STRATEGIC MARKETING

FINAL PROJECT

Submitted to:

Mr. Khurshid Ahmed

Submitted by: Ali Murad MB061077 Rizwan Saleem MB063042 Kaleem Ahsan MBE083005 Asif Mahmood MB063031 Azeem Mahmood MB063046 Khalid Mahmood MB063051 Muhammad Umair MB083050

Muhammad Ali Jinnah University

i

We dedicate this report to our Parents and respectable Teachers

ii

ACKNOWLEDGEMENT:

First of all, we would like to offer our eternal thanks to the Almighty Allah who blessed us with the perseverance and the sprit of hard work to complete this project. We are also grateful to our parents for their patience and belief in us. We offer our respectful gratitude to our Strategic Marketing course supervisor Mr. Khurshid Ahmed for his guidance & encouragement. We would like to thank all of those people specially the Marketing Manager of KFC Mr. Sheikh Sohaib who helped us through our entire Strategic Marketing project.

K FC Group Members
December 21 , 2008 Mohammad Ali Jinnah University
st

iii

TABLE

OF

CONTENTS:

iv

EXECUTIVE SUMMARY

Mission statement:
To establish in Pakistan our position as leading WQSR (Western Quick Service Restaurant) chain, serving good value. Innovative chickenbased products. Consistently, providing a pleasant dining experience, with fast friendly, in a clean and convenient location. At all times we must be dedicated to providing excellent and delighting customers.

COMPANY OVERVIEW:
Colonel Harland sanders, born September 9, 1890, actively began franchising his chicken business at the age of 65. Now, the Kentucky fried chicken business he started has grown to be one of the largest retail food service systems in the world. And colonel sanders, a quick service restaurant pioneer, have become a symbol of entrepreneurial spirit. More than two billion of the colonels finger lickin good chicken dinners are served annually. And not just in America. The colonels cooking is available in more then 82 countries around the world. When the colonel was six, his father died. His mother was forced to go to work, and young Harland had to take care of his three year old brother and baby sister. This meant doing much of the family cooking. By the age of seven, he was a master of a score of regional dishes. Ate age 10, his first job working on a nearby farm for $2 a month. When he was 12, his mother remarried and he left his home near Henryville, Ind., for a job on a farm in Greenwood, Ind. He held a series of jobs over the next few years, first as a 15-year-old streetcar conductor in New Albany, Ind., and then as a 16-year-old private, soldiering for six months in Cuba. After that he was a railroad fireman, studied law by correspondence, practiced in justice of the peace court, sold insurance, operated an Ohio River steamboat ferry, sold tires, and Operated service station. When he was 40, the colonel began cooking for hungry travelers who stopped at his service station in Corbin, KY. He didnt have a restaurant then, but served folks on his own dining table in the living quarters of his service station. As more people started coming just for food, he moved across the street to a motel and restaurant that seated 142 people. Over the next nine year, he perfected his secret 3

blend of 11 herbs and spices and the basic cooking technique that is still used today.

Operations in Pakistan:
KFC started its services in 1997 for the first time in Pakistan. Now it has a chain of 26 branches all over Pakistan. It was introduced in the Pakistani market by the Artal Group of Belgium and although a late entrant, it managed to establish several outlets in Karachi, Lahore and several more areas. After a through survey and analysis KFC opened its first branch in Garden town Lahore seven years back. Since then there was no looking back for KFC as it started to earn profits and grow to other different cities. KFC in Pakistan has been shoeing a steady growth and profitability. Some profits were used for team making, uplift of the restaurants etc. KFC believes in providing value for money to its customers. They have high quality standard and they are in concurrence to those prevailing in other countries. They have an international brand name to protect so there is strict implementation of quality standards.

Procurement Issues:
All the raw materials like chicken are bought from value chicken, vegetables from Monsalwa and they use caned fruit for salads. The machinery is all automated and is in conformance to international standards. KFC officials often visit the outlets without giving prior notice in order to check the conformance to quality standards and procedures. Moreover, Food Inspection Teams from Health Ministry visits twice a year to ensure Hygienic Conditions at the Kitchen.

