KFC and McDonald’s marketing strategy in China Essay
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McDonald’s is the greatest fast food chain in the world, its company sales and operate income was largely exceeded KFC on a global scale, but it confronted a strong challenge from KFC when it emerged into China. This essay analyzes the comparison between KFC and McDonald’s marketing strategy, emphases on finding the similarities and differentiations from “Seven P Formula” and finally makes a conclusion that localization is more suitable than globalization as the marketing strategy when fast food chain emerged in China’s market.
Localization or Globalization has long been discussed when choosing strategic orientation in international marketplace. These two international marketing philosophies influenced enterprises’ current situation and future development. There are two fast food international companies named McDonald’s and Kentucky Fried Chicken (KFC) who initially adopted different marketing strategies in China that led to differentiation for their future development. McDonald’s first franchise was founded in the United States in 1955, serve people for hamburger, french fries and other type of fast food, while KFC also from the same country, is now one brand of Yum, which first restaurant was founded in 1952 and mainly sells unique taste cooked chicken.
From global scope, McDonald’s is exceeding KFC from company sales, operating profit to worldwide system units.
McDonald’s company- operated sales were ＄18875 million, operating income was ＄8764 million and it had 35429 systemwide restaurants in 2013(McDonald’s, 2013), while KFC’s company sales were ＄11184 million, operating profit was ＄1798 million and there were 18875 KFC restaurants in 2013(YUM, 2013). However, as these two global fast-food brands emerged in China, the situation has been reversed. McDonald’s annual report uses APMEA (Asia Pacific, Middle East and Africa) as representative of Asian but not show the profit from China while KFC can saw significant progress in China, and it highlighted the progress in new restaurants, recruits and volume growth in annual report. The difference between these two fast food companies was mainly due to their marketing strategies. That is, localization is more suitable than globalization as the marketing strategy when fast food chain emerged in China’s market.
The concept of marketing has long been defined by different people. The easiest one to understand may be a process of planning and executing, from price, products, ideas and services to satisfy customers and organizations objectives (Ferrell et al, 1987). This definition emphases marketing as a process preformed in organization, which has an overview of its practical function. It has mutually beneficial between providers and customers’ exchange, where provider’s goal is to offer products and service to achieve profit and customer’s goal is to purchase products which benefit their daily life. Marketing strategy could be the plan that identifying what is the customers’ requirement and what marketing goals and objectives could be achieved if selling particular goods and services in an available time (Jonathan, 2009). Briefly is the competitive plan that the organization will have. Marketing strategy enables an organization to have an understanding on the environment and achieve its goals and objectives by using its resources that can meet the needs of customs (Douglas et al, 2010). A good marketing strategy would effectively improve company to supervise their value and create consumers’ brand loyalty. Localization is a strategy that advocates enterprises to adapt to local culture.
The process often set up their products, services and promotion customized relate to local market. Enterprise should try to integrate into and treat them as an inherent member but not a foreigner to the local culture in the target market, which emphasizes the enterprise must adapt to the environment to gain more space in order to further development (Warren, 2008). KFC is an example that has developed food, drink and service highly sensitized to localization. KFC was the first western fast food chain emerged in China in 1987. In order to succeed, KFC abandoned its U.S. business model and planned to sell core products and services locally. Since it started to now, the company’s strength and competences accumulation has exceeded a major part of fast food companies and successfully posed formidable barriers to competitors in China. Globalization was defined by Edmund as the process of creating links between individuals and organizations that transcend national boundaries and are not subject to political interference (Edmund, 2008).
Globalization is also a marketing strategy that the organization extended their activities worldwide, it is a main tendency for international companies or company who want to operate in other countries. This tendency was influenced by technical factors such as information and communication technology revolution, and principle of finance and trade, also affected by the movement of people. Globalization will continue be a major tendency in the future because of opportunities, which created huge increases in prosperity, notably in emerging markets, such as China (Martin, 2013). McDonald’s was the example that opened it first restaurant in China in 1990 and adopted globalization strategy initially, but eventually achieved few successes than KFC in China’s market.
The similarity and differentiation between KFC and McDonald’s in China’s market KFC opened its first outlet in Beijing in 1987, it was the first western fast food company at that time and now it has 4563 outlets, which can be regarded as the largest restaurant chain in China (YUM, 2013). McDonald’s first restaurant opened in China in 1990, and now it has 2003 outlets all around the China. From the apparent distinction of the outlets, it is necessary to analyses the similarity and differentiation between them. The largest difference was the time these two companies settled in China and implemented their strategies. Franchising is a business format that the franchisor grants a license to franchisee and franchisee then can use it logo, products and goodwill. For example, McDonald’s allow other business man open their chain by using the same name if they have paid initial fee and ongoing management service fee (Colin, C et al, 2012). KFC use collaborative model of direct and franchise chain which laid the solid foundation of completive advantages.
