Creating Customer Value: A Comparison of Customer Relations Programs of McDonalds and KFC

A research paper presented to ______________ in partial fulfillment of _____________________

________________________ Academic Year 2 !"2

Appro#al $heet
%n partial fulfillment of the ___ re&uirements to graduate from ___' a research paper entitled Creating Customer Value: A Comparison of Customer Relations Programs of McDonalds and KFC has (een prepared and su(mitted () ______________ *ho is here() certified for oral defense+

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Ac-no*ledgement
% *ould li-e to than- the follo*ing people *ho helped me in finishing m) research pro.ect+ Mr+ ____ m) Ad#iser' *ho assigned me this #er) challenging topic+ M) ne* friends' ___' ___ *ho guided me on the technical details of the testing procedure *hen no help *as a#aila(le+ M) parents *ho ga#e their encouragements *hile % toiled *ith this paper+ And to m) old friends *ho *ere #er) helpful in times of stress and competing deadlines+

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/a(le of Contents

Page Co#er page Appro#al $heet Ac-no*ledgement A(stract A+ %ntroduction ,+ /he 1#olution of Mar-eting Production 1ra $ales 1ra C+ /he Mar-eting Concept D+ Customer Value 1+ McDonald4s $trategies for increasing re#enue F+ KFC $trategies for increasing re#enue 1ffecti#eness of these strategies 7+ Conclusion ,i(liograph) i ii 0 2 2 2 2 2 3 5
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A(stract
/his stud) discusses the importance of designing customer relations programs to focus more on meeting the *ants and needs of customers rather than creating a*areness of products and ser#ices in order to impro#e sales+ /his stud) sho*ed ho* customer relations management e#ol#ed from that of production' to that of selling' and finall) to a customer"focused customer relations strateg)+ %t sho*ed that this approach *or-s' as sho*n () a comparison of the successful mar-eting programs of (oth McDonald4s and KFC' t*o glo(al companies in#ol#ed in fast food operations+ 8hile these t*o companies are in#ol#ed in the same industr)' the) faced different concerns+ /hese concerns' ho*e#er' *ere alle#iated *hen the) focused on creating customer #alue in the design of their respecti#e customer relations programs+ /he stud) concluded that (oth McDonald4s and KFC achie#ed their success () shifting their focus on its customers rather than on its products+ it is also li-el) that mar-eting *ould remain focused on customers (ecause customer lo)alt) *hich translates to a satisfied customer' is cheaper to maintain than that of a customer that comes onl) once+

Creating Customer Value: A Comparison of Customer Relations Programs of McDonalds and KFC
A+ %ntroduction
/he mar-eting of goods and ser#ices has e#ol#ed o#er time+ %t started *ith the production era' *hen production of goods is paramount to satisf) a huge unsatisfied demand+ /hen a shift to the sales era *hen there *as a need to push a glut of products+ /he present era' called mar-eting era' found a need to fine" tune sales and mar-eting strategies to maintain profita(ilit)+ /his stud) anal)9es shifts in mar-eting to address changing needs of the mar-etplace+ %t also compares the mar-eting strategies adopted () t*o glo(al fast food chains and finds out ho* successful the) *ere in achie#ing their mar-eting goals+

,+ /he 1#olution of Mar-eting

Mar-eting has e#ol#ed on the (asis of the *a) products or ser#ices *ere done' as follo*s: Production Era. During the production era' most firms concentrated their talents and energies on producing as man) goods as possi(le' (oth &uic-l) and efficientl)+ /he %ndustrial Re#olution *as the ma.or impetus for changes in mar-eting and commerce+ %n this era' the emphasis *as on producing products' not satisf)ing customers: needs+ Sales Era. 8hen demand for goods increased' companies &uic-l) recogni9ed that ad#ertising and more aggressi#e personal selling *ere the tools to mo#e products' and the sales manager:s position *ithin man) firms *as upgraded to the le#el of the production manager and finance manager+ ;nder this era' sales *as -e)+ Mar-et share *as measured in terms of sales #olumes+