Performance Overview:
KFC has taken advantage of all these excellent investment

opportunities that Pakistan offers for franchising and has expanded and penetrated the market a lot. KFC has adapted to the legal and political environment and conditions of Pakistan. The Pakistani culture has also molded the operations of KFC in Pakistan. All the outlets of KFC in Pakistan present Pakistani food culture. KFC has displayed banners that it servers Halal food all over its outlets which represents Pakistani culture. They also offer families deals as the people are very close to their families and like to have food with them. KFC has also brought some changes in the culture of Pakistan. The most significant is the way it has changed the eating habits of the local population. People now are aware of unhygienic conditions that prevail in some of local restaurants. And KFC has also brought the idea of self-service in Pakistan.

Goals of KFC:
Build an organization dedicated to excellence. Consistently deliver superior quality and value in our products and services. Maintain a commitment to innovation for continuous improvement and

grow, striving always to be the leader in the market place changes. Generate consistently superior financial returns and benefits our owner and

employees.

Values of KFC:

Focus all our resources to our restaurants operation because that is where

we serve our customers. Reward and respect the contributions of each individual at KFC. Expand and update training with time and be the best we can be and more. Be open, honest and direct in our dealings with one and other. Commit ourselves to the highest standard to the personal and professional

integrity at all times. Encourage new and innovative ideas because these are the key to our

competitive growth. Reward result and not simple efforts. Dedicate ourselves to continuous growth in sales, profit and size of

organization. Work as a team.

Key Strategies of KFC:

KFC is following Niche Marketing and Societal Marketing

techniques. KFC possess a western culture because some of the

Pakistani people are also following that culture. KFC are moving from Divisional Level to the District level by

opening branches in Jehlum and Gujranwala. KFC also offer free home delivery. 7

KFC open their outlets on reachable places. KFC menu consists of more than 30 products. KFC gives more priority to Family.

Organizational Structure:
The KFC adopted traditional structure for their outlets that other food chains are following. There is one General Manager for Pakistan. The outlet is leaded by the Manager, assisted by two assistant managers, and one shift in-charge for each shift, that supervises the performance of counter workers and kitchen workers .

General Manager (GM)

Manager Assistant Manager (I) Assistant Manager (II)

Shift In-charge Counter workers Kitchen workers Guards

MARKET SEGMENTATION:
KFC has divided the market of Pakistan into distinct groups of customers with different demands, tastes and behavior who require separate products or marketing mix. In Pakistan the niche marketing is being used for particular classes of people. They have made segments of the market on the following bases. Demographical

Behavioral
Geographical By using these three bases they segmented the market as under.

Demographical Basis:
Demographic means the study of human population in terms of size, density, age, gender, location, race, occupation and other statistics. Age People of different ages have different demands and taste of the products. So if we divide the customers according to age we can get better results. In Pakistan youngsters are more conscious about their diet as compared to elders. So KFC have rightly targeted kids and middle age people. Income Income is one of the most important factors in success of KFC. It have targeted high and middle income group

Behavioral Basis:
9

In behavioral aspect they segmented the market on the basis of quality, taste and price. Following are the different possible segments in this regard. Taste conscious Quality conscious Class conscious Combination of price and quality

Geographical Basis:
On the basis of the geographical factor we have divided our market in two main segments. Urban areas Sub urban areas

10

Strategies for new product development

A firm can obtain new products by using the following strategies: Acquisition New Product Development

Acquisition means acquiring the business, product of any other organization that is selling its business. New Product Development means creating a new idea and forming a new product to the market.

New Product Strategy in KFC:

KFC use to create new ideas and make new products at its own, it does not go for acquisition. KFC use new product development for having a product line extension. New Product is defined as a product new to; The world The market The producer The seller Some combination of above

Here is given some of the NPD process elements which KFC uses in the development and launching of new product in the market. The process is well defined in a way that it depicts us the true picture of NPD in the real world. The strategies that are been used in this whole process are been discussed as under:

11

1) Idea generation:
This element is based on the idea that by observing the market need and demand. This refers to the development of new concept that better satisfy the market need. KFC use this thing in developing new product in a way that they look for the market, the customers and the competitors. This gives the idea of a new product that will give them competitive advantage in the market over other fast food providers. It includes the internal as well as external idea sources as ideas through our conducted research and then the expected customers response.

2) Idea screening:
After generating the idea, it comes the screening process in which KFC eliminate the less good or in other words less profitable ideas. This stage includes the refining of the product, addition and reduction in the product. This is the first filter in the product development process, which eliminates ideas that are inconsistent with the organizations new-product strategy or are inappropriate for some other reason.