KFC is earlier than McDonald’s to implement franchising, who established the first franchising restaurant in 1993 and continue implement “do not start from scratch” mode, which means franchisee do not need to found a location, recruiting and training new employees but apply to join in and take over a mature restaurant. In that situation, franchisees can omit the preparatory work and incorporate themselves to the standard management system as soon as possible. However, McDonald’s insist on implementing direct chain operate until 2003, while KFC has developed about 40 franchise locations during this period. Thus, McDonald’s was fall behind to KFC at the initial stage, which have deep influence on their future development. Marketing strategy helps make recognition of international opportunity on seven parts: product, price, promotion, place, positioning, packaging, and people. The “Seven P Formula” was used to evaluate and reevaluate the business activities. As the marketing environment changed so rapidly that it is vital to track and achieve the maximum results by adjust seven P (Brain, 2004). The similarities and differentiation of seven P between two companies also illustrate localization is suitable than globalization.
“A product is anything that be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need.” (Philip, 2011). A product contains good, service and ideas. Food is a heart concept of the society and services from the fast-food chain would attract consumers and change customers’ attitude. KFC obtained the success of fast food market mainly by selling chicken products. KFC’s products utilized standard production, which selling inexpensive western-style items with local favor. KFC’s menu changed rapidly to follow the changeable market as they followed product life cycle from introduction, growth to maturity and finally decline. Some products offered temporarily while other permanently. For example, since 24th of March in 2014, KFC started to use the new menus, which eliminated seven items, renewed one item and added fourteen items. The totally variety has reached to 66 products. The success of KFC also from its special ingredients, Sanders’ Original Recipe of “11 herbs and spices” is one of the most famous trade secret in fast food industry (Chartrand, 2001).
The mystery ingredients mixed with local ingredients created a large amount of customers. The manager of KFC realizes that the customers in Sichuan, Hunan and Chongqin are preferred chilly while Shanghai customers would complain the dishes are too spicy. So the company adopted the localization strategy in products and finally changed its recipes to suit the region. McDonald’s mainly selling hamburger with beef, which is a typical western food style. Chinese prefer chicken to beef for some reasons. Firstly, may be the price, according to the latest price of beef and chicken, there is large gap between them, the average price of beef is 66.60RMB (approximately 6.5 pounds) per kilogram while the average price of chicken only in 19.58RMB (approximately 1.8 pounds) per kilogram (data from the government of china price).
Secondly, the traditional cultivation industry in China raise more chicken than cattle, as cattle is so heavy that will eat more and its long growth stage means costly when buying. Due to the price of raw materials, company would change their recipes to adapt the regions, which means products localization. By far, McDonald’s menus have seventeen types of burger and four type of rice, others are beverages and dessert. And McDonald’s insist on standardization on products and just had little change on some food, such as start to sell soy milk for breakfast from 2011. From the difference of the menu, it is obviously that KFC has more products and local appetite products than McDonald’s. Compared the products, KFC’s localization strategy is more suitable than McDonald’s globalization strategy in China.
Price is the customer pays for a product or a service. It is the most important factor of marketing (McCarthy, 1975). Prices would affect company’s marketing decision and organization’s goal and the achievement in sales volume would influences price reversal. So, it is difficult for manager decide which price is the best, especially in a downturn. Because recessions make customers are able to shift another products or service with lower price as alternatives or substitute (Douglas.2010). The price of a product may go up or go down along with time and location. The right choice of pricing strategy will benefit the company’s competitive position. KFC and McDonald’s use multiple pricing strategies in different situation. They mainly choose the price skimming strategy, the process of selling product or a service for a high price initially, then gradually reducing the price in order to access new market segments(Price , 2009) as their pricing strategy in China.
The staple food in KFC contains ten units(six of burger, two types of roll and two types of rice ) in the latest menu, hamburgers’ price fluctuated around 14 RMB (approximately 1.3 pounds), while McDonald’s have nine burger as its staple food and the price range from 6 to 16.5 RMB due to different meat. McDonald’s mainly sell beef burger all around the world, but the high price is not suitable in developing country, therefore, it started sell burger with pork, chicken, duck and fish. KFC and McDonald’s fierce competition sometimes force each other to adjust their price according to the cost and demand.
