KFC Marketing Strategy in Malaysia

2869 words (11 pages) Essay

6th Jun 2017 Marketing Reference this

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Rationale

KFC Holdings (Malaysia) Bhd is currently the market leader [1] in the fast-food industry of Malaysia. With 457 restaurants operating all over the country [2] and expected to open more doors towards the consumers, the company manages to stay ahead controlling over 60% of the fast food market in Malaysia [3] . The company has developed a rigorous marketing strategy and marketing plan to retain its market share. One of it is through the product development. Hence, the effectiveness of these strategies is the most anticipated part for the stakeholders.

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Theoretical Framework

Positioning map will be used to know the current position of KFC against its rivals. This will be based on two variables that will be later indentified in the commentary. Technique of ratio analysis will be taken into consideration to assess the significant of the changes in their sales revenue and profits. Besides that, the positioning map will also be utilized to analyze the position of the company perceived by the consumers but not the other way around as the aim is to know the effectiveness of their strategy in positioning their brand against rivals. Hence, the consumers will be the indicator in the positioning map.

1.0 INTRODUCTION

In 1973, the first Kentucky Fried Chicken (KFC) [4] restaurant officially opened their door for customers at Jalan Tunku Abdul Rahman [5] . The franchise-based restaurant has been serving millions of the hungry customers and these progresses are successfully managed by the KFC Holdings (Malaysia) Bhd [6] .

The latest world economic recession had also struck Malaysia inevitably. Ergo, to sustain their performance, KFC has launched strategies to cope with the economic slowdown [7] . They launch one new product every quarter with hope that KFC will achieve double-digit growth in the future [8] .

In achieving this, they will rely heavily on the effectiveness of the product developments [9] that they are using. It might not be a problem for them to attract their loyal customers; however, in order for KFC to boost their sales revenue, they might need to evaluate the repercussion of implementing such strategy. Hence, evaluation on their sales revenue, profit and other relevant materials will be done together with the analysis of the interview transcript and the questionnaire to answer the commentary title: Is the product development by KFC Holdings (Malaysia) Bhd effective to boost their sales revenue and profitability?

2.0 MAIN FINDINGS AND ANALYSIS

2.1 PRODUCTS DEVELOPMENTS AND ITS EFFECTS TOWARDS CONSUMERS, SALES REVENUE AND PROFITABILITY

Identification of new products [10] from 2006 until 2009 [11] had shown that KFC has implemented rigorous efforts to remain as the market leader in Malaysia fast food industry.

2.1.1 CONSUMERS

From the survey conducted [12] , the consumers rated KFC products development on average of 7.22 [13] leading other fast food restaurants. This rate (higher than 5) implies that most of KFC new products are satisfying. As it is not rated as very satisfying, there is room for improvements in their product developments. It is also reflected on the percentage of consumers perceiving their products as great food standing high at 33.7%. Hence, it can be concluded from this percentage that KFC succeeded in giving satisfaction towards their consumers as it suits to their current preferences on fast food menu [14] . Success for the products development might be driven by the effective market research [15] done by the company before the development of the respective products. If the company consistently producing products that are well accepted by their clients, it will possibly amplify the brand loyalty of the consumers and their effective promotion [16] could widen their present customer base.

2.1.2 SALES REVENUE

Source: Supporting Document 2, Financial Statements 2007/2008/2009

Since 2006, the sales revenue of the company gradually increased towards the end of 2009. The increment was nearly RM8 millions which denoted a positive correlation between the effectiveness in the products development and KFC’s sales revenue. From the chart above, the sales growth [17] for 2007 is 13.5%, while for 2008 the sales growth percentage increased by 12.5% hitting 26%, however, sales growth in 2009 did increase with a single-digit. Thus, 2009 sales growth did not fulfill the aim of the company in achieving a double-digit growth [18] . Basically, the improvement by double-digit in the sales growth reflected an important signal that KFC’s products development had played a major role in sustaining their control of over 60% market share in Malaysia’s fast food industry [19] . The failure of KFC in achieving the same desired double-digit growth in 2009 did not convey the message of ineffectiveness of the product development as it is well-realized in that particular year; the world economic recession had caused a bad consumers’ sentiment [20] . Nevertheless, the sales revenue did not slump as the government successfully stimulated consumers spending through its two economic packages last year [21] .

2.1.3 PROFITABILITY

Source: Supporting Document 2, Financial Statements 2007/2008/2009

Generally, the chart above depicts a marginal rise in the amount of profits achieved by KFC from year 2006 till 2009. Overall, the profits gained accelerated in 2007 and keeping its pace into 2008 and 2009. The stronger escalation was enhanced through higher input and better margin from KFC restaurant division [22] .