C+ /he Mar-eting Concept

Again' companies *ere successful in achie#ing higher sales #olumes+ As demand continued to gro* ho*e#er' the effect of competition started to affect sales+ /his decline in sales prompted man) companies to stud) the causes of the decline+ /he) found out that the cost of selling to an indi#idual is much higher than that of selling to a repeat customer+ 8ith a lo)al customer' it does not ta-e a lot of ad#ertising or promotions to ma-e him (u)+ /hus' efforts *ere then focused on customers+ /he mar-eting strategies and plans *ere made on the (asis of the follo*ing three (asic propositions: 1. Customer focus: Managers shifted their focus from an internal compan) perspecti#e to the customer:s #ie*point+ $uccessful mar-eting re&uires a complete understanding of (u)ers and their needs+ <eading management authorit) Peter Druc-er suggests that =the aim of mar-eting is to -no* and understand the customer so *ell that the product or ser#ice fits him and sells itself+> . Coordination: All elements of the mar-eting program?-no*n as the mar-eting mi@?constitute an interrelated s)stem' and therefore the program must (e #ie*ed and planned as a *hole+ Also' mar-eting itself must (e closel) interrelated *ith other (usiness acti#ities+ !. Profit orientation: Profit' not .ust increased sales' is the goal of a firm+ ,ecause customer satisfaction is the path to profita(ilit)' customer focus is the logical focal point for profit planning+ /he 066 s e@tended the mar-eting concept e#en further+ Mar-eting has adopted a concept -no*n as Customer Relation Mar-eting ACRMB+ /his concept assumes that an organi9ation *ants to form long"term relationships *ith its customers if it aims to achie#e success+ /herefore' the focus of an organi9ation:s efforts is not

on creating sales' (ut rather on satisf)ing and retaining customers' (ased on de#eloping a relationship *ith the customer o#er time+ <ancaster descri(es relationship mar-eting as all of the acti#ities that an organi9ation uses to (uild' maintain and de#elop customer relation A<ancaster et al' 2 0B+ %t is (elie#ed to (e one of the ma.or #alue creation methods+ /he main 0B+ o(.ecti#e of relationship mar-eting is to (uild customer lo)alt)' *hich leads to customer retention A<ancaster et al' 2

$tudies sho* that a compan) can increase future profit () as much as 2 "6 percent A,elch C ,elch' 066DB () sustaining relationship *ith its customers and reducing their defection () E percent+ Most of the traditional mar-eting approaches are used to (uild a*areness a(out offerings and attract more customers+ Fo*e#er' the true purpose of mar-eting is to (uild and maintain strong relationships (et*een the compan) and its customers AKandampull)B+ De#eloping and maintaining e@ceptional customer relationships can help to reduce percei#ed ris-' reduce transaction costs' increase customer lo)alt) and customer retention and thus enhance performance+ /o maintain a smooth (u)er"seller relationship' it is an accepted norm to ha#e customer orientation rather than sales orientation A7ronroos' 066EB+ /here are a num(er of studies that demonstrated that seller relationship *ith customers can help to create lo)alt) and retention Asee Funt' 0665G Mattesson' 0665G Morgan C Funt' 0663G Reichheld C $asser' 066 G Rust C Hahori-' 0662B+

D+ Customer Value
8oodruff A0665B defined customer #alue as a customer4s percei#ed preference for' and e#aluation of product attri(utes' attri(utes performance and conse&uences in term of the customer goals and purposes+ Monroe A0660B

