Ateneo de Davao University

Jacinto St. Davao City

In Partial Fulfillment

of the Requirements

for BA908

Submitted by:

Richard Tidoy

Xyza Baguilod

Michelle Anne Magnaye

Maricar Ricafort

Philip Vargas

Submitted to:

Prof. Antonio Boquiren

PROBLEM: What strategic choice should Kinko’s adopt to enhance their market
share, increase revenue and meet customer satisfaction?

Sub problems: Technology substitute

Lack of Differentiation in service

Shrinking consumer revenue which led to its market share loss

Parameters of the Solution Weight

1. The solution should provide competitive differentiation and service 30%

quality.

2. The solution should increase market share of Kinko’s. 25%

3. The solution should increase customer relationship 20%

4. The solution should improve the company’s profitability 25%

III. Executive Summary

Paul Orfalea started the company with the thought that, students from universities
needed services in photocopying. He made it possible by opening Kinko’s to nearby
schools to address their copy needs and as well as providing them with the much
needed service in which the students may feel warm and welcome. They developed the
image of being “cool” and hip to match the need of the customers and as well as attract
new ones. As the company moved to new expansion over the years, Kinko’s was able to
establish their markets and divided them into three: Local Business Market, Consumer
Market and the Commercial Solutions market. Among the three, the commercial
solutions market bears a favourable margin as to revenue and profit.

But as the years went by, Kinko’s was then faced with different challenges regarding
their services and their products. Their “one size fits all” thought had brought them a
dilemma that they must find a better way to serve their customers and bring back the
trust that they once had. They have to find a marketing strategy that can enhance their
market, as well as increase their revenue and create customer satisfaction.
IV. Situation Analysis

A. Environment

Paul Orfalea started Kinko's in 1970 near UCSB by selling school supplies and
photocopying services to college students when he noticed that the only place for getting
photocopying service was at school library and realized that photocopiers were not
easily accessible to many people. He observed that there was an increasing demand on
these services and decided that this business is going to exist for a long time.

Paul Orfalea decided to offer his customers, who were college students, products and
services they need, to provide his customers with a consistent high quality service in a
timely and reliable helpful manner, at a reasonable price. Moreover, Paul Orfalea made
this service available and handy for his customers, which was of a high value to them.

B. Industry

The company is currently in the copy industry for a long time. But over the years, there
had been great changes in the revenue and growth rate of the company. As the copy
industry as a whole was shrinking. Kinko’s then realized that they were also losing their
share to competition. There are three segments into which the company is serving, the
local business segment, the consumer segment and the commercial business segment.
Each segment had something in common, which are convenient location, speed, price
and customer service. Competitors in the 3 segments are the same and consisted
primarily of Mom and Pop stores and superstores except for FM sub-segment of
commercial solutions segment where the competition was including Xerox Global
Services, IKON.

Local Business Market Consumer Segment Commercial Solutions

Segment
• Size: Industry wide • Size: Industry wide 2 distinct lines:
market was estimated market was estimated
between “$5-$7” billion, between “$3-$5” billion, • Facility management
declining by 4%. Decline declining by 2%. Decline business (FM): suppliers
factors were due to factors technology managed the firms’
technology substitutes substitutes and share duplicating and printing
and share loss to loss to competition. requirements directly on
competition. the customers’ premises.

• Profitability: 2003
• Profitability: 2003 generated approximately
generated approximately $600 mil, equivalent to
$1 billion, equivalent to 30% of Kinko’s revenues
50% of Kinko’s revenues declining by 6% yearly.
declining by 5% yearly. Customers served by
Customers have no branch personnel in
formal sales relationship 1200 locations.
• Non facility management
business (Non-FM):
consisting of large and
small branch jobs and
drop-in projects
requested by smaller
to depend on with the nearby smaller
branch managers who businesses and by large
establish contacts with firms’ mobile
local businesses. professionals.

• Size: Market for FM was

estimated to be between
“$12-$15” billion and was
growing between 1-3%.
Commercial Non-FM
industry was estimated to
be between “$2-$5”
billion.

• Profitability: 2003
generated over $350
million, equivalent to 20%
of Kinko’s revenues was
growing by 5% yearly.
Kinko’s revenues from
FM were less than $30
million and from
commercial Non-FM
were over $300 million.
This segment was served
by a sales force of over
500 reps.

C. Organization

Kinko’s value proposition evolved over time by expanding their services and expansion
of business to serve new customer segments. Kinko’s continued opening new stores
and increased its retail footprint and broadened its focus to serving small office/ home
office market. Kinko’s enhanced their value proposition by introduction of self-service
computers and photocopiers working areas, in addition to the introduction of 24/7
service. Kinko’s built a reputation for providing its customers access to the latest office
technologies, introducing public teleconferencing rooms, Fed-Ex drop boxes, colour
copiers and printers, high-speed internet and email access. Later in 2001, they
incorporated online and in-store services and introduced “Print to Kinko’s” and
“DocStore” which enabled customers to store, edit, and print their documents at Kinko’s.

