Planning principles involved in developing a marketing strategy

Yum! Brands Introduction

Yum! Brands, Inc., based in Louisville, Ky., is the world’s largest restaurant company in terms of system restaurants with more than 37,000 restaurants in over 110 countries and territories and more than 1 million associates. Yum! is ranked #239 on the Fortune 500 List, with nearly $11 billion in revenue in 2009. Four of our restaurant brands – KFC, Pizza Hut, Taco Bell and Long John Silver’s – are the global leaders of the chicken, pizza, and Mexican style food and quick-service seafood categories.

The Yum! system including 3 operating segments which are: U.S. market, Yum! Restaurants International, and China Division. In 2009, the Yum! expanded more than 4 new restaurants each day of the year outside of US, making it a leader in international retail development.

Results for 2009 once again affirmed Yum! consistent record of success with 13% Earnings Per Share (EPS) growth, which marks the eighth straight year we delivered at least 13% growth and exceeded our 10% EPS growth target. Within 2009, the company opened more than 1,400 new restaurants outside the U.S. Moreover, Yum! brand maintained their Return on Investment Capital (ROIC) of 20% and continued to be an industry leader.

YUM! Products

KFC

KFC is the leader in the chicken segment in the Singapore Quick Service Restaurant (QSR) industry. This is possible because rooted to its cores are simple but real values that allow KFC to offer only the best its customers.

Captivating aroma that triggers your senses.

A satisfying feast of hearty, mouth watering food specially prepared with the Colonel’s secret recipe.

Generous portions of fresh, succulent side dishes.

Salads to balance your diet.

At KFC, the restaurant offer high quality and great tasting food in a popular array of complete meals such as Daily Savers Meals, “WOW! Meal s and Family Feast”, that enable the whole family to share a fun and satisfying experience with all affordability and convenience of Quick Service Restaurant.

Pizza Hut

Pizza hut operates in 84 countries and territories throughout the world under the name “Pizza Hut” and features a variety of pizza with different topping as well as pasta, salads, sandwiches and other food items and beverages. The distinctive decor features a bright red roof.

Pizza Hut has been named the number one national pizza chain in America according to Restaurant & Institution “2001 Choice in Chains” survey. Pizza Hut is the recognized leader of $ 25 billion pizza category and has been since 1987.

Building the leading pizza company has required innovation, a commitment to quality, and a dedication to service and value. But perhaps as much as anything, it has taken the qualities of entrepreneurship, growth and leadership, which have characterized its business through more than four decades of success.

Taco Bell

Taco Bell is an American restaurant chain based in Irvine, California. It specializes in Mexican-style food and quick service. Taco Bell serves tacos, burritos, quesadillas, nachos, other specialty items and a variety of “Value Menu” item.

Recently, Taco Bell serves more than 2 billion consumers each year in more than 5,800 restaurants in the U.S., of which more than 80% are owned and operated by independent franchisees.

Long John Silvers

Long John Silver’s, Inc. is a United States-base fast-food restaurant that specializes in seafood. The name and concept were by Robert Louis Stevenson’s book Treasure Island. Its headquarters are in Louisville, Kentucky.

A & W Restaurant

A & W Restaurants, Inc. is a chain of fast-food restaurants, distinguished by its draft root beer and root beer floats. A&W was arguably the first successful food franchise company, starting franchise in 1921. Today it has franchise locations throughout the world, serving a typical fast food menu of hamburgers and fries, as well as hot dogs. A number of its outlets are drive-in restaurants with carhops. The company name was taken from the last name initials of partners Roy Allen and Frank Wright. The chain is currently owned by Yum! Brands.

Yum! Vision & Strategy

Yum! brands are committed to continuing the success realized during our first ten years. Our success has only just begun as we look forward to the future, one which promises a long runway for growth, especially on an international level. Yum! is building a vibrant global business by focusing on four key growth strategies.

Build leading brands across china in every significant category

Our experienced and tremendous local team led by our Vice Chairman of Yum! Brands and President of China, Sam Su, grew our profits a whopping 25% in 2009 on top of 28% in 2008. You don’t need to be a math major (and I’m not!) to easily calculate that’s over 50% growth in two years. The good news is that we achieved these results even though our same store sales were slightly negative as the consumer generally lagged China’s relatively strong economic growth. We added a record 509 new units in Mainland China and now have nearly 3,500 restaurants that generated near record restaurant margins of 20% in 2009. In spite of this robust profit growth, some investors have asked: “Is Yum!’s recent relatively weak same store sales performance in Mainland China an early indicator that something is wrong with the business or Yum! is growing too fast?” We believe the answer is definitively NO!

Drive aggressive international expansion and build strong brands everywhere.