defines it another *a) () sa)ing percei#ed #alue as Ithe ratio (et*een percei#ed (enefits and percei#ed sacrificeI+ Da) A066 B proposes similar definition and stated that the percei#ed customer #alue represents the difference (et*een Icustomer:s percei#ed (enefitsI and Icustomers percei#ed costsI+ Ra#ald and 7ronroos A066!B studied the #alue concept in relationship mar-eting and argue that the (enefits that enhance customer percei#ed #alue are not the ma.or components in long"term relationship+ Rather' safet)' credi(ilit)' and securit)' are important and lead to reduction of customer sacrifice and are essential to customers+ /hese #aria(les of Jreduction of customer sacrifices are important in (uilding trust that leads to increased customer lo)alt)+ %n financial terms studies sho* that the retention of old customers costs much less than ac&uisition of ne* ones+ /he retained customer (ase is thus a huge intangi(le asset+ /o ma-e it tangi(le a#erages li-e the cost per transaction and the profit margin can (e used to compute #alue of the retained customer (ase+ /hat #alue demonstrates the return that is achie#ed () efforts to satisf) the customers so greatl) that the) sta) *ith )ou+ "o# to retain customers and $eep t%em coming &ac$ /here are three possi(le *a)s of ma-ing a customer lo)al+ /hese are: Find *a)s to than- )our customers consistentl) for their (usiness Kno* *hat customers (u) and -eep in touch *ith them a(out *hat interests them+ <et them -no* a(out other changes in )our (usiness+

Customers are onl) *illing to pa) for #alue that the) recogni9e+ /he) do not #alue *hat the) do not e@perience in their relationship *ith )our compan)+

/o (etter understand ho* customer relation management *or-s' *e *ill no* compare the strategies used () t*o glo(al companies to achie#e profita(ilit)+ /hese t*o companies are: McDonald4s and KFC+

1+ McDonald4s
McDonald4s is the leading glo(al food ser#ice retailer *ith more than 2 ' da)+ %t is one of the *orld4s most *ell"-no*n (rands and holds a leading share in the glo(all) (randed &uic- ser#ice restaurant segment of the informal eating"out mar-et+ %ts product (rands are the fa#orite: 8orld Famous French Fries' ,ig Mac' Kuarter Pounder' Chic-en McLuggets and 1gg McMuffin+ McDonalds *as founded () Ra)mond Al(ert Kroc' a salesman () #ocation+ Fe mortgaged his home and in#ested his entire life sa#ings to (ecome the e@clusi#e distri(utor of a mil- sha-e ma-er called the Multimi@er+ Fearing a(out the McDonald4s ham(urger stand in California running eight Multimi@ers at a time' he pac-ed up his car and headed 8est+ %t *as 06E3+ Fe *as E2 )ears old+ At the Mac Mcdonald4s Restaurant in $an ,ernardino' California' Kroc *as ama9ed at the speed () *hich customers *ere ser#ed so &uic-l)+ Fe mentioned the idea of opening se#eral restaurants *ith the hope that he can sell his Mutimi@ers to each of these restaurants+ /he pro(lem of *ho can open these restaurants *as sol#ed *ith Kroc offering to do the .o(+ %n 06EE' Ra) Kroc opened the Des Plaines restaurant+ From that time on' McDonald4s ha#e continuousl) inno#ated their products to satisf) the demands of their customers+ ,ig Mac *as the idea of Mim Delligatti' one of McDonald4s earl) franchisees+ %t *as introduced in 06!D+ /he 1gg McMuffin' introduced in 0652' the 1gg McMuffin *as de#eloped () o*ner operator Fer( Peterson+ local

restaurants ser#ing nearl) E million people in more than 006 countries each

$ince 0656 the Fapp) Meal has (een ma-ing -ids #isit to collect Fapp) Meals to)s and (o@es+ AA(out McDonald4sB+

$trategies for increasing re#enue

McDonald4s has not (een a(le to sol#e its food &ualit) and menu pro(lem+ /he) ha#e not (een a(le to adapt their food products to the changing tastes of its customers+ $o' the) turned to to) promotions and e@celled in impro#ing profits+ After decades of targeting children' McDonald4s graduall) e#ol#ed into a successful to) and entertainment center' *hich ma) (e ta-ing more (usiness a*a) from /o)s R ;s than from ,urger King+ 8hen a McDonald4s customer (u)s a Fapp) Meal he or she has more to loofor*ard to than the cuisine+ For a N0+E6 cent Fapp) Meal' the customer gets a free /eenie ,eanie ,a()+ 1ight) million of these to)s ha#e (een go((led up+ /his promotion is immensel) successful' increasing sales at some stores () 2 O from pre#ious )ears+ A more important strateg) for the success of McDonald4s ha#e (een their focus on the customer+ /he) ha#e adopted the follo*ing: 0+ $er#ice *ith a $mile 2+ $uggesti#e $ell 2+ /he Customer is Al*a)s Right 3+ K$C+ AKualit)' $er#ice' and CleanlinessB E+ ,rand A*arenessPCorporate %dentit) !+ 8hat is )our ;$P A;ni&ue $elling PointBQ 5+ Customer Appreciation D+ Consistent ser#ice

