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We conduct this report by using primary data and secondary data, thus the primary data collect by face-to-face interview and focus group, and the secondary data collect by exploratory research.
The researchers will conducted an exploratory research to have a better understanding on the current situation for the consumer behaviour after the global financial crisis in Hong Kong. The researcher will find the information from both of the sitology magazine or article, and the realistic official statistical data research.
Research will have face-to-face interviews to 100 public in an intensive location of Hong Kong. Each interview will be approximately 3 minutes and there are about 10 questions to ask. The number of range successfully completed face-to-face interview is 100 people roughly.
To understand and research about the behaviour of Hong Kong consumer, the researcher will conduct a focus group to study about the price and quality perception of food. The research will pick up 10 participants by judgment sampling (qualitative, representative sample) and invite them to take in a 20 to 30 minutes discussion about the price and quality perception of food.
After we collect the data, we will use PEST model and Porter's Five Force model to analyze the internal and external environment respectively, to find out the factors affecting the company's performance. Then we will use SWOT matrix to analyze the opportunities, threats, advantages and threats for Pancake On The Rocks, combined with the analysis on marketing research, to set up a suitable marketing strategy and the detailed enforcement instructions for Pancake On The Rocks.
In Hong Kong, the consumer's expectations of product quality in general have been steadily rising, owning to the increase in income and sociological forces, which have prompted high expectations of a better lifestyle. Hong Kong consumers toÂday are looking for aesthetic and social value instead of just focusing on the basic needs of warmth and the protecÂtive function of products. Department stores are now crowded with people, but few of the shoppers are serious buyers. Hong Kong consumers are eager to see what is available, especially from among forÂeign products. Hong Kong consumers have a lot of time to browse, and therefore are disinclined to convenience or impulse buying.
Another aspect of Hong Kong culture that influence buyers' behaviour is the reluctance to pioneer. The typical Hong Kong consumer does not want to be among the first to try a new product, but the disÂcomfort of being 'behind the times' may make them think that if the neighbors have tried it, they had better follow suit soon. The strong collective characterisÂtics may imply that informal channels of communication are important in Chinese society. Chinese consumers tend to rely more on word-of-mouth communication because of the high contact rate among group members; thus, communication of a given product idea is quick to circulate within these informal channels.
Pancakes On The Rocks is a privately owned company established in 1975. It operates four restaurant based in Sydney regions. The restaurant in The Rocks is a 24/7 operates and its extended trading hours have been one of the crucial highlight that attracts our main customer to visit the restaurant. (The Pancakes On The Rocks 2009)
Pancakes On The Rocks provides consumers with a large range of pancake including origins and delicious flavoured pancakes, and a complete regular menu such as pizzas, a new range of salads, crepes, pancakes and the famous ribs with special house sauce. With an additional kid's menu designed for family dining and breakfast menu for dedicated customer who interested in early breakfast as well. They also offer a selection of pancake mix, quality merchandise and gift packs. (The Pancakes On The Rocks 2009)
Target Segments in Australia
The target market segments in Australia are mainly focused on family group, children, and young adults. Therefore, the menu has introduced specific dishes to suit our target customer's tastes and needs. The company has a strong reputation and awarded by gold awards as "Best causal/ family dining restaurant" from 2003 to 2009. The award represents a milestone to the company that has been targeted to correct market segments in the past years successfully.
The Australian Competitors
The company has possessed a large amount of market share in the industry. Pancakes On the Rocks has developed its brand image remarkable through the popular dessert dishes. Comparing to the other competitors, namely Hooter, Lone star, Sizzler and Hurricane, they are mainly concentrated on their regular menu such as steaks and have a tiny fraction in advertising desserts. As well as the 24/7 trading hour has made Pancakes On The rocks a distinctive restaurant due to the fact that restaurant rarely operates 24 hours a day in Sydney region.