Yum! Restaurants International, which operates in over 110 countries and territories outside the US and China, continues to deliver on this strategy as it delivered 5% system sales and profit growth both excluding foreign currency translation which negatively impacted our reported profits by 11 percentage points in 2009. We treasure this division’s high return franchising model with over 90% of our new restaurants built by franchisees that generate over $650 million in franchise fees, requiring minimal capital on our part. Driven by this franchisee development machine, we opened nearly 900 new restaurants in over 75 countries. That’s the tenth straight year we have opened more than 700 new units and our pipeline remains strong as we go into 2010.

Dramatically Improve U.S. Brand Positions, Consistency and Returns.

There’s no question 2009 was a very disappointing year for our US business. Overall our same store sales declined 5% as we grew profits only 1%, led primarily by a restructuring initiative we took the prior year which yielded a $65 million decrease in our general and administrative expenses. Nevertheless, we remain confident we’re taking the right steps to deliver stronger brand positioning, higher returns and consistent growth performance to tap the inherent sales opportunity and ultimate value in our 18,000 restaurants. And the good news is we have the marketing strength to do so with category leading brands along with outstanding unit economics on a stand-alone basis. We also have a system that generates a steady earnings stream of over $700 million in franchise and licensing fees. As we go forward, our strategy is to better leverage our large US restaurant asset base and all our restaurants around the world with what we have coined “incremental sales layers” in these 5 areas:

1) More options for consumers across our menu.

2) More contemporary beverage options & unique desserts.

3) Expanded day parts, especially breakfast.

4) Broader protein offerings.

5) Contemporary assets.

Drive Industry-leading Long-term Shareholder and Franchisee Value

Extremely proud and continue to be a leader among consumer companies with return on invested capital at 20%. The companies defined a global cash machine, with each of our divisions generating free cash flow or effectively funding their own capital investments. As this capital is deployed to high growth opportunities.

Planning principles

Marketing planning is the process that leads to the creation of a marketing plan. The marketing plan is a systematic design for achieving the objectives of creating value for customers and competitive advantage, growth, and profitability for the organization. Steps of the planning principle can be described as following:

Strategy Before Tactics

Develop the strategic marketing plan first. This entails emphasis on scanning the external environment, identifying early forces emanating from it, and developing appropriate strategic responses. Involve all levels of management in the process. A strategic plan covers a period of three to five years. Only when this plan has been developed and agreed upon is a one-year operational marketing plan developed. Never write the one-plan first and extrapolate it.

Situate Marketing Within Operations

For the purpose of marketing planning, put marketing a close as possible to the customer. When practical, have both marketing and sales report to the same person, who is not the chief executive officer.

Shared Values About Marketing

Marketing is a management process whereby the resources of the entire organization are use to satisfy the needs of selected customer groups to achieve the objectives of both parties. Marketing is an attitude of mind rather than a series of functional activities.

Structure Around Markets

Organize company activities around customer group if possible rather than around functional activities, and conduct marketing planning done in these strategic business units. Without excellent marketing planning in strategic business units, corporate marketing planning is of limited value.

Scan The Environment Thoroughly

The following are requirements for an effective marketing audit: Checklists of questions customized according to level in the organization are prepared.

The checklists form the basis of the organization’s Marketing Information System (MIS). The marketing audit is required activity. Managers a not allowed to hide behind vague term, such as “poor economic conditions.”

Managers are encouraged to incorporate the tools of marketing in their audits, such as product life cycles and portfolios.

Summarize Information In SWOT Analyses

Information is the foundation on which a marketing plan is built. From information (internal and external) comes intelligence. A SWOT analysis does the following:

Focuses on each specific segment of crucial importance to the organization’s future

Is a summary emanating from the marketing audit.

Is brief, interesting, and concise.

Focuses on key factors only.

Lists key external opportunities and threats only.

Identifies the real issues, is not a list of unrelated points.

Is clear enough for reader to grasp instantly the main thrust of the business, even to the point of being able to write marketing objectives.

Answers the implied question “which mean that..?” to get the real implications.

Does not leave out important fact, questions, and issues.

Skills and Knowledge

Ensure that all those responsible for marketing have necessary marketing knowledge and skills for the job. In particular, ensure that they understand and know how to sue the tools of marketing, such as the following:

Information and scanning.

Positioning.

Market segmentation.

Targeting.

Product life cycle analysis.

Portfolio management.

Gap analysis.

Boston Consulting Group matrix.

Directional policy matrix.

Four Ps of management-product, price, place, promotion.

Marketing personnel also need communication and interpersonal skills.

