “mega brands,” which are eighteen individual brands that
generate over $1 billion in sales each.

Firms often use multiple strategies to accomplish their objectives and capitalize on
marketing opportunities. For example, in addition to pursuing a low cost strategy
(selling products inexpensively), Walmart has simultaneously pursued a strategy of
opening new stores rapidly around the world. Many companies develop marketing
strategies as part of their general, overall business plans. Other companies prepare
separate marketing plans. We’ll overview marketing plans here and discuss them
more completely in Chapter 16, The Marketing Plan.

A marketing plan is a strategic plan at the functional level that provides a firm’s
marketing group with direction. It is a road map that improves the firm’s
understanding of its competitive situation. The marketing plan also helps the firm
allocate resources and divvy up the tasks that employees need to do for the company
to meet its objectives. The different components of marketing plans will be discussed
throughout the book and then discussed together at the end of the book. Next, let’s
take a look at the different types of basic market strategies firms pursue before they
develop their marketing plans.
Figure 2.12. Product and Market Entry Strategies

The different types of product and market entry strategies a firm can pursue in
order to meet their objectives.

Market penetration strategies focus on increasing a firm’s sales of its existing

products to its existing customers. Companies often offer consumers special
promotions or low prices to increase their usage and encourage them to buy products.
When Frito-Lay distributes money-saving coupons to customers or offers them
discounts to buy multiple packages of snacks, the company is utilizing a penetration
strategy. The Campbell Soup Company gets consumers to buy more soup by
providing easy recipes using their soup as an ingredient for cooking quick meals.

Product development strategies involve creating new products for existing customers.

A new product can be a totally new innovation, an improved product, or a product
with enhanced value, such as one with a new feature. Cell phones that allow
consumers to charge purchases with the phone or take pictures are examples of a
product with enhanced value. A new product can also be one that comes in different
variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced
by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, however, that
what works for one company might not work for another. For example, just after
Starbucks announced it was cutting back on the number of its lunch offerings,
Dunkin’ Donuts announced it was adding items to its lunch menu.

Market development strategies focus on entering new markets with existing products.

For example, during the recent economic downturn, manufacturers of high-end coffee
makers began targeting customers who go to coffee shops. The manufacturers are
hoping to develop the market for their products by making sure consumers know they
can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.
New markets can include any new groups of customers such as different age groups,
new geographic areas, or international markets. Many companies, including PepsiCo
and Hyundai, have entered—and been successful in—rapidly emerging markets such
as Russia, China, and India. As Figure 2.12, “Product and Market Entry Strategies”
shows, there are different ways, or strategies, by which firms can enter international
markets. The strategies vary in the amount of risk, control, and investment that firms
face. Firms can simply export, or sell their products to buyers abroad, which is the
least risky and least expensive method but also offers the least amount of control.
Many small firms export their products to foreign markets.

Firms can also license, or sell the right to use some aspect of their production
processes, trademarks, or patents to individuals or firms in foreign markets. Licensing
is a popular strategy, but firms must figure out how to protect their interests if the
licensee decides to open its own business and void the license agreement. The French
luggage and handbag maker Louis Vuitton faced this problem when it entered China.
Competitors started illegally putting the Louis Vuitton logo on different products,
which cut into Louis Vuitton’s profits.

Figure 2.13. 

The front of a KFC franchise in Asia may be much larger than KFC stores in the
United States. Selling franchises is a popular way for firms to enter foreign
markets.

Franchising is a longer-term form of licensing that is extremely popular with service

firms, such as restaurants like McDonald’s and Subway, hotels like Holiday Inn
Express, and cleaning companies like Stanley Steamer. Franchisees pay a fee for the
franchise and must adhere to certain standards; however, they benefit from the
advertising and brand recognition the franchising company provides.
Contract manufacturing allows companies to hire manufacturers to produce their
products in another country. The manufacturers are provided specifications for the
products, which are then manufactured and sold on behalf of the company that
contracted the manufacturing. Contract manufacturing may provide tax incentives and
may be more profitable than manufacturing the products in the home country.
Examples of products where contract manufacturing is often used include cell phones,
computers, and printers.

Joint ventures combine the expertise and investments of two companies and help
companies enter foreign markets. The firms in each country share the risks as well as
the investments. Some countries such as China often require companies to form a joint
venture with a domestic firm in order to enter the market. After entering the market in
a partnership with a domestic firm and becoming established in the market, some
firms may decide to separate from their partner and become their own business. Fuji
Xerox Co., Ltd., is an example of a joint venture between the Japanese Fuji Photo
Film Co. and the American document management company Xerox. Another example
of a joint venture is Sony Ericsson. The venture combined the Japanese company
Sony’s electronic expertise with the Swedish company Ericsson’s telecommunication
expertise.

Direct investment (owning a company or facility overseas) is another way to enter a

foreign market. For example, In Bev, the Dutch maker of Beck’s beer, was able to
capture market share in the United States by purchasing St. Louis-based Anheuser-
Busch. A direct investment strategy involves the most risk and investment but offers
the most control. Other companies such as advertising agencies may want to invest
and develop their own businesses directly in international markets rather than trying to
do so via other companies.

Figure 2.14. Market Entry Methods

Diversification strategies involve entering new markets with new products or doing

something outside a firm’s current businesses. Firms that have little experience with
different markets or different products often diversify their product lines by acquiring
other companies. Diversification can be profitable, but it can also be risky if a
company does not have the expertise or resources it needs to successfully implement
the strategy. Warner Music Group’s purchase of the concert promoter Bulldog
Entertainment is an example of a diversification attempt that failed.