Overview of Retail Industry in Malaysia

In the last two decades, the retail industry in Malaysia started to develop and grow prominently with the entry of foreign franchises into the markets. It is because the growing opportunities of emerging international retail franchises in Asia lead them to grow and spawn rapidly throughout Malaysia including the increased number of outlets specializing in bakery and confectionery industry. For instance, Krispy Kreme Doughnuts Inc. is one of the companies that classified in this industry that has entered into a franchise agreement with Berjaya Krispy Kreme Doughnuts Sdn Bhd in Malaysia as to serve premium quality, tasty and even hot doughnuts for customers. (Ministry of Foreign Affairs of Denmark 2006)

Krispy Kreme was founded by Vernon Rudolph in Winston-Stem, NC in 1937 when he began selling doughnuts in a rented building to local grocery stores using a secret yeast-raised doughnut recipe from a French chef. He decided afterwards to sell hot and fresh doughnuts directly to customers through a hole on building wall once demanded by passers-by of the street who lured by the delicious scent o0f cooling doughnuts. (Krispy Kreme Doughnuts and Coffee 2010) Up to this point, Krispy Kreme became a wholesale and retail business, as it is today. (Matt Gromadzki 2010)

Vision and Mission Statement

Krispy Kreme’s vision statement is “to be the worldwide leader in sharing delicious tastes and creating joyful memories”. And the mission statement is “to touch and enhance lives through the joy that is Krispy Kreme”. (Krispy Kreme Doughnuts and Coffee 2010)

Product and Services

Krispy Kreme makes, sells and distributes varieties of premium quality doughnuts, including its Hot Original Glazed doughnut (Bloomberg Businessweek 2010) and beverages include espresso drinks, Kremey Chillers, Coffee Chillers and Fruity Chillers. In addition, there are collectibles offered for its loyal customers such as T-shirts, script hats, and etc. (Krispy Kreme Doughnuts Malaysia 2009) Their services include the free WiFi services provided are satisfied and enjoyable as it aims to sell experience to customers.

Customers

The customers of Krispy Kreme ranged from B2B (Business-to-Business) and B2C (Business-to-Customer). B2B transaction occurred where Krispy Kreme packages and sells its products through off-premises sales, which comprise sales to retail grocery outlets and convenience stores. It also targeted and emphasized on B2C commerce by offering its products to customers directly through on-premises sales when they patronize in the company-operated retail stores. (Bloomberg Businessweek 2010)

Competitors

Krispy Kreme’s success depends on its ability to compete with many food service businesses. (Krispy Kreme Doughnuts, Inc 2003) Its main competitors in the same industry are Dunkin’ Donuts, Big Apple Donuts & Coffee and J.CO Donuts & Coffee. Their products offered are looked similar to each other and thus they compete on the factors such as quality, varieties, convenience, location, and customer services which influence customers’ perception and buying decision. (Bobbie 2004)

Chapter 2: Literature Review

Customer Value Proposition

Customer value proposition is the total bundle of perceived benefits that the customers received from the purchase of products or services relative to the price they paid. (Berman & Evans 2006) It is the appropriate voice of customers that guide the businesses to their most profitable end. (Reidenbach & Goeke 2006) Regards to Kaplan and Norton’s generic model of the customer value proposition, there are three components that each comprised of a set of attributes that are product attributes, image and customer relationships. (Figure 2.1) (Kaplan & Norton 1996)

Figure 2.1 Customer Value Proposition

Generic Model

= + +

Customer Relationships

Image

Product Attributes

Value

Functionality

Quality

Price

Availability

Source:

Kaplan, R. S. & Norton, D. P. 1996. The Balanced Scorecard: Translating Strategy into Action. Unites States: Harvard Business Press.

Product Attributes

To create customer value, the performance of products attributes, such as functionality, price, quality and availability, is important in fulfilling the customers’ needs and wants and which they are willing to pay for. (Rafinejad 2007) From the aspect of functionality, it should discern from the offerings of other competitors by the efforts of innovation. (Kaplan & Norton 2004) In addition, customers will not switch to other shops if the products’ quality able to fulfil their expectations, the price is reasonable and there is always availability for the products they want. (Awbi 2006)

Image

For retailers, image and reputation are important for them to develop a positive and powerful image in terms of their products, the store itself and the expected shopping experience in the store as to gain opportunity to stand out among the aggressive rivals and be remembered by the customers. (Geary 2007) Retailers also define a clear image to their target customers through promotional strategies such as advertising or through corporate social activities for the purpose of impressing customers. (Kaplan & Norton 1996)

Customer Relationships

The long term bonds between retailers and customers are at the heart of every retail business to anticipate what customers want for future so as to gain their trust and loyalty. (Impactfactory.com 2010) There are four factors provided to build up relationship retailing, which are customer base, customer service, customer satisfaction and loyalty programs. (Berman & Evans 2006)