Source: Supporting Document 2, Financial Statements 2007/2008/2009

From the ROCE calculated [23] , it can be clearly seen the ratio is merely constant. Its fluctuation ranges from 0.1% to 0.4%. The highest percentage was reached in 2007 while the lowest was in 2008 during this four years period. As most businesses regarded 20% of ROCE as satisfying [24] , KFC is still below par. Though it is so, on average the ROCE standing high compared to Malaysia benchmark interest rate which is 2.75% [25] . This indicates that the business will prosper better by investing the money rather than depositing it in the bank [26] . The falling of ROCE percentage in 2008 was due to the slowdown in consumers’ spending [27] thus causing a drawback in the market. In fact, the substantial increment in amount of money invested, RM148.279 millions, yielded a marginal improvement of profits which is RM16.883 millions. Besides that, with the recent hike in raw material prices [28] instigated by the soaring world oil-price [29] , KFC optimistically retained its current product prices as they want their consumers to receive the best, consequently, they cannot recoup the cost of production by interpreting it higher charges of products [30] . However, a rise of 0.2% in 2009 was driven by the effective product development conducted by KFC [31] .

Overall, KFC GPM marked a strong percentage though it slumped to 51.1% in 2008 from 58.0% in 2006. The reduction is once again can be well-explained through the economic downturn that affected Malaysia at that moment. Nonetheless, a hike of 1.9% in 2009 contributed by the 2.7% decline in the electricity bills starting March 2009 [32] .

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Basically, the company NPM was below 10%. A consistent fall of NPM was mainly due to the increasing cost of raw materials which is well reflected in the cost of goods sold [33] . Nevertheless, an enhancement of 0.6% in 2009 might be promoted by the introduction of KFC’s popular “Jom Jimat” [34] sets. Basically, KFC is concentrating on the value for money meal theme to draw more customers during the economic depression [35] .

Conclusively, the implementation of product developments had caused a mix effects towards the profitability of KFC. From the year of 2006, the GPM and NPM recorded a declining trend towards 2008. However, all ratios, the ROCE, GPM and NPM recovered altogether in 2009. These improvements are believed to be rooted from the effectiveness of the product developments execution. In fact, the decreasing percentages of ratios were majorly reasoned by the external factor of the business which cannot be controlled by the company which the economic recession, hence, is proving the effectiveness of the product developments in coping and surviving the economic predicaments.

2.2 PRODUCT DEVELOPMENTS AND ITS REPERCUSSIONS TOWARDS CONSUMERS’ PERCEPTION

positioning map.gif

Most of the respondents perceived KFC’s products as high quality and priced economically. As such, its products can be classified as bargain goods [36] . However, this tactic is not sustainable for long term as high quality products inevitably associated with high cost of productions. It is only a short-term approach to boost its sales [37] . KFC can be said to adopt a winning value proposition, more for less, which refer to more benefits for less price [38] . A high percentage of 33.7% agreed that KFC provide a great taste of food [39] followed by 18.8% on low price [40] . Besides that, more than 10% respondents undoubtedly felt the company has wide variety of products choice [41] , comfortable environment of outlet and keeping its service at good quality [42] . Through the intensive product developments by introducing four to five new products every year to give customers a new tasting experience combined with diversified product range [43] , KFC managed to position its products better than its closest rival, McDonald. McDonald that has teenagers as their target market is now shifting towards family-type consumers [44] , while KFC is trying to attract more teenagers through its product developments, for instance, the latest Toasted Pocketful that is mainly focused on teens [45] . A great combination in their marketing mix which are products, pricing, promotion and place have developed a synergy in their product developments thus reflecting vividly the effectiveness.

3.0 CONCLUSIONS

The effectiveness of the product developments were measured heavily through the financial analysis using the profitability ratio. However, that will not be a holistic yardstick in determining its product developments effectiveness. Hence, other external influences should also be considered.

Overall, following the trend, the GPM and NPM decreased consistently from 2006 till 2008 reflecting the point of recession occurring. However, at that point of predicament, the effective product development helped KFC gaining a rise in its main profitability ratios. The higher percentage is mainly generated from the sales and this is well reflected in its stronger sales revenue and profits gained year over year. In fact, increments of ratio percentage in 2009 showed that KFC had survived and recovered greatly from the bad economic atmosphere clouding Malaysia.

If the decreasing ratio percentage from 2006 to 2008 is to be argued, the best explanation for this would be the external factor. Businesses are subjected to external influences and so does KFC. The company is unable to avoid the economic downturn; however, their strategy in prioritizing the matter of surviving and recovering from the slowdown had given them a competitive advantage through its product developments.

It is most likely that KFC will keep improving in terms of their sales revenue and profitability in 2010 onwards if they consistent in creating effective product developments. By looking at the transition between the year 2008 and 2009 in particular, it is proven that product developments by KFC Holdings (Malaysia) Bhd is effective to boost its sales revenue and profitability.