Cost Structure of Industry
High variable costs: Labour (32.8%), Raw Material (30%), Packaging (1.1%)
Low fixed costs: Overhead- Electronic (5.58%), Rent (5.3%); Tariffs (15%), Logistics (2.2%), Advertising (7.02%)
Flexibility of regulation
The government has adopted the strategy of "stabilizing the financial system, supporting enterprises and preserving employment" to helped stabilize the local economy. (Hong Kong Census and statistics department 2009)
The government's role has made flexible adjustments in response to market needs and remove the barriers for local businesses. The Government stated that to adhere to the principle of "Big Market, Small Government" which implies to boost domestic demand and increase employment opportunities. As a result, Pancakes On The Rocks has advantage in low costs and conducive in the timing of entry by the flexible policy changes.
Low and simple tax regime
Hong Kong has a lowest and simple tax system in Asia Pacific and third lowest in the world, with a maximum 16.5% corporate income tax and maximum 15% salaries tax. (Forbes Tax Misery Index 2009) As high development costs of new business, low tax regime is a great advantage and ease of financial difficulty for Pancakes On The Rocks.
Current GDP and forecasted economic growth
Hong Kong has entered in an initial stage of recovery after the impact of worse global recession. The overall situation has been improving further in third quarter of 2009. By its trend, the economy is likely to show further sign of improvement in the future. The Table 2 has shown GDP rose by 1.2 % from second quarter to third quarter in 2009. According to the latest private consumption expenditure in Table 3, Hong Kong people are increased gradually in private spending by 1.3 %. In terms of the notable changes, it is a favorable opportunity and significant timing for setting up a business in Hong Kong economy.
Consumer price inflation turned slightly negative to -0.3% from 1.2% due to the global financial crisis. The forecast of consumer price inflation rates remain unchanged, at 0.5% and 0.9% respectively for 2009 as a whole. (Hong Kong Census and statistics department 2009)
According to the labour force statistics, the seasonally adjusted unemployment rate decreased slightly to 5.3% and it shown that the youth unemployment situation is improving progressively. (See in Table 4) The government has advocated new start up of business in order to create quality job opportunities. (Hong Kong Census and statistics department 2009)
Hong Kong ranks as first in Asia and second in the world in terms of providing access to capital. "Its general financial environment is among the world's best, with a sound banking system, a relatively large equity market and diversified sources of business funding, including venture capital." (The Capital Access Index) The composite interest rate slightly decreased byÂ two points to 0.11% at November 2009, from 0.13% at October 2009. (See Table 5 in Appendices)The best lending rates is positioned at 5.25% per annum in December 2009. (Hong Kong Monetary Authority 2009) Hence, Pancakes On the Rocks has beneficial to capital funding in the running of business.
Social and Cultural Factors
Cross cultural change in management
As Pancakes On The Rocks has operated their systems and models well in Australia but introducing to different country would require a lot more considerations. The company may struggle in culture diversity because Australia's culture does not fit into Asian country. To be able to survive in overseas, Pancakes On The Rocks required to modify and test the overseas market that most suitable for the particular groups.
The increase of health-concerns
According to pattern of using health supplements, 22.8% of the population aged 15 and over aged 15 had taken health supplements in Hong Kong. The main findings shown female and person with higher monthly household income and higher education attainment had greater tendency of having taken health supplements. (Hong Kong Census and statistics department 2009) Based on the statistics, the growth rate in health-concern is one of the big issues that influence the consumer buying behavior. This trend will directly affect the company in concern of operation activities and the design selection of menu in a health- conscious style.
Infrastructure/ Technology Indicators
Hong Kong International Airport was the world's busiest international cargo airport for the continued 12 years (Airport Council International). The port of Hong Kong has always been an essential factor in driving Hong Kong's prosperity, which strategically located at the heart of Asia. Hong Kong has one of the world's busiest container ports as well as ranked as one of the most e-ready economies in the world (Economist Intelligence Unit).