Customer Base

Retailers should build their customer base and must regularly analyse it as to meet customer expectations and strive to increase the total number of customers. (Peppers & Rogers 2004) They need to divide customers into groups according to five segmentation bases, that are geo-demographic, demographic, geographic, behavioural pattern and psychographic bases to examine their population and lifestyle trends, preferences and etc. (Berman & Evans 2006) As such, customer profiles can be built using the data collected to enable retailers to understand their core customers’ characteristics efficiently and effectively and determine how customers response to marketing strategies. (DMSRetail, Inc. 2010)

Customer Service

Customer service is the “add-ons” activities that designed to improve the total customer’s experience during or after a purchase transaction. There are two elements of customer service which the retailers must apply in their business environment. Expected customer service is the basic services such as politeness of employees which will credit for the retailers. Augmented customer service is the extra elements that provided for the meaning of adding value to their offerings. (Berman & Evans 2006) In a nutshell, superior customer service symbolizes an excellent interaction and satisfied relationships between retailers and customers. (Krafft & Mantrala 2010)

Customer Satisfaction

Customer satisfaction occurs when the total shopping experience has met or exceeded the customers’ expectation. (Berman & Evans 2006) To determine customer satisfaction level, retailers have to conduct customer surveys to discover their strengths and weaknesses. The feedback and ratings allow them to find out what customers want for future and have an early warnings or speedy resolutions to customer issues too. (Reynolds 2002) The retailers could be customers’ long term choice when they realised their problem areas are being concerned. (Berman & Evans 2006)

Loyalty Programs

For retention of current customers, the loyalty programs are the best sales promotion tools always benefits retailers to retain existing customers rather than to attract new customers because the financial impact on their businesses is more profitable. (Gale & Wood 1994) Indeed, a customer database is needed to compliment this program and track core customer’s behavior and attitude when they regularly patronize their offerings. (Berman & Evans 2006)

Chapter 3: Findings

Customer Value Proposition

In decision making, there are many issues faced by Krispy Kreme in building rapport relationships and creating customer value. These problems can be identified by examining the components within customer value proposition.

Products Attributes

Functionality

In the twenty-first century, new functionalities of products are the main driver for lasting competitive advantage as it can keep customers impressive and fresh always. (Pinchot & Pellman 1999) However, Krispy Kreme’s core product line is undiversified and the variety of doughnuts offered is considered less with the combination of small seasonal changes. (Docstoc.com 2010) Customers will easily get bored of it and minimize their patronize rate if the choices of flavor provided remain unchanged in long-term. They will easily switch to its competitors.

Price

Price of doughnut has been another issue. Increase in the cost of ingredient that is sugar due to the rise in the price of the raw commodity on the world market has brought effect on the price and sales of doughnuts. (The Star Online 2010a) Some customers who are price-conscious would think that RM2.50 for one doughnut is expensive and not worth it. (Modelanswer.co.uk 2010) Normally or especially during inflation, it cannot be an everyday purchase food (Robertson 2005) and they will rather to buy a loaf of bread than one doughnut. (Modelanswer.co.uk 2010) Thus, the sales of Krispy Kreme fall due to the aggressive competitions in bakery and confectionery industry.

Quality and Availability

Customers desired to enjoy in Krispy Kreme is the full experience- how doughnuts being made, the smell of the mouth-watering delicacy and the hot, fresh doughnuts. (Robertson 2005) However, customers always found disappointed when the only cold doughnuts are available to them, doughnut theatre is not functioning and no yummy smell. In some stores, the doughnuts offered are not crispy enough too.

In addition to that, the specialty and seasonal doughnuts are increasing in demands so as to celebrate certain purposes. (Docstoc.com 2010) Customers always failed to purchase their favourites flavours due to out of stock. (SuzakuLace 2009) All these issues will affect their appetites and extemporizations to consume Krispy Kreme doughnuts as well as their expectations are substantially dropped.

Image

For Krispy Kreme, word of mouth of satisfied customers is more credible than paid advertising as the outcomes of advertising may not as ideal as expectation and costly. (Docstoc.com 2010) Even when new store openings, they relied on free local publicity of media mass to report for their store openings events and it does worked well at initial stage. (Sue 2010) Nevertheless, it failed to make all citizens in Malaysia to realize on the existence of Krispy Kreme continuously as no constant advertising about its brand and promotions and thus many of them may forgot or never heard of the brand. As such a low visibility of Krispy Kreme, it caused the business to generating loss.