Rationale

KFC Holdings (Malaysia) Bhd is currently the market leader [1] in the fast-food industry of Malaysia. With 457 restaurants operating all over the country [2] and expected to open more doors towards the consumers, the company manages to stay ahead controlling over 60% of the fast food market in Malaysia [3] . The company has developed a rigorous marketing strategy and marketing plan to retain its market share. One of it is through the product development. Hence, the effectiveness of these strategies is the most anticipated part for the stakeholders.

Theoretical Framework

Positioning map will be used to know the current position of KFC against its rivals. This will be based on two variables that will be later indentified in the commentary. Technique of ratio analysis will be taken into consideration to assess the significant of the changes in their sales revenue and profits. Besides that, the positioning map will also be utilized to analyze the position of the company perceived by the consumers but not the other way around as the aim is to know the effectiveness of their strategy in positioning their brand against rivals. Hence, the consumers will be the indicator in the positioning map.

1.0 INTRODUCTION

In 1973, the first Kentucky Fried Chicken (KFC) [4] restaurant officially opened their door for customers at Jalan Tunku Abdul Rahman [5] . The franchise-based restaurant has been serving millions of the hungry customers and these progresses are successfully managed by the KFC Holdings (Malaysia) Bhd [6] .

The latest world economic recession had also struck Malaysia inevitably. Ergo, to sustain their performance, KFC has launched strategies to cope with the economic slowdown [7] . They launch one new product every quarter with hope that KFC will achieve double-digit growth in the future [8] .

In achieving this, they will rely heavily on the effectiveness of the product developments [9] that they are using. It might not be a problem for them to attract their loyal customers; however, in order for KFC to boost their sales revenue, they might need to evaluate the repercussion of implementing such strategy. Hence, evaluation on their sales revenue, profit and other relevant materials will be done together with the analysis of the interview transcript and the questionnaire to answer the commentary title: Is the product development by KFC Holdings (Malaysia) Bhd effective to boost their sales revenue and profitability?

2.0 MAIN FINDINGS AND ANALYSIS

2.1 PRODUCTS DEVELOPMENTS AND ITS EFFECTS TOWARDS CONSUMERS, SALES REVENUE AND PROFITABILITY

Identification of new products [10] from 2006 until 2009 [11] had shown that KFC has implemented rigorous efforts to remain as the market leader in Malaysia fast food industry.

2.1.1 CONSUMERS

From the survey conducted [12] , the consumers rated KFC products development on average of 7.22 [13] leading other fast food restaurants. This rate (higher than 5) implies that most of KFC new products are satisfying. As it is not rated as very satisfying, there is room for improvements in their product developments. It is also reflected on the percentage of consumers perceiving their products as great food standing high at 33.7%. Hence, it can be concluded from this percentage that KFC succeeded in giving satisfaction towards their consumers as it suits to their current preferences on fast food menu [14] . Success for the products development might be driven by the effective market research [15] done by the company before the development of the respective products. If the company consistently producing products that are well accepted by their clients, it will possibly amplify the brand loyalty of the consumers and their effective promotion [16] could widen their present customer base.

2.1.2 SALES REVENUE

Source: Supporting Document 2, Financial Statements 2007/2008/2009

Since 2006, the sales revenue of the company gradually increased towards the end of 2009. The increment was nearly RM8 millions which denoted a positive correlation between the effectiveness in the products development and KFC’s sales revenue. From the chart above, the sales growth [17] for 2007 is 13.5%, while for 2008 the sales growth percentage increased by 12.5% hitting 26%, however, sales growth in 2009 did increase with a single-digit. Thus, 2009 sales growth did not fulfill the aim of the company in achieving a double-digit growth [18] . Basically, the improvement by double-digit in the sales growth reflected an important signal that KFC’s products development had played a major role in sustaining their control of over 60% market share in Malaysia’s fast food industry [19] . The failure of KFC in achieving the same desired double-digit growth in 2009 did not convey the message of ineffectiveness of the product development as it is well-realized in that particular year; the world economic recession had caused a bad consumers’ sentiment [20] . Nevertheless, the sales revenue did not slump as the government successfully stimulated consumers spending through its two economic packages last year [21] .

2.1.3 PROFITABILITY

Source: Supporting Document 2, Financial Statements 2007/2008/2009

Generally, the chart above depicts a marginal rise in the amount of profits achieved by KFC from year 2006 till 2009. Overall, the profits gained accelerated in 2007 and keeping its pace into 2008 and 2009. The stronger escalation was enhanced through higher input and better margin from KFC restaurant division [22] .