Promotion is an activity that designed to boost the sales of products and service (Jonathan, 2009). Sales promotion also defined as an activity or martial that acts as an inducement to stimulate consumers to buy the products (Sally et al, 2012). Companies are aimed at stimulating sales through advertising campaign, temporary price reductions and variety types of promotion methods. The brand would be intangible assets and goodwill of a company. The more successful it promote, the more it will creating brand loyalty from customers. KFC restaurant in China has a large logo of ‘KFC’ and the portrait of Colonel which leave deep impression on Chinese. It has changed old logo to a new one, which stress on “Taste” and present youthful energy, friendlier and more welcoming. The promotions of KFC are varied from advertising in television to Internet, or distributing coupons in public place. Every year, KFC would have new menus to attract customers and provide meal set, such as buy burger with cola together will save money. Sometimes KFC will send gifts as premiums to attract customers, especially children. It also distributes coupons in the street or can download app of KFC, then you can get small discount from the product. McDonald’s logo is a golden arch of M, with a slogan of ‘I’m lovin’ it’. The promotion method of McDonald’s is similar to KFC. Coupons, package and digital marketing all create growth in marketing.
Place and Positioning
Place is where the products or service actually sold, it includes geographical location which offered products or services and different types of distribution channel (McCarthy, 1975). The product or service positioning has been described as the place occupied in a particular marketing where product is targeted by customer (Wind, 1980). Generally, Fast food chain has two target consumers. One is the people who live in a busy life. Such as
employees who spend whole day in front of computers. These people busy at their working and had no time preparing food. Fast food gives them the chance to eat in a very short time. The other is the consumer who does not like cooking such as young people. KFC and McDonald’s give them the chance to try new. Target on these consumers, these two companies has their special outlets placement strategy. In order to satisfy consumers who have a busy lifestyle, they open their outlets in cities, in which has a higher population density and well-developed transport system.
And to those who want to try new and unwilling to cook by themselves, the restaurant always placed close to schools, universities, city centre and commercial areas that young people study at and prefer to go. It has published in McDonald’s official website for the restaurant development. “McDonald’s looks for the best locations within the marketplace to provide our customers with convenience. We build quality restaurants in neighborhoods as well as airports, malls, tollways, and colleges at a value to our customers.”(from McDonald’s official website), while KFC provides customers with the most convenient, desirable and accessible restaurant locations across the country, such as the outlets in the city centre of Beijing and Shanghai, where has shopping mall or commercial street. People go shopping in those place prefer to find a comfortable place to have a rest, drink a cup of tea or coffee and eat some food. KFC and McDonald’s success in choosing location set a good example for other fast food restaurants.
Packaging is a part of marketing process and link to brand identity. The impact on the image of product ultimately derived from customer’s perception of satisfaction. Package is a vital part of a product that making it more versatile, safer and easier to use (Sally et al, 2012). The customer would evaluate the product or service from the first moment of seeing. And package characteristics help sharp buyers’ impression during use. Then their attitude would influence their purchase decisions. KFC’s package adopted world class packaging with new logo which has character of KFC and the portrait of Colonel in the middle of front page. And the design is flexible to local market. McDonald’s package use more colorful package with creative idea. And also has the logo ‘M’ in every package. These two companies both adopt family packaging, an approach in which all of company’s package are similar or include one major element of the design (Sally et al, 2012), as their approach to promote. Both of their package had live a deep impression on Chinese.
All the people directly or indirectly involved in the service or production will concern in market when making marketing strategy. Customers, employees and other people are inseparable when production and consumption happened. It is essential to pay attention to those people (Booms et al. 1981). KFC in China targets on the concepts of family and group. The customers range from children to the elders. Before 2004, McDonald’s insists on families centered on children, at the same time, attracted young person and young parents. After the year of 2004, the target market has been young people whose age between 4 and 30. McDonald’s advocates the passion and enthusiasm in younger while KFC emphasis on the harmony between family members, in China, this particular marketing where the concepts of family was strengthen, KFC therefore occupied advantages.
Through the comparisons of KFC and McDonald’s from seven aspects in marketing strategy, it can have a clear judgment between them. The reason why China has become the place that KFC exceed McDonald’s initially because the policy makers think highly of this particular market and understand the cross cultural management, the appropriate survey helps avoid mistake.
In conclusion, KFC and McDonald’s adopted different strategies for their development in China. The gross or net profit from their annual report shows that they both have success on operating and developing, but the content emphases on China’s market have apparent difference as their initially adopted localization and standardization (globalization) in advent of China. It means the localization strategy of KFC adopted in China market is more suitable than globalization strategy. The great achievement of KFC in China is not an accident while McDonalds’ backward does not mean their strategy is not good. KFC’s success is largely because it realizes the distinctiveness
of the Chinese market and emphasis on the local environment and local customers.
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