Quality and facilities of the transport/Road network
Hong Kong has a well-developed and sophisticated rail and road network to cover every corner and keep people and goods on the move. Hong Kong's roads have nominated as one of the highest vehicle densities in the world. Over four millions of passenger travelled through the public transport during 2008. In addition, there were over 578,000 licensed vehicles and only 2,049 kilometers of roads in 2009. (Hong Kong Census and statistics department 2009)
Other relevant indicator
Lowest costs of doing business and business risk
Hong Kong has keep up its competitiveness and continues to have the best opacity in Asia Pacific and second in the world. The Opacity Index measures high frequency and low-impact risks based on five main factors, underlining the country's stable regulatory environment, low levels of corruption and high compliance with international standards for accounting rules and practices. It indicates Hong Kong has low costs of doing business as well as business risk. (Opacity Index 2009)
Hong Kong is one of most densely populated places in the world, with seven millions populations in 2009. Almost 95% of Hong Kong population is Chinese by place of origin. People in Hong Kong have a fairly high literacy standard of 97.1% (98.7% male, 95.4% female). In addition, Hong Kong population has improved in higher education attainment rapidly in the past decades. (see in Table 1 in Appendices) It indicates higher qualifications are tend to go for healthier choices and premium good; as well as a high degree of concern in nutrient value and higher expectation in quality of life.
Ageing Population and Low birth rate
Ageing population and decreased in birth rate become the most demographic challenges in Hong Kong. The ratio of the population under age of 15 has dropped rapidly, in the meanwhile, between 15 and 64 has indicating a marked increase and the group over 65 has more than a double. The supply of children in Hong Kong is at an all time low, at 0.966 children per woman. (Hong Kong Census and statistics department 2009)
Porter's Five Forces Analysis
Rivalry among Existing Competition
Exit barriers of Pancake On The Rocks in Hong Kong are low because it is not manufacturing industry but a kind of service industry.
Food service industry is well developed and approximately ten thousand restaurants are in Hong Kong. Moreover, many famous family restaurants are entered (e,g. T.G.I Fridays, Outback Steakhouse and Tony Roma's etc.) and also trying to enter the market. Therefore, industry concentration of Pancake On The Rocks is low in Hong Kong. (Hanstyle 2006)
Fixed costs / Value added
Food service industry has generally low fixed costs but high variable costs. It depends on how the company purchases fresh and good ingredients at low costs then competitors to get competitive advantage.
Population of Hong Kong is about 7 million and approximately 29.5 million tourists visited the country in 2008. (Austrade 2009) Tourism industry and food service industry have a very close relationship and local people usually eat out because sub-tropical climate of Hong Kong makes it difficult to store up foods long time and many women include married women are working. (Hong Kong Observatory 2009) There are almost 10 thousand of restaurants in the industry but it is not enough to handle demands of local customers and tourists. Therefore, the industry could be growth steadily in the future, if the industry does not influence by financial crisis and swan flu seriously. (Hanstyle 2009)
As food service industry is well developed and still developing, there are various countries foods and fusion foods in Hong Kong. For that reason, high level of product differences are existing and many restaurants are still trying to develop special menu to attract local customers and tourists. (KoreaHK24 2002)
As it noted above, there are many famous foreign family restaurant chains and local restaurants as main competitors of Pancake On The Rocks in the industry and the main menu is not that different between them. For that reason, the industry is high competitive market that customers can easily switch from on restaurant to another.
Diversity of rivals
Pancake On The Rocks is family restaurant that similar with general family restaurants (e,g. T.G.I, Outback and Tony Roma's etc) and those companies are from western countries. However, there are various countries and fusion restaurants are operating in Hong Kong. For example, Japanese, Thai, and Vietnamese foods are very well adapted and also Korean foods are trying to inroad into the Hong Kong market with Media (e,g. dramas and movies etc). (Hanstyle 2006)
Threat of Substitutes
As it mentioned previously, there are many famous foreign family restaurant and local restaurant chains in the industry and it can be direct substitutes because the main menu and price are very similar and each restaurant chain is generally operating all the restaurants of the chain with same recipes, ingredients, interior design and promotion etc. moreover, many people prefer healthy foods as a trend currently. For that reason, customers can easily switch from one restaurant to another by not price change but promotion such as various set menu, coupons and events etc and trends. Direct substitutes are such as T.G.I Fridays, Tony Roma's, Outback Steakhouse, and so on. (Austrade 2009)
Indirect substitutes also exist that as currently financial crisis; people could be suffered by financial difficulty and should make choice between eating out at family restaurants and shopping or leisure activities. Moreover, swan flu is prevalent around world presently, so people hesitate to go public places such as department stores, restaurants etc. Indirect substitutes are such as theatre, shopping mall, sports and possibly hospital etc.