Source: Supporting Document 2, Financial Statements 2007/2008/2009

From the ROCE calculated [23] , it can be clearly seen the ratio is merely constant. Its fluctuation ranges from 0.1% to 0.4%. The highest percentage was reached in 2007 while the lowest was in 2008 during this four years period. As most businesses regarded 20% of ROCE as satisfying [24] , KFC is still below par. Though it is so, on average the ROCE standing high compared to Malaysia benchmark interest rate which is 2.75% [25] . This indicates that the business will prosper better by investing the money rather than depositing it in the bank [26] . The falling of ROCE percentage in 2008 was due to the slowdown in consumers’ spending [27] thus causing a drawback in the market. In fact, the substantial increment in amount of money invested, RM148.279 millions, yielded a marginal improvement of profits which is RM16.883 millions. Besides that, with the recent hike in raw material prices [28] instigated by the soaring world oil-price [29] , KFC optimistically retained its current product prices as they want their consumers to receive the best, consequently, they cannot recoup the cost of production by interpreting it higher charges of products [30] . However, a rise of 0.2% in 2009 was driven by the effective product development conducted by KFC [31] .

Overall, KFC GPM marked a strong percentage though it slumped to 51.1% in 2008 from 58.0% in 2006. The reduction is once again can be well-explained through the economic downturn that affected Malaysia at that moment. Nonetheless, a hike of 1.9% in 2009 contributed by the 2.7% decline in the electricity bills starting March 2009 [32] .

Basically, the company NPM was below 10%. A consistent fall of NPM was mainly due to the increasing cost of raw materials which is well reflected in the cost of goods sold [33] . Nevertheless, an enhancement of 0.6% in 2009 might be promoted by the introduction of KFC’s popular “Jom Jimat” [34] sets. Basically, KFC is concentrating on the value for money meal theme to draw more customers during the economic depression [35] .

Conclusively, the implementation of product developments had caused a mix effects towards the profitability of KFC. From the year of 2006, the GPM and NPM recorded a declining trend towards 2008. However, all ratios, the ROCE, GPM and NPM recovered altogether in 2009. These improvements are believed to be rooted from the effectiveness of the product developments execution. In fact, the decreasing percentages of ratios were majorly reasoned by the external factor of the business which cannot be controlled by the company which the economic recession, hence, is proving the effectiveness of the product developments in coping and surviving the economic predicaments.

2.2 PRODUCT DEVELOPMENTS AND ITS REPERCUSSIONS TOWARDS CONSUMERS’ PERCEPTION

positioning map.gif

Most of the respondents perceived KFC’s products as high quality and priced economically. As such, its products can be classified as bargain goods [36] . However, this tactic is not sustainable for long term as high quality products inevitably associated with high cost of productions. It is only a short-term approach to boost its sales [37] . KFC can be said to adopt a winning value proposition, more for less, which refer to more benefits for less price [38] . A high percentage of 33.7% agreed that KFC provide a great taste of food [39] followed by 18.8% on low price [40] . Besides that, more than 10% respondents undoubtedly felt the company has wide variety of products choice [41] , comfortable environment of outlet and keeping its service at good quality [42] . Through the intensive product developments by introducing four to five new products every year to give customers a new tasting experience combined with diversified product range [43] , KFC managed to position its products better than its closest rival, McDonald. McDonald that has teenagers as their target market is now shifting towards family-type consumers [44] , while KFC is trying to attract more teenagers through its product developments, for instance, the latest Toasted Pocketful that is mainly focused on teens [45] . A great combination in their marketing mix which are products, pricing, promotion and place have developed a synergy in their product developments thus reflecting vividly the effectiveness.

3.0 CONCLUSIONS

The effectiveness of the product developments were measured heavily through the financial analysis using the profitability ratio. However, that will not be a holistic yardstick in determining its product developments effectiveness. Hence, other external influences should also be considered.

Overall, following the trend, the GPM and NPM decreased consistently from 2006 till 2008 reflecting the point of recession occurring. However, at that point of predicament, the effective product development helped KFC gaining a rise in its main profitability ratios. The higher percentage is mainly generated from the sales and this is well reflected in its stronger sales revenue and profits gained year over year. In fact, increments of ratio percentage in 2009 showed that KFC had survived and recovered greatly from the bad economic atmosphere clouding Malaysia.

If the decreasing ratio percentage from 2006 to 2008 is to be argued, the best explanation for this would be the external factor. Businesses are subjected to external influences and so does KFC. The company is unable to avoid the economic downturn; however, their strategy in prioritizing the matter of surviving and recovering from the slowdown had given them a competitive advantage through its product developments.

It is most likely that KFC will keep improving in terms of their sales revenue and profitability in 2010 onwards if they consistent in creating effective product developments. By looking at the transition between the year 2008 and 2009 in particular, it is proven that product developments by KFC Holdings (Malaysia) Bhd is effective to boost its sales revenue and profitability.

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