Focusing on creating customer #alue *hen de#eloping their mar-eting program' McDonald4s *as a(le to negate the effects of their ina(ilit) to sol#e their food &ualit) and menu pro(lem+

F+ KFC
Kentuc-) Fried Chic-en Corporation AKFCB is one of the *orld:s largest chains of chic-en restaurants and co#ers a large percentage of the ;+$ mar-et in terms of sales+ %t is a chain of restaurants ha#ing its (ranches all o#er the *orld+ As it is the *orld:s most recogni9a(le (rand' its international strateg) *as to gro* more and more (ranches in the *orld through its greater &ualit) product' customer ser#ice and cleanliness of the restaurants+ /herefore' to maintain the o(.ecti#e and to compete *ith the challenges of the upcoming and e@isting ne* fast food franchise in the *orld' the corporation has al*a)s focused to gi#e a strong training to their emplo)ees specificall) to those related to the customer relation department+ KFC started as a restaurant in Cor(in' Kentuc-) during the Depression+ /he introduction of the pressure coo-er greatl) increased the efficienc) of coo-ing chic-en+ %n 06E2' Colonel $anders' started acti#el) franchising his (usiness () going from to*n to to*n coo-ing (atches of chic-en for restaurant o*ners+ %n 06!3' KFC has more than 06 franchisees and 3 and Canada+ %n 0656 KFC has coo-ed up to 2+5 (illion pieces of chic-en in !' KFC franchise units in the ;$

restaurants *orld*ide *ith sales of more than ;$N2 (illion+ AKFC Fistor)B+ %n 06D2' KFC (ecomes a su(sidiar) of R+M+ Re)nolds %ndustries' %nc+ A series of ac&uisitions ended in /ricon 7lo(al Restaurants' %nc+ o*ning KFC' together *ith /aco ,ell and Pi99a Fut

As of 2

! sales figures sho*ed more than a (illion of the Colonel4s Ifinger lic-in4 0B+

goodI chic-en dinners ser#ed annuall) in more than D countries around the *orld+ AKFC Annual Report' 2

$trategies for increasing re#enue

%n the (eginning the strategies *ere not #er) effecti#e as the corporation could not ma-e much mar-et (ut ha#ing some (itter e@periences of the past the corporation made some changes in its management for a successi#e program and remodel the e@isting restaurants during the 5 >s and no* the emphasis *as to eliminate the marginal products and focused more on cleanliness of the restaurant + $ince then the de#elopment strateg) is more focused and gi#es more career opportunities for people related to (usiness schools' management and other professional areas of stud)+ /he principal strategies are as follo*ing: 0+ ;rge the emplo)ees to get closer to the customer () adopting a #er) friendl) (eha#ior to them to ma-e decisions from mar-et (ac-+ $o the first principle is to create the customer focus goal+ 2+ /he firm also -eeps in touch *ith the latest trends and changing technological inno#ations for its mar-et and to -eep a continuous change as a *a) of life+ Adding ne* ideas and taste in its meals' ma-ing more deals for attracting the customers and man) other small policies are adopted for this purpose+ 2+ Mar-et orientation *as another area of priorit) () the management team to generate e@tra effecti#eness in the glo(al mar-et+ A friendl) atmosphere *ith the customers is #er) important to gi#e them confidence for putting their

suggestions in the suggestion (o@ for getting an idea of the li-es and disli-es of their #alua(le customers+ 3+ /he management team communicates #er) effecti#el) and learns ho* to create an inno#ati#e atmosphere and a (etter understanding *ith the #arious cultures of the glo(e' as people (elonging in different areas and cultures ha#e different taste+ $o the main principle here is not to create a strong uniform (rand image (ut also to ser#e the (est interest of different customers in different locations+