The Bargaining Power of Buyer
The buyer power in food service industry of Hong Kong is weak because roughly, 29.5 million tourists visited Hong Kong in last year and the local people usually eat out but there are only about ten thousand restaurants in the market place. Therefore, buyers (customers) hardly control price of meals but they can decide restaurants or meals with their preferences and it can be positive or negative effect to restaurants.
The Bargaining Power of Supplier
The supplier power is powerful in the industry. The reason is that there is sort of surplus of customers because of larger number of tourists and supplier can control price of meals. However, also in different point of view, the supplier is weak, for example, if customers turn their mind from a restaurant, the restaurants could be damaged seriously.
Threat of Entry
Hong Kong is one of the freest markets and especially there are no tariffs or duties laid on imported food and beverages. However, imported food and beverages are regulated by local food laws and regulations such as Bacteriological or microbiological standards, contamination by harmful substances, food labeling regulations, nutrition labeling regulations and so on. (Austrade 2009)
As it noted above, there are many famous foreign family restaurant chains and also local restaurants as main competitors of Pancake On The Rocks in the industry and the main menu is not that different between them. For that reasons, the industry is high competitive market that customers can easily switch from one restaurant to another.
Generally, hospitality, tourism and service industries have low entry barriers that there is larger number of small firms because the firms could easily obtain resources etc. (Healy 2008, p.99) In this manner, there are ten thousand restaurants and many foreign restaurant chains are trying to enter the market.
Porter's Diamond of National Advantage
1. Factor conditions
Hong Kong's food service industry is well developed and still developing and has very similar factors with Australia's tourist industry and food service industry that huge number of tourists visits the country and various countries foods and restaurants are exist. Therefore, people adapt different kinds and countries food easily than other counties. In Hong Kong, for example, there are all kinds of restaurants such as Thai, Mexican, Vietnamese, European, American, Chinese, Korean and Japanese in a building. According to the country's climate condition, not only tourists but also local people usually eat out. (K2Trade 2005)
2. Demand Conditions
As it noted previously, Population of Hong Kong is about 7 million and approximately 29.5 million tourists visited the country in 2008. (Austrade 2009) Moreover, local people usually eat out because sub-tropical climate of Hong Kong makes it difficult to store up foods long time and many women include married women are working. (Hong Kong Observatory 2009) For the above reasons, there are huge demands and it is why most people consider Hong Kong as a paradise of food service industry. There was a change in Hong Kong's food service industry that people moved from good taste and atmosphere to health when they choose restaurants or menu. Therefore, well being food and beverage are very famous currently and restaurants are changing to satisfy customers' needs. (K2Trade 2005)
3. Related and Supporting Industries
There are roughly ten thousand of restaurants and each restaurants are operating by not only one owner but 3~5 owners and they have very well formed strategies to operate the restaurants effectively and get a competitive advantage in the market. (Hanstyle 2006) Generally, restaurants outsource many parts such as purchasing ingredients, maintaining and cleaning to manage effectively. As outsourcing is formed well in the market place, there are many dependable outsourcing companies and restaurants can concentrate on only cook and sale. (K2Trade 2005)
4. Firm Strategy, Structure and Rivalry
The one of the reasons that local people are usually eating out is the country's climate condition that foods are easily tainted and it can be same problem to restaurants. However, people usually eat out two or three times per day and it can be possible by Hong Kong government that they inspect sanitary conditions of restaurants very strictly. So, even very small restaurants are using dish washer and control their sanitary conditions through automation systems. (K2Trade 2005)
Strong brand Awareness in Australia
Over 35 years pancake making experiences
High quality product and services
One of Australianlargest western food restaurant
Diversified product portfolio for different customers
A new and innovation product and service to Hong Kong market
Exclusive access to high grade resources
Good reputation among customers
Lack of international marketing expertise
Undifferentiated products or services
Lack of brand awareness in Hong Kong market
Lack of local property in HK
Lack of cross cultural management experience
The recent financial crisis gives a good chance for us to entry Hong Kong market
Operating into an economics growth rapidly city, such as HK
Hong Kong is a special Administrative region of china, their is closely consist with each other in business and social area, so we have higher chance to gain the Chinese customer through HK
There are less direct competitor and low competition of Pancake restaurant in HK
There are unfulfilled needs of pancake restaurant in HK
Opportunities to develop strategic alliance and franchising system
New competitor entry to pancake restaurant market
Cross cultural and taste barriers
Raw material pricing fluctuation
Shifts in consumer tastes away from the ourproducts
Over spending in advertising and promotion
With the existing opportunities over the target market, the organization has two perspectives for short-run and long run respectively.