12

3) Concept development:
This includes working on the concept, to have a survey about the concept that how much it is acceptable in the market. KFC work on the modification in the product concept according to the market trends, so that it can be acceptable in the market. Developing the level of quality, product quantity, contents of the product and other things are the part of concept development. This does not involve the actual formation of product.

4) Concept testing:
KFC use to test the concept on out targeted customers by asking questions and get to know that how much the concept is acceptable up to how much percentage. This is basically a test to evaluate a new-product idea, usually before any prototype has been created.

5) Business analysis
KFC checks out the over all picture of new product concept including the demand, costs, sales and profit projections. This tells about the benefits that product will provide during its life cycle.

6) Product development
The practical formation of the product for testing purpose is the concept development stage; in this stage, KFC gives a tangible form to the concept that can be tested in the market. It refers to the development of the product concept into a physical product Creation of prototype Marketing strategy Technical production feasibility Final management approvals if needed

13

7) Test marketing
This step includes finally the test marketing, the stage at which the product and marketing program are introduced into more-realistic market settings. This refers to limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. KFC have the need of this stage to know about the products feedback from the market.

8) Commercialization
Finally, the introduction of the product in the market, this is the last stage of new product development strategy in KFC. This includes the promotion techniques, advertising and sales promotion. KFC promote their product by using advertisement on different media channels. The stage involves these points as well: Inventory Building Distribution Shipment Customer Advertisement

14

History of developing product mix of KFC

In 9th September 1980, Harland Sanders is born just outside Henryville, Indiana. 1900-1924 Harland Sanders holds a variety of jobs including: farm hand, streetcar conductor, and army private in Cuba, blacksmith's helper, rail yard fireman, insurance salesman, tire salesman and service station operator for Standard Oil. 1930 In the midst of the depression, Harland Sanders opens his first restaurant in the small front room of a gas station in Corbin, Kentucky. Sanders serve as station operator, chief cook and cashier and name the dining area "Sanders Court & Caf." 1936 Kentucky Governor Ruby Laffoon makes Harland Sanders an honorary Kentucky Colonel in recognition of his contributions to the state's cuisine. 1937 The Sanders Court & Caf adds a motel and expands the restaurant to 142 seats. 1939 The Sanders Court & Caf is first listed in Duncan Hines' "Adventures in Good Eating." Fire destroys The Sanders Court & Caf, but it is rebuilt and reopened. The pressure cooker is introduced. Soon thereafter Colonel Sanders begins using it to fry his chicken to give customers fresh chicken, faster. 15

1940 Birthdate of the Original Recipe 1949 Sanders marries Claudia Price.

1952 The Colonel begins actively franchising his chicken business by traveling from town to town and cooking batches of chicken for restaurant owners and employees. The Colonel awards Pete Harman of Salt Lake City with the first KFC franchise. A handshake agreement stipulates a payment of a nickel to Sanders for each chicken sold. 1955 An interstate highway is built to bypass Corbin, Kentucky. Sanders sells the service station on the same day that he receives his first social security check for $105. After paying debts owed, he is virtually broke. He decides to go on the road to sell his Secret Recipe to restaurants. 1957 Kentucky Fried Chicken first sold in buckets 1960 The Colonel's hard work on the road begins to pay off and there are 190 KFC franchisees and 400 franchise units in the U.S. and Canada. 1964 Kentucky Fried Chicken has more than 600 franchised outlets in the United States, Canada and the first overseas outlet, in England.

16

Sanders sell his interest in the U.S. Company for $2 million to a group of investors headed by John Y. Brown Jr., future governor of Kentucky. The Colonel remains a public spokesman for the company. 1965 Colonel Sanders receives the Horatio Alger Award from the American Schools and Colleges Association. 1966 The Kentucky Fried Chicken Corporation goes public.

