Cooperate Strategic Management
Introduction
Kentucky fried chicken is a global of fast food that has its headquarters Louisville, Kentucky in the United States with franchises throughout the globe. The company’s worldwide operations are supervised by YUM international, which is responsible for granting franchisee to local operators or initiating joint ventures with other entities (Uddin, 2020). KFC is the world’s most popular fast-food chain after McDonald’s, which sells a variety of forms of chicken pieces a recipe that is attributed to Harland sanders. The company receives approximately 12 million customers in its various restaurants in the world per day across the 131 countries with its franchises. The first franchise that KFC introduced was in the United States in 1952, while the first overseas franchise was in the United Kingdom in 1965, and from after that, the restaurant grew to other parts of the world. The major KFC markets are Australia (618 units), Japan, United Kingdom, Malaysia, Canada and many more (Uddin, 2020).
Porter’s five forces used by KFC
The porter’s five forces analysis framework tries to evaluate the competition levels within the business strategy development and the business niche (Wernerfelt, 1984). The industrial organization economies is a driving factor to these five forces in determining the market competitive intensity and attractiveness. From a contextual approach, attractiveness is used figuratively to mean the profitability of the industry. Consequently, an unattractive industry is one that is experiencing downfall of profitability that results from the combination of the different porter’s forces (Porter, 1980).
According to porter, these forces were equated to micro environment factors, which in contrast with the macroeconomic factors had an impact on the business’s ability to deliver services and its profit-making. Porters, however, cites that the overall attractiveness of a company in an industry does not necessarily imply profitability, but suggests that a business should employ their core competency models to achieve profits. In highlighting the framework porters developed market forces analysis which includes three horizontal competitive forces (threats of new entrants, threats of substitute and treats of established rivals) and vertical competitive forces (bargaining power of customers and the bargaining power of suppliers) (Coyne, & Balakrishnan, 1996).
Bargaining power of suppliers
The bargaining power of the suppliers can also be referred to as the markets of inputs (Porter, 1980). There are various market inputs that business need for its progression and these inputs vary depending on the nature of the product line or service an organization offers—suppliers to KFC supply of raw materials like chicken, services and labour. The suppliers of these various essentials to a firm can be compelling in absentia of alternatives. Like in the case of KFC suppose there is only one supplier of chicken with no option for an alternative, the supplier will have higher bargaining power. Lack of alternative creates an exploitative monopoly. This force makes the supplier very authoritative, and they can refuse to work with a particular company, or they may charge an exorbitant fee for resources that are considered unique.
Different factors make a supplier very powerful. First, if the companies that the suppliers sell to are many or concentrated, increasing the demand for the material. Secondly, if the product has a full switching cost or is unique, the particular product line has specifications that link them specifically to one supplier. The cost of switching the other supplier can be costly as it may demand even a change of equipment (Porter, 1980).
Bargaining power of buyers.
The bargaining power of buyers is also referred to as the output market, this the ability of the consumers to impact pressure on a firm to make a price change on their products (Porter, 1980). Buyers often have this kind of power when they have many alternatives within the industry. Consequently, this power is reduced when a buyer acts independently with no influence from another party. Hence in lowering the bargaining power of buyers, firms implement loyalty programs (Coyne, & Balakrishnan, 1996). The large numbers of customers making a demand for reduced prices leaves a firm with no choice but to reduce the cost of its products while acting in the buyer’s interests.
Some factors favour this bargaining power of buyers. Firstly, is the concentration ratio of buyers to sellers. When the rate of sellers is higher than that of buyer’s ability is shifted to the buyers as they have alternatives in case of displeasure with one brand. For instance, the fast-food industry is fast thriving with many firms offering the same product, and this has over time given the customers power of choosing alternative firms that provide same product line at a price considered fair by buyers (Porter, 1980). Secondly, is the levels of reliance on the available distribution channels of the product. A product distribution impacts its availability in the market upon need by the buyer. If one product is made available faster than its substitutes, buyers will prefer it as it is readily available, unlike those that have no efficient reachability to its target market. KFC has utilized this force by increasing the distribution channels through franchising, making its products readily available.