In short run, the company will continuously extend and maintain its strength within the target market, by regularly invent new and innovative products and integrate with local and international manufacturers of food and drink, and brand franchising to manufacturers of other goods and services, so as to enhance the existing business and facilitate the entry of new target segment - the working group, and also to help to obtain a well-known reputation over the target market.
In long run, the organization is planned to as well emerge in Asian market, as Asian market will also give rise to a great potential benefits as what have been discussed in the related opportunity paragraph. The organization aims to create a worldwide reputation over the world in the future decades.
Asia and Hong Kong markets are believed to have incessantly potential opportunities for western business to invest in Asia, as Asia is progressively more western culture and custom tended and the economy is still constantly growing, the company should not only focus and dependant on its main competitive advantage, the retail of pancakes and steaks. In future, the company will thus to diversify into different other sectors on its product and service to meet the various needs arise.
The company will use its competitive advantage over the specific product - pancakes, to influence and to push forward the culture of eating pancakes into the target market culture and trend, also to deepen the western leisure activity into the Asian customs, to strengthen and sustain the market for pancakes. Moreover, in order to prevent replacement of pancakes and customers will give chance to incline to substitute products, the company will strongly promote and acknowledge its product - the original and orthodox pancake to the customers.
As what have been discussed in the above paragraph, the company will apparently use the above-discussed strategies have to avoid its weakness to take place while operating the business when facing the threats.
Short term Objectives (1-3 years of operating in Hong Kong):
1. Launches all the product in Hong Kong successfully
The first objective is launching the product of Pancake On the Rocks to Hong Kong, which is requiring the advertising and promotion department to announce to the market. Moreover, need to adjust the taste of product to adopt the Hong Kong market.
2. Create the customer values
Pancake On the Rocks would create the customer value by reduce the cost, eliminate the necessaries, raise the product value and create the new opportunities of the brand. In addition, Pancake On the Rocks would increase the customer satisfaction to build up a good relationship to customers. For example, quality and services, which are out of their expectations, that can create positive and attitude and feelings to them.
Long term Objectives (3-6 years operating in Hong Kong):
1. Build up the Brand Equities
Establish the brand loyalty by the Customer Relationship Management system and programs to reduce marketing costs and attracting more customers that are new or retain short-term customers to become long-term customers.
Build up brand awareness by the investing in appropriate advertising. In addition, the product quality also can create the effect of word of mouth.
2. Achieve to 10% Market Share in the dessert market of Hong Kong
For internal forces, Pancake On the Rocks' will conduct the marketing strategy toward the customers in the target market in order to create perceived value and generate a positive response to increase the market share.
For external forces, Pancake On the Rocks will conduct the marketing researches to understand the market overview and change in Hong Kong. Therefore, Pancake On the Rocks cans utilities the competitive advantages to increase the market share and change the suitable strategies according to the market or competitors' actions.