Systematize The Process

It is essential to have a set of written procedures and a well-argues common format for marketing planning. The purposes of such a system are as follows:

To ensure that all key issues are systematically considered

To pull together the essential elements of the strategic plan in a consistent manner

In a multi business enterprise, to help corporate management to compare diverse businesses and to understand the overall condition of and prospects for the organization.

Sequence Objectives

Ensure that all objectives are prioritized according to their impact on the organization and their urgency and that resource are allocated accordingly

Style and Culture

Marketing planning is not effective without the active support and participation of top management. But even with this support, the type of marketing planning has to be appropriate for phase of the organizational lifeline. This phase is measured before an attempt is made to introduce marketing planning.

Accurately describe and critically evaluate a range of tools and techniques use to produce a strategic marketing plan

Marketing Audit

Marketing audit can be easily identified as an essential part of an efficient marketing planning process. It is a very important process that is not only carried out at the begging but also at regular intervals during the actual marketing planning process. A marketing audit has a lot of influence upon the marketing planning process through the various external and internal factors. There are a number of tools and techniques that are used during a marketing audit. Some of the tools are:

SWOT Analysis: One of the most important tools of marketing audit is the SWOT or Strengths, Weakness, Opportunities and Threats analysis. This tool is of a lot of help to the marketers and is used at the beginning of the marketing audit process. The SWOT analysis comes along with a lot of advantages but it has some drawbacks as well. Some of the drawbacks of SWOT analysis are that it is very subjective and cannot be relied upon too much. Thus, it has always been recommended that the SWOT analysis be used as a guide in the marketing planning process and not as a prescription to the various problems.

PEST Analysis: This is the analysis of the various factors that have an effect upon the marketing process. The organization undergoing a marketing analysis should be taking into consideration all the environmental factors and give it a thorough analysis. These environmental factors may be internal or external. The internal factors compromise of the staff and queries related to them. The external would be the external customers and the various distributors connected to the concern and the political and economic factors are also taken into consideration.

Porter Five Force Analysis: This is an analysis that enables the marketer to have a clear picture of the competition outside in the market. This type of analysis has some similarities with the PEST analysis and is different in the sense that it focuses its attention upon a single business or a single concern. In this analysis the marketer basically goes through five basic areas of concern. These areas can be classified as the areas of treat of entry, the suppliers power the power of the buyers and also the threats revealed by the competitors and the rivals. Some of the advantages associated with this analysis are that it leads to economies of large scale with the help of mass purchase and sales. The various distribution channels can also be easily accessed and also finds out if the cost of switching over to some other supplier is low or not.

Yum! Brands, Inc. – SWOT Analysis

The Yum! Brands, Inc. SWOT Analysis examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy.

Strengths

The Company’s continuous expansion into Asia and other regions.

Well-developed restaurant brands and exceptionally efficient and ever-improving restaurant operations.

The idea of multi-branding which causes one establishment to appeal to varying customers.

Strong advertising campaigns.

Constant updating of menus and “specials” to appeal to current trends and fads.

Weaknesses

Some brands (concepts) may weigh down profits of top performing ones.

Sensitivity to market fluctuations.

Opportunities

International expansion and growth.

In domestic markets, turning one-brand units into multi-brand units to appeal to more customers, which will cut into competitors’ revenues.

Improvement of operations.

Threats

The highly competitive nature of the restaurant industry.

Entry of competitors into foreign markets first.

Menu appeal.

Yum! Brands (Yum Brands) operates franchises and licenses a chain of restaurant brands including Kentucky Fried Chicken (KFC), Pizza Hut, Taco Bell, Long John Silvers (LJS) and All America Food (A&W). The company operates in over 110 countries around the globe. It is headquartered in Louisville, Kentucky and employs about 336,000 people. The company recorded revenues of $11,279 million during fiscal year ending December 2008 (FY2008), an increase of 8.3% over FY2007. The operating profit of the company was $1,506 million during FY2008, an increase of 11% over FY2007. The net profit was $964 million in FY2008, an increase of 6.1% over FY2007.

Task 2

Examine A Range of Marketing Strategy Options

Explain with clarity a range of marketing strategy options available and evaluate their benefits and limitations, using supporting examples.

4.1. The Porter Generic Strategy Model

If the primary determinant of a firm’s profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns.

A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm’s strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. The following table illustrates Porter’s generic strategies:

Target Scope

Advantage

Low Cost

Product Uniqueness

Broad

(Industry Wide)

Cost Leadership

Strategy

Differentiation

Strategy

Narrow

(Market Segment)

Focus

Strategy

(low cost)

Focus

Strategy

(differentiation)

Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market.

Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths:

Access to the capital required making a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome.

Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.

High level of expertise in manufacturing process engineering.

Efficient distribution channels.

Each generic strategy has its risks, including the low-cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product’s unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.