Another factor is the availability of information. Information is a crucial instrument to the marketing of a product and awareness creation. Consumers are likely to buy a product that they have an idea of unlike those they have no clue or have no information about it. Another factor is if the buyer gets large volumes of unique products from the firm, where they can trade one firm from the other especially if there are other alternatives for the same exceptional product (Porter, 1980).
The threat of Substitutes Product
Availability of alternative products outside one product’s common boundary increases the consumer’s propensity to switch to substitutes (Porter, 1980). For instance, the availability of snack products is a substitute for KFC products, while McDonald’s is a competitor. So an excessive advertisement of a snack firm will ultimately reduce the market share for both KFC and McDonald’s companies. Many factors highly promote the rate of substitution. First is the availability of this substitute within the same market margins. Secondly, is the quality of the product, for instance, if KFC is offering a substandard product, then ultimately, a consumer will opt for its substitute. Another factor is the switching costs for substitution if the value of the replacement is lower a consumer would consider the alternative, the same applies for cost or price of the alternative product. Another is the ease of substitution and the relative performance price of the substitute.
The threat of the New Entrance
A market the yields high profitability is likely to attract many people making the number of entrants to increase over time (Porter, 2008). As new entrant join this market, there will be an ultimate reduction in the profitability of the market. Therefore it is the responsibility of the already established firms to prevent their niche from exploitation by the newcomers (Coyne, & Balakrishnan, 1996). Many established companies with a considerable portfolio and massive economies of scale tend to prevent perfect completion where the profit trend toward zero as they enjoy the abnormal profit rates. The abnormal profits are every firm’s desire, but some factors affect the number of threats posed by new entrants. First are the barriers to entry, which are either patents or rights. There are market segments where entry barriers are exorbitantly higher than exit barriers. Another is the government policy, where there are entities not permitted for venture regardless of the level of capitation an individual has. Another barrier is the initial capital requirement for an entrant in the market, where some entities need very high initial capital to venture in. Customer loyalty on established brands can be a significant barrier; access distribution, expected retaliation, switching cost and many more are other factors(Coyne, & Balakrishnan, 1996).
Barrier of Competitors
In many markets, the amount or intensity of competitive rivalry is a factor to reckon with in evaluating the competitiveness of an industry (Coyne, & Balakrishnan, 1996). Therefore every firm’s relevance is determined out of their vigour and fierceness in their market. Some factors favour a competitive rivalry. First is the competitive advantage by innovating new idea or products. Other factors are the concentration ratio of firms, highly competitive strategy, expenses on advertising, and levels of transparency, efficiency and reliability.
Explain why it is essential to analyze the market size, market growth and market share before entering into any industry.
Market size
Market size is defined as the number of potential buyers of a product that a particular market offers at a time (Kotler, Keller, 2009). In the establishment of the market size, there are market forms to consider these are; potential market, estimated market and minimum market. A potential market is the maximum quantity of products that can be sold within a geographical area to specific individuals. Establishing the full markets potential helps in guiding the number of products to be supplied to the market, which should be maximum if the market is operating at its maximum potential level. Estimated market, is the number of products a company aims to sell, it is sale forecasting (Radulescu, 2012).
Market Growth – can use the Product Life Cycle.
A product life cycle has four stages in a perfect market that is, the introduction, growth, maturity and decline. The growth stage establishes the position of the product in the market. At this position, business increases sale, therefore, increasing their profit margin (Grant, 2002). This growth is attributed to various marketing strategies employed by different firms on their products, making it gain popularity and increase its sale within the target market. This stage is essential as the firm gains much profitability as they continually create more consumer awareness of the product. As production gains traction and increases at this stage, manufactures can meet all the market demands through reduced economies of scale and well-established channels to the market (Karakaya, & Kerin, 2007).
Market Share
Market share can be used as a metric of measurement for the effectiveness of strategies like marketing campaigns and branding that are employed by different companies within a specific industry (Parmerlee, 2000). The market shares reveal how firms are competing within the industry, as it compares different firm’s tactical implementations with others. It is essential to understand a market share before entrant because it is a true reflection of market competitiveness. Once one has understood the nature of market competitiveness, they can make an informed decision on how to make a debut in the industry. The market share points the market growth or ant recession within it. Consequently, it’s a pointer to particular consumer trends and behaviour, enabling an investor to understand opportunities within the market (Parmerlee, 2000). Moreover, if an organization or an individual has a desire to enter a specific niche through market share, they can accurately measure consumer perception, pricing strategies, and many more.