Pancake On the Rocks produce various of pancakes, dessert and western foods, also we provide the kid's menu, breakfast menu. Therefore, its target market can be a big range, such as middle and high-income groups in any ages. However, for its advertising campaigns, we will mainly focus on the generation Y at the age 18 - 38 rounded, because they are the innovation enthusiasts and venturesome that are most willing to adopt and try new products, and they are the most consumable group in Hong Kong.
According to the official information, Hong Kong does not have any pancake restaurant existing, so we put our competitive concentration on the other dessert restaurants.
We position Pancake On the Rocks as a range of high value (include quality and others factors) with premium raw materials, which provide a good taste than other restaurant. In addition, Pancake On the Rocks will introduce the especial new range products for Asian tastes to customers in the long run, which will discuses in product strategy. On the other hand, we will charge an appropriate price to the customers who willing to pay.
The key differentiates advantage included:
Product quality, price, place and promotion activities
The reasons of the intended position, Pancake On the Rocks ultimate target is to be more competitive in the market, Pancake On the Rocks also want to attract more customers, build their confidence to our brand and brand awareness.
Market Entry Strategy
Since this is the first time of Pancake On The Rocks to globalize its business, we will choose Hong Kong to be the first target market to entry. The reasons why we choose Hong Kong as the first place to globalize the business. First, Hong Kong is a developed city; there are well-developed infrastructure and transportation network. Also, as we have plan to expand the business into international market, Hong Kong as a platform city to establishes the global network and gathers intelligence (Kotabe et al, 2008, p.260), it is helpful for us to make a experiment to test the reaction to our business. In addition, the Customs and Excise Department of Hong Kong stated 'HKSAR is a free port. There is no tariff on general imports.' (The Government of the HKSAR: Customs and Excise Department 2009) Therefore, Hong Kong gives us a taxation advantage. In addition, our managerial team is all Asians and mostly from Hong Kong, so they are very familiar with Asian market condition especially Hong Kong, therefore, it will easier to control and test our business in a small international city, and it would reduce the risk and barrier to entry Hong Kong market.
Merge & Acquisition
Pancake On The Rocks is a higher medium size restaurant with 35 years operation experience in Australia, and it has a large financial resource holding on hand. Therefore, Pancake On The Rocks will use Merge & Acquisition Strategy to entry Hong Kong market, and this strategy can increase the speed of entry Hong Kong market. In addition, by use this M & A strategy, Pancake On The Rocks can obtain the assets of the local restaurant, such as the human resources, suppliers, logistics, plant layout, place, network and the cooking skills.
The first step for M & A strategy is that, we will find a Hong Kong franchising agency, and select a local western food restaurant with good location, equipment and condition to merge.
The second step for this strategy is change the brand name, logo and menu of the obtained restaurant.
Assistant Entry Strategy: Cultural Penetration
The lifestyle of Hong Kong people are very quickness and rapidity, therefore, we provide a peaceful place with classical music and the convenience location to the customers, let them can a tea or have a nice meal after they work, by doing this, we can delivery the Australian pancake culture to Hong Kong customers. In addition, we can create the word of mouth to customers by the quality of the restaurant, and expand Pancake On The Rocks' restaurant culture to Hong Kong customers.
Timing to entry
The global market environment has been damaged by the financial tsunami. In 2010, the global market is still recovering from the economics recession. However, this is a good timing for Pancake On The Rocks to enter Hong Kong market and globalize its business. As Pancake On The Rocks have got sufficient financial resources, and due to the financial tsunami, the cost of new business establishment in Hong Kong is lower than before, In addition, there is no restaurant typically similar to Pancake On The Rocks, that means there are no direct competitor in Hong Kong. Therefore, 2010 will be a good timing for Pancake On The Rocks to enter the Hong Kong market.
In order to ensure the business in Hong Kong will not affect the core business in Australia, we have decided the exit strategy for Pancake On The Rocks. Our entry plan have set for six years, if it can not break even or just break even after six years, we will change our plan of operation. We will sell the restaurant and local office in Hong Kong and cut off the promotion activities in Hong Kong, and change the target market to the other potential market.