Besides that, customers currently are more concerned about business ethics and corporate social responsibility which the business has conducted. Hence, they will only trust and support the reputation of Krispy Kreme if they have involved in more ethical practices. (Hayes 2000)

Customer Relationships

Customer Base

The aging Malaysian population (see Appendix 3) and the increasingly health conscious market now has shown to pose challenges to Krispy Kreme. There is an increasing low-carbohydrate and low-fat trend in eating preferences among all the citizens, undoubtedly included senior citizens. (Murugayin et al 2009) However, Krispy Kreme is offering no healthy alternatives to their high calorie doughnuts for customers. (EssayNetwork.com 2008) As such, health concerned customers limited their consumption in Krispy Kreme. (Fish et al 2009)

The people now tend to be more job-dominated in the bargain, they requested for fast and ready served food rather than wait in a long queue which waste time. Additionally, Krispy Kreme has to take notice of the increasing rate of better-educated and white-collar population and cater their needs based on their lifestyle trend and spending pattern.

Customer Service

Many customers now like to bring their laptops to work on their stuff while having their meal. Thus they will only choose restaurants which provide networking service. Many of the customers now prefer to choose the delivery service for fast food ordering too as it saves time and convenient. Nonetheless Krispy Kreme will not become their choice as no delivery service offered by Krispy Kreme in Malaysia. (EssayNetwork.com 2008)

Customer Satisfaction

Customers found out that the website of Krispy Kreme in Malaysia is dull and not updated with the news of promotions and the new store location. Krispy Kreme tends to lose large number of its potential customers as they unaware of the latest offers or products. They leave out the importance of website as a contact point with customers and for the purpose of advertising their products too. (Pegasus InfoCorp Pvt. Ltd. 2006)

Due to Krispy Kreme’s slow movement into Malaysia market, there are only four stores available for customers. (Docstoc.com 2010) Many customers from other states such as Pulau Pinang create great demand for Krispy Kreme too as the stores only obtainable in Klang Valley. The chance to savour a doughnut is very rare for them. (Malaysian Franchise Association 2009)

Loyalty Programs

There are high demands for loyalty programs offered by retailers as these programs will honor customers shopping behavior and hence reward them. Customers are more likely to patronize a business that offer appealing rewards. However, Krispy Kreme failed to offer loyalty programs such as member cards for customers to increase customer loyalty. These caused the slowdown of customer spending and thus reduced repeat shoppers at Krispy Kreme. (Noton 2010)

Chapter 4: Recommendations

Customer Value Proposition

Below are the relevant recommendations for Krispy Kreme to the issues highlighted in Chapter 3.

Products Attributes

Functionality

To secure its market position among all the rivals, Krispy Kreme can expand and diversify its product line by positioning themselves as breakfast stop which exceeding their basic product line through the sales of sandwiches, croissants, muffins, or other pastry items. (Docstoc.com 2010) They also can build a dessert heaven for customers to enjoy mini donuts, donut cupcakes, or Kool Kreme. (Bussel & Stephens 2009) In addition to new food offerings, Krispy Kreme also introduce a new beverage line featuring its Chillers frozen drinks which have Kremey flavors and Fruity flavors to challenge the beverage market and response to the actions of rivals. (Lockyer 2007)

Price

During inflation, Krispy Kreme can adopt the bundle pricing strategy by creating and offering value meal for customers such as Brunch Set at a low and worthy price. Any two doughnuts and one coffee or tea will only sell RM5.50 and offered from 10am to 1pm. (Food Promotions 2010) In conjunction with the World Cup, Krispy Kreme also offered customers a Brew Box set with a discounted price of RM10 for a dozen of doughnuts when they purchase the 96oz coffee Brew Box at RM39.90. This is a discount of over 50% off its original price (Alhadjri 2010) included the specially-crafted football doughnuts which will make the frequent customers who are also football enthusiasts feel “special” and excited to participate on it. The customers who buy a dozen of doughnuts will have a chance to join Shoot-A-Goal challenge and be rewarded with two doughnuts if they can slot the ball. (Fernandez 2010)

Besides that, they can offer promotion to all students which they can enjoy 10% discount for their purchases at Krispy Kreme when they present their valid Student Card. (Everydayonsales.com 2010a) These would be exciting and effective promotion strategies to stimulate and boost their sales during inflation.