1969 The Kentucky Fried Chicken Corporation is listed on the New York Stock Exchange. 1971 More than 3,500 franchised and company-owned restaurants are in worldwide operation when Heublein Inc. acquires KFC Corporation. 1976 An independent survey ranks the Colonel as the world's second most recognizable celebrity. 1977 Colonel Sanders speaks before a U.S. Congressional Committee on Aging. 1979 KFC cooks up 2.7 billion pieces of chicken. There are approximately 6,000 KFC restaurants worldwide with sales of more than $2 billion. 12/16/1980

17

Colonel Harland Sanders, who came to symbolize quality in the food industry, dies after being stricken with leukemia. Flags on all Kentucky state buildings fly at half-staff for four days. 1982 Kentucky Fried Chicken becomes a subsidiary of R.J. Reynolds Industries, Inc. (now RJR Nabisco, Inc.) when Heublein, Inc. is acquired by Reynolds. 1986 PepsiCo, Inc. acquires KFC from RJR Nabisco, Inc. 1997 PepsiCo, Inc. announces the spin-off of its quick service restaurants KFC, Taco Bell and Pizza Hut - into Tricon Global Restaurants, Inc.

2002 Tricon Global Restaurants, Inc., the world's largest restaurant company, changes its corporate name to YUM! Brands, Inc. In addition to KFC, the company owns A&W All-American Food Restaurants, Long John Silvers, Pizza Hut and Taco Bell restaurants. 2006 More than a billion of the Colonel's "finger lickin' good" chicken dinners are served annually in more than 80 countries and territories around the world. 2007 KFC proudly introduces a new recipe that keeps the Colonel's 11 herbs and spices and finger-lickin' flavor, but contains Zero Grams of Trans Fat per serving thanks to new cooking oil.

18

Competitor and their Product Mix Analysis:

KFC does not consider Mc Donalds are its direct competitors. As Mc Donalds has a limited menu and cater to different segments of society e.g. Mc Donald is catering to lower middle society of Pakistan. Though KFC has faced a little competition from local restaurants but their breakeven in terms of revenue has been done and they are planning to expand further to other cities like Islamabad and Peshawar.

List of Competitors:
Macdonalds Burger King AFC(alnajam fried chicken) PFC(perfect fried chicken) And number of other Pakistani fast foods like Danteys and Mr. Chips & Mr. Tasty K&N etc.

Product Mix of KFC

19

Other Products:
Original recipe chicken Hot WingsTM pieces Chunky Chicken pot pie Colonels Crispy Strips Original Recipe Sandwich Triple Crunch Sandwich Extra Tasty CrispyTM chicken Tender Roast chicken Kentucky Nuggest Honey BBQ sandwich Tender Roast Sandwich Triple Crunch Zinger sandwich

Product Mix of MacDonalds:

20

Competitive advantage:
KFC Spicy Products Pakistani people like spicy products instead of boiled food Arabian Rice and Zinger Burger Free Delivery Chicken is eaten by every community Local Staff and Highly Qualified because local staff can better deal with the customers KFC uses Top to Bottom and Bottom to Top Approach in Management. KFC is Co branding with Walls

21

Strategies for promotional mix

Promotion is one of the necessary plates in any form of business or in other words, you can say that promotion is the key of success. If you promote your product at the right time. KFC also known the importance and significance of promotion so they uses the bill boards the major source of advertisement and one of the most important thing that they uses media especially the newspapers to promote their products. They are also creating awareness among the masses about their existing product range as well they tell us about the future product. Marketing efforts to be taken by the restaurant: Paste delivery posters at petrol pumps, flats, colleges, plazas, and departmental stores. Distribution of delivery flyers in residential areas, markets, plazas and institutions (as per the plan) Visit offices and business places.

In summarize KFC uses these are the strategies to expand their products to gain the competitive edge. Personal selling Telemarketing Direct mail Trade fairs and exhibitions Commercial television Newspapers and magazines Radio Cinema Point of sale displays 22

 Packaging

Pricing strategies of KFC

KFC during pricing their products keep the different points in the mind like they adopt the cost base price strategy. Pricing of the product includes the Government taxes and excise duties and then they come at final stage of determine the price of their products. KFC prices of products are a bit high according to the market segment and it is also compatible to the stander of their products. Calculation of the price under Cost Based Pricing Strategy: Total Pounds of Chicken Served in KFC Restaurant Annually = 1.914 Billion Total KFC Chicken Pieces Sold Annually = 5.89 Billion Total Retail Sales = $8.9 Billion Sales Price of per Chicken Piece Pieces sold = $8.9 Billion / $5.89 Billion =$1.51 We assume that Fixed Cost is = $6000000000 Variable Cost Per Unit Variable Cost = $675000000 = $675000000 / 5890000000 = $ 0.115 Unit Cost = Variable Cost + Fixed Cost / Chicken pieces Sold 23 Profit Margin is Or Mark Up = $225000000(25% of Sales) = Total Retail Sales / Chicken