Firms that succeed in a differentiation strategy often have the following internal strengths:

Access to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully communicate the perceived strengths of the product.

Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.

Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.

Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better.

A Combination of Generic Strategies – Stuck in the Middle?

These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter argued that to be successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be “stuck in the middle” and will not achieve a competitive advantage.

Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become “stuck in the middle.”

However, there exists a viewpoint that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers.

Generic Strategies and Industry Forces

These generic strategies each have attributes that can serve to defend against competitive forces. The following table compares some characteristics of the generic strategies in the context of the Porter’s five forces.

Generic Strategies and Industry Forces

Industry

Force

Generic Strategies

Cost Leadership

Differentiation

Focus

Entry

Barriers

Ability to cut price in retaliation deters potential entrants.

Customer loyalty can discourage potential entrants.

Focusing develops core competencies that can act as an entry barrier.

Buyer

Power

Ability to offer lower price to powerful buyers.

Large buyers have less power to negotiate because of few close alternatives.

Large buyers have less power to negotiate because of few alternatives.

Supplier

Power

Better insulated from powerful suppliers.

Better able to pass on supplier price increases to customers.

Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Threat of

Substitutes

Can use low price to defend against substitutes.

Customer’s become attached to differentiating attributes, reducing threat of substitutes.

Specialized products & core competency protect against substitutes.

Rivalry

Better able to compete on price.

Brand loyalty to keep customers from rivals.

Rivals cannot meet differentiation-focused customer needs.

Sources:

Task 3

Explore the implications of changes in the marketing environment of organizations

Assess the current changes in the marketing environment for an organization

Changing Marketing Environment

Professional marketing has become more important as advanced countries have shifted from a supply to a demand environment. For most of history the world has been characterised by insufficient supply: not enough food and material goods to meet human requirements. The key priority in the past has been improving production, purchasing and finance of trade. Today this has all changed. Now, the advanced countries are characterised by excessive supply. The central problem is attracting demand, not meeting it. Faced with an array of alternatives, the customer is spoiled for choice. The priority in management is how to identify and develop goods and services that are more attractive to customers than those of competitors.

As the market environment changes, managers have to adapt their strategies and organization. Unless these changes are made obsolete by changes in customer wants, new technologies and new competitors that have adapted more effectively.

Fashionisation: In the past fashion was identified with women’s clothing. But today more and more markets – watches, motorcycles, beer, cars, pharmaceuticals, cinema music, electronics goods, even management courses – are characterised by annual model changes, rapid obsolescence and an unpredictable and fickle demand. Companies that cannot handle novelty, rapid model replacement, fashion and style see their market shares slipping and their profit margins. Without novelty and continual feature enhancement, the company will see its prices and market share relentlessly chiselled away. The original iPod was launched in 2001 and updated twice within the next year. By mid -2005 the range had grown to four basic models all targeted at different uses and users and positioned as the music fashion accessory.

Micro-markets: The old textbooks to postulate that a company could between a differentiated and an undifferentiated strategy. An undifferentiated strategy is where a company makes a single product for the whole market. The usual example was Coca-Cola, which, it was said, offered one product, in one bottle size, at one price and with one advertising message to all customers, everywhere in the world. No longer. Even Coca-Cola is today offered in an increasing and bewildering variety of forms-new Coke, classic and cherry, with or without caffeine, diet Coke, in cans or in numerous bottle sizes, all advertised in various style and formats. Today’s customers expect the manufacture to customise the product and service to their specific needs.

Technology has made this variety expansion economically viable for companies. New flexible systems, such as computer-aided design and manufacturing and customised software, permit ever-finer market segmentation and product range expansion.

Finally, the new communications technology makes it possible to deliver individual messages.

Rising expectation:

Changing environment Marketing strategy Organization for marketing

Fashionisation Speed Breaking Hierarchies

Micro-Markets Customisation Small Business Units

Rising Expectations Quality Selt-Managing Teams

Technology Information Networks Re-Engineering

Competition Core Competences Strategic Alliances

Globalisation Think Global Transnational Organisation

Service Software Augmentation Learning Organisation

Commoditisation Partnerships Account Management

Erosion Of Brands Innovation Expeditionary Marketing

New Constraints Stakeholders’ Role of the Broad

The changing marketing environment and its implication

3.2: Analyse how an organization could respond to the changes

Changing Organization for Marketing: The rapidly changing business environment makes existing products and marketing strategic obsolete. Companies have to become faster, more flexible, more innovative and capable of forging new partnerships with customer and suppliers. To put in place such strategies, however, requires sweeping organizational changes.

Yesterday’s giant organizations such as Marks & Spencer, General Motors, ICI, Midland Bank, Sears an