Quality and Availability

Krispy Kreme can increase their frequency of producing hot doughnuts and tell customers the time the hot doughnuts would be offered so that they would not groan for their futile hopes. They could constantly providing fresh and crispy yet sufficient doughnuts through a mix plant that distribute a consistent doughnut mix and “Krispy Kreme Hot Doughnut Machine” that ensure identical texture and flavor and high quality at any stores. (Docstoc.com 2010)

On the other hand, they are also required to fulfill the demand of customers by offering specialty doughnuts with limited edition design and flavor such as special Christmas, Halloween or Valentine’s doughnuts according to certain festival. (Modelanswer.co.uk 2010) The themed doughnuts can be promoted too such as holiday doughnuts, special order birthday doughnuts or special event catering to attract young ages and increase the holidays’ sales. (Szczepaniuk & Chan 2008)

Image

Anyhow word of mouth has its limitation and Krispy Kreme should catch up with some advertising to expose their visibility to the public. They will spend five or six percent of its total sales on advertising to increase brand awareness such as through TV, radio, newspaper and etc. (The Star Online 2009) Significantly it is worth to spend in advertisement as it helps to spread to every corner of the world and communicate the image and message of tasty and friendliness that brought by Krispy Kreme Doughnuts. (Kapoor 2010)

Krispy Kreme can implement social responsibility programs in order to practise ethical approach and improve the public view of Krispy Kreme. (Hayes 2000) Fundraising program can be launched to help the non-profit organizations to raise needed funds. (Kalimuthu 2010) There are several types of fundraising programs include boxed doughnut sale, certificate sale, partnership cards and coffee sale. (White 2010) (See Appendix 4) They also stretch their helping hands to those less fortunate by donating them an amount of money allocated from their profit. (Murugayin et al 2009)

Krispy Kreme should try to think and act outside the box by conducting celebrity endorsement for their doughnuts business too. To add value into the perception of customers, it can consider endorsing a green celebrity who is going green as the trends of going green program earn more supports from customers today (Davis 2010) and their effectiveness are the motivation for the customers to trust on. (Killeen 2010)

Customer Relationships

Customer Base

To capture the attention of the recent health conscious wave riders, Krispy Kreme introduced a new 100% whole-wheat doughnut as a better alternative for health conscious customers. (Krispy Kreme Dougnuts, Inc 2007) Besides, Krispy Kreme can build up their drive-thru service to make it convenience for customers who want quick servings within minutes and without ever leave their cars. (Sue 2010)

The white collars include businessmen who always travel abroad can fully savour the new experience that Krispy Kreme brought to them now as Krispy Kreme have partnered with AirAsia to offer doughnuts in their Snack Attack in-flight menu. (See Appendix 5) The doughnuts will be offered in box of two which is an affordable indulgence for customers on flight. (Dourado 2009)

Customer Service

Krispy Kreme has to offer free WiFi service for customers so they can access internet at anytime and any corners in the stores. (Hayes 2000) Krispy Kreme can provide online or telephone ordering with the combination of home or office delivery service for customers. It makes convenience for customers who do not get time to cook or want to enjoy snack time at home. (Jack 2009) It also can consider for operating 24 hours at their drive thru stores so that customers can buy fresh doughnuts and coffee at anytime of the day. (Docstoc.com 2010)

Customer Satisfaction

Krispy Kreme should regularly updating its own website so that customers up-to-date with any promotions of the company. They can build up a news section such as “Friends of Krispy Kreme club” where customers can sign up to get periodic updates. (Krispy Kreme Doughnuts Corporation USA 2010) Krispy Kreme can propose to expand their stores to other states too instead of only Klang Valley. This can satisfy their hunger for Krispy Kreme doughnuts as they can always patronize it within their states. (Malaysian Franchise Association 2009) They will celebrate their opening by giving away sweet treats to the first 100 customers with their purchase of a dozen of doughnuts. (See Appendix 6) (Kalimuthu 2010) In addition, they should provide survey forms for customers to rate their experience so that they can improve better in their services. (See Appendix 7) (Modelanswer.co.uk 2010)

Loyalty Programs

To increase customer loyalty and maintain profitability, Krispy Kreme must come up with loyalty programs such as member cards so that customers can accumulate points from their every purchase and redeem for free doughnuts. As a result, current customers can be retained and new customers can be drawn in. (Milla 2010) Krispy Kreme form an unpaid loyalty base with their own collectibles too. (Docstoc.com 2010)

Besides that, they can offer value package voucher by adopting the sales promotion tool- BOGOF (buy one get one free). Voucher for a free dozen of Original Glazed doughnuts with the purchase of another dozen of the same doughnuts will be offered free to customers or buy one cup of coffee and get another cup with free too. (Buyonegetone.co.uk 2008)

Chapter 5: Conclusion

Krispy Kreme is a branded specialty retailer of premium quality doughnuts that has realized for excellent results and reputation for providing high quality and original doughnuts since 1937. In Malaysia, Krispy Kreme is still struggling in the early stage of growth. Although there are many people who are unaware of the existence of Krispy Kreme, yet they have their own strengths and opportunities that allowed them to step further away from the spot they are standing now into domestic and international markets. (Docstoc.com 2010) It will be their doughnut world in one day where all people would enjoy their melt-in-your-mouth doughnuts if they continuously endeavor and strive for victory. (Modelanswer.co.uk 2010) Each time when an outlet opening will marks another significant yet meaningful milestone for them. (Kalimuthu 2010)

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