= 0.115 + 6000000000 / 5890000000 = 0.115 + 1.02 = $1.135 Now suppose manufacturer wants to earn 25% mark up on sale. The manufacturer mark up price is calculated: Mark Up Price = Unit Cost / (1 Desired Return on Sales) =1.135 / (1-.25) = 1.135 / 0.75 = $1.51

24

BCG Matrix of KFC

The need for strategy, in order to expand its existing product in very promising markets for KFC is very essential. KFC, along with McDonalds, and other major fast food chains have dominated the American continent as well as else where. Since the 1950s when the founder of KFC had a dream, of building an empire in the fast food market, the company has undergone lots of changes. The company has changed ownership; it has taken over from Pepsi and passed over to Tricon, which owns Pizza hut, Taco bell and others. Nowadays, KFC, still dominates the chicken fast food industry while has stores in more than 100 countries operating vast profits. (De Witt 'et al.2004a) Although, due to increased conditions of life, and differentiation of the life style of the population around the world, there is still a lots of room for expansion, especially in countries with large population, and high development rate. KFC using the BCG matrix and SWOT analysis to analyze what is the current position of the company and identify that the company has the potentials to growth in fast food market. In the late 1960s the Boston Consulting Group, a leading management consulting company, designed a four-cell matrix known as BCG Growth/Share Matrix. This tool was developed to aid companies in the measurement of all their company businesses according to relative market share and market growth. The BCG Matrix made a significant contribution to strategic management and continues to be an important strategic tool used by companies today. The matrix provides a composite picture of the strategic position of each separate business within a company so that the management can determine the strengths and the needs of all sectors of the firm. The development of the matrix requires the assessment of a business portfolio, which include an organizations autonomous divisions (activities, or profit centers). The BCG or growth- share matrix imposes a two- dimensional analysis on management of Strategic Business Units: a comparative analysis of business strength and an assessment of the environment. The business strength measure is the businesss Relative Market share. The environmental measure is the Market Growth Rate. BCG Matrix: The market growth rate measures industry attractiveness. Because for the case of YUM Brand, all SBUs (KFC, Taco Bell, Pizza Hut, Long John Silvers, A&W) are 25

located in the same fast- food industry, the referent standard is the industry growth rate measured against the SBUs growth rate. The underlying theory for examining market growth rate is the industry life cycle. The BCG assumes that growth rates ( life cycle stages) affect a firms finances.

Placing products in the BCG matrix results in 4 categories in a portfolio of a company: 1. Stars (=high growth, high market share) Use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept. So, KFC Malaysia is under Star position. 2. Cash Cows (=low growth, high market share) Profits and cash generation should be high, and because of the low growth, investments needed should be low. Keep profits high. 3. Dogs (=low growth, low market share) Avoid and minimize the number of dogs in a company. Beware of expensive turn around plans. 4. Question Marks (= high growth, low market share) 26

 Have the worst cash characteristics of all, because high demands and low returns due to low market share If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog. The Characteristics of each SBU Type SBU STAR Cash Cow Question Mark Strategy Hold/ Increase Hold Increase/Divest SBU profits High High 0 or Required Investment High Low Very High or Net Cash Flow -or+ High+ High-or+

Disinvest DOG Harvest or Divest Low orDisinvest + The analysis requires that both measures be calculated for each SBU. The business strength dimension, relative market share, is included to measure competitive advantage. The KFC is falling on cash cow where a low growth and high market share is. So, the profit and cash generation is high and because of low growth, investments needed should be low. The funds received from cash cows are often used to help other businesses within the company, to allow the company to purchase other businesses, or to return dividends to stockholders. So the KFC should hold on what it has doing now. Three Paths to Success (star-cash cow-question mark) Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash Over invest in cash cows and under invest in question marks Trade further opportunities for present cash flow Three Paths to Failure (star-question mark-dog, cash cow-dog)

Under invest in the stars Allow competitors to gain share in a high growth market

Over milked the cash cows

27

Recommendations

It must also reduce their prices to compete their competitors like McDonald, & Crisps Pins They should introduce local dishes They should promote eastern culture Special offers according to circumstances Provision of customer service Extending their business in local areas Low cost in economic recession Latest technology in operations

Resources
General manager (Assistant Manager KFC) Employees Book of KFC (Focus on Monthly Journal KFC)
Internet

28