Using VRIO analysis, analyze ANY TWO resource or capabilities of your chosen organization.
VRIO analysis is a tool used in analyzing a firm’s internal resources and capabilities to evaluate whether they can be a source of continued competitive advantage (Barney, 1995). The key KFC competitive advantages are the brand value, financial resources, and the secret recipe for making food
Valuable
KFC has a brand value that enables it to compete favourably in the market. The brand reaches people in the new markets who quickly gets aware of it products. The brand is a valuable resource that quickly sells the brand far and wide. Additionally, financial resources enable it to stretch its investment far across the globe to new opportunities. The unique recipe of KFC is a valuable resource that has enhanced its competitive ability. The highly differentiated recipe is perfect for its chicken product which has made it thrive over time.
Rare
The tremendous financial resources are rare as very few firms or companies have this broad portfolio. The great financial resource is unique as it enables it to risk making new ventures in a new environment. The distinct recipe is rare as many competitors cannot make this recipe for their chicken products. The brand value is also scarce, considering the nature of its brand distribution across the globe. This enables its growth in foreign countries.
Imitable
The financial resources that KFC has are quite costly to copy. KFC has been able to acquire the financial supply over a long period in business, therefore any company trying to replicate this needs the same duration of time to reach its levels. Consequently, imitating the recipe is quite unachievable, because it is distinct and known by the only the original owner. The brand also has patent rights which protects it and gives it a competitive advantage.
Organization
KFC’s financial resources are appropriately organized to portray its worth. This has enabled it to invest in appropriate potential markets with profitable profitability, thus a competitive advantage. The brand value is well organized distributed across its franchises ensuring quality which works to its competitive advantage. The recipe is well organized, thereby ensuring the same quality of products regardless of where one is dining from.
Recommendations
There are global concerns on a healthier diet, and this has shifted consumer behaviour over time. Adjustment of the company to match the trends in the market has both advantages and disadvantages. On the advantage side is the new opportunity that comes with the new consumption pattern. In any business, if the consumption pattern has changed new needs and demand comes with it. The new demands and needs mean the introduction of a new product line that bridges this gap created in the economy out of these demands. The increasing demand by consumers for a healthier diet is posing a graving challenge to KFC as most of its products have high calorie, fats and salts which are deemed unhealthy. In the USA alone, the upsurge in the numbers of those suffering from obesity is alarming. It is approximated to be at 42% of the country’s population. These surging numbers have championed the call for the healthier product line in the market stores, and this poses a direct threat to the KFC’s chicken products which have negative publicity of being unhealthy.
For KFC to maintain both market dominance and relevance, they have to adjust to healthier chicken products which are organic and purely free from treatment. Again the torture that the company gives to the chicken must be addressed, where they should consider a more humane kind of treatment to the chicken being raised and slaughtered. This was part of the criticism from PETA, the organization cited that the conditions that the chicken was raised in were too inhumane, and not healthy at all. Addressing this will have a direct impact on the overall image of the company. Image is key to the business as a tool that gives it purpose, goal and the mission, which consequently gives the customers the value from the benefits reaped from these products.
Additionally, the consumer market is shifting to the e-commerce direction whereby food is delivered to the costumers upon request via mobile application. The new trend of food delivery is offering a new set of opportunity that KFC must exploit. The home delivery can open up the market base for the company when fully exploited as they can reach out to a broader market perspective. A continues market expansion translates to increased revenue from the many sales that are made. KFC should adopt a delivery service that is fast, efficient and reliable too its customers. To the introduction of a new product line, KFC has received immense success in its chicken product. Still, an introduction of other product lines will open opportunities in areas that they haven’t reached, especially the vegetarians, thus creating a wider consumer group.
Already the fast-food market is saturated, especially in the developed countries with most markets experiencing overcrowding, these pose threats to KFC. In addressing this, KFC should stick to its uniqueness as this has previously contributed to its success. The same threat is posed by local fast-food restaurants in different countries that adopt the local strategies in their menu and service delivery to the local’s tastes. KFC should be able to adapt fast to these local trends and tastes to compete favourably in the particular niche while at the same time maintaining the quality of their products to reach their target market still.
References
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