1ffecti#eness of these strategies

/he (usiness en#ironment in each countr) is almost same+ Fo*e#er the adaptation of ne* products is a challenge and ris-) deal+ /he strateg) adapted () KFC on focusing on (uilding friendl) customer relations is a #er) effecti#e tool to ma-e its customers feel comforta(le+ ,) offering #aried products that suit its customers4 taste and their focus on impro#ing its customer focus' KFC had (een successful in achie#ing a large segment in the fast food and eat"out ser#ice+

7+ Conclusion
Rn the (asis of the a(o#e arguments' (oth McDonald4s and KFC achie#ed their success () shifting their focus on its customers rather than on its products+ %t is li-el) that mar-eting *ould remain focused on customers (ecause it has (een sho*n that customer lo)alt) *hich translates to a satisfied customer' is cheaper to maintain than that of a customer that comes onl) once+ %t is therefore important for companies to design their customer relations programs' mar-eting efforts and strategies so that the) *ould (e a(le to -no* *ho their customers are' *hat the) need' and *hat the) are loo-ing for+ %t is onl) () doing this that the) achie#e customer #alue+
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,i(liograph)

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A(out McDonald4s+++' http:PP***+mcdonalds+comPcorpPa(outPmcd_histor)_pg0+html

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Da)' 7+ A066 B' Mar-et"Dri#en $trateg): Processes for Creating Value' /he Free Press' Le* Yor-

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7ronroos' C+ A066EB' I/he Re(irth of Modern Mar-eting " $i@ Propositions a(out Relationship Mar-etingI' 8or-ing Paper 2 5' $*edish $chool of 1conomics and ,usiness Administration' Felsin-i+

3+

Funt' $+ D+ A0665B' ICompeting through relationships: 7rounding Relationship Mar-eting in Resource"Ad#antage /heor)I' Mournal of Mar-eting Management' Vol+ 02' pp+ 320"33E

E+ !+

KFC Fistor)' http:PP***+-fc+comPa(outPhistor)+asp KFC Annual Report A2 0B+

***+)um+comPin#estorsPannualreportP 0annualreportPpdfP/7R_p0!_23+pdf 5+ Mattesson' <ars"7unnar A0665B' IRelationship Mar-etingI and the IMar-ets" as"Let*or-s ApproachI " A competiti#e anal)sis of t*o e#ol#ing streams of research' Mournal of Mar-eting Management' Vol+ 02' pp+ 335"3!0 D+ Monroe' K+,+ A0660B' Pricing"Ma-ing profita(le Decisions' Mc7ra*"Fill' Le* Yor-+ 6+ Morgan' R+M+ and Funt' $+D+ A0663B' I/he Commitment"/rust /heor) of Relationship mar-etingI' Mournal of Mar-eting' Vol+ ED' Mul)' pp+ 2 "2D

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0 + Ra#ald' A+ and 7ronroos' C+ A066!B' I/he #alue concept and relationship mar-etingI' 1uropean Mournal of Mar-eting' Vol+2 ' Lo+ 2' pp+ 06"2 00+ Reichheld' F+F and $asser' 8+1+A066 B' IHero defections: Kualit) comes to ser#icesI' Far#ard ,usiness Re#ie*' $eptem(er"Rcto(er' pp+0 E"00 02+ Rust' R+/+ and Hahori-' A+M+ A0662B' ICustomer satisfaction' Customer Retention and mar-et $hareI' Mournal of Retailing' !6' pp+062"20E 02+ 8oodruff' R+ ,+ A0665B' ICustomer #alue: the ne@t source for competiti#e ad#antageI' Mournal of the Academ) of mar-eting $cienceJJ' Vol+ 2E' Lo+ 2' pp+ 026"0E2

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