D. Marketing Strategy

Kinko’s had developed and adopted strategies which attracted their market. The location
of the Kinko’s store’s near schools which was easily reached to get the needed service
for students. The company started to expand and they took initiative to meet customer’s
needs and expectations. Kinko’s was a “Cool” company had Fans not only customers,
 they were in a business of solving customer problems that customers couldn’t solve for
themselves and relieving their anxiety. Workers at Kinko’s were university graduates and
has experience of making business so they were considered as a business resource as
the worker were talking with the customers and students about their experiences,
students get the benefit of sharing experience and communication which creates a fun
relationship building and developing a counter-culture experience.

V. Alternative Courses of Action:

1. Radically overhaul the retail business (reengineering the store experience, reward
frequent customers, revamping its pricing policies, provide new products in the
branches)

Advantages:

• Create a better service to the customers

• Build long term loyalty with its customers

• Improve over-all Kinko’s customer’s overall price perception

• Increase market share

• Provides opportunity for growth

Disadvantages:

• Costly

• Time constraint

• People might not immediately recognize this improvement due to their past bad
experiences with the company

• Threat in technology might still arise (rising technology ownership of consumers)

• Risky

• Will lose focus on the commercial segment

2. Focus on the commercial business segment

Advantages:
 • Increase revenue

• The company can merge or sell its stores to a strategic buyer, such as an office
superstore.

• They could sell directly to large companies

• Lesser cost to maintain

Disadvantages:

• Decrease market share in the local and consumer segments

• Fedex will have full control over the company if they reduce their investment in
the retail footprint.

• Only selected new locations would be opened

• Branch Managers and employees still need to be trained since they are not used
to deal with commercial consumers.

3. Capitalize on commercial business segment and develop a unique marketing strategy to

the retail business.

Advantages:

• Competitive advantage

• Introduce service differentiation

• This would help employees do their jobs more efficiently and effectively

• Will entail customer satisfaction

• Possible increase in revenue

• Regain the image of Kinko’s to the public

• This is an attempt to realize share gains

Disadvantages:
 • Would incur cost

• Time consuming

VI. Recommendation:

Based on provided criteria we recommend the following: First is we must capitalize on

commercial business segment and develop a unique marketing strategy to retail
business. We must align their marketing effort on commercial business market for it
provides a bright spot to the company since this segment is under penetrated and
growing approximately 5% year over year. This segment also includes some 500 fortune
companies in which they are willing to outsource their document management needs
also there is room for expansion in this segment for there is a growing number of
business in document management. In Kinko’s perspective, it is beneficial since market
for this segment alone generates 350M or 20% of Kinko’s revenue. The market potential
for this segment is $12-$15B which gives them more room for expanding their market
share. Also in the customers perspective it can be beneficial since companies can save
by approximately 35% to their in- house production versus competitors thereby sourcing
their needs at Kinko’s.

On the other hand we recommend on the improvement of service quality, provide new
innovative products and promotional efforts that would attract customers, rationalize
prices to battle competition and hiring of additional employees that would cater to
customer emotional needs are also a key factor to which attracts new potential customer
as well as repeat customer. Human resources also must realign excess personnel in low
usage location in order to increase employee productivity. Simultaneous employee
training, team activities, team building and performance evaluation that lead to appraisal
must also be implemented at all times to help cater employees staffing needs.

Following are core component to Kinko’s success:

1.) Pricing (Value-based pricing) – Kinko’s consumers practically favour affordable

prices. Thus one of the groups’ recommendations is to rationalize Kinko’s pricing
basing on its value, meaning Kinko’s will offer just the right combination of quality
and good service at a fair price. Basically, other than the quality of service that
would guarantee customers, Kinko’s will use price to position its offer relative to
competition. This would include offering student discounts and sale. With this, it
would greatly compete with others in the same line of business which has relatively
low prices and reposition itself to retail business.

2.) Promotions - For Commercial Businesses: They find means in which they can
get an exclusive deal (Bigger Customer get better prices, better service and
exclusive deals). Like adding financial benefit would also be of great help in
 developing customer relationship such as reward customers who avail frequently
or in large amount. Providing a good discount scheme on big accounts is also a
great help gaining long term customer relationship.

3.) Giving loyalty rewards and points to for valued customers - These would
guarantee a long term business relationship. Customers are not inherently loyal to
any one firm. There is still a need to give customers a reason to consolidate their
buying with Kinko’s and stay with it.

4.) Product / Service Differentiation – This is one way to provide solution to price
competition. Innovating product features, developing delivery and image that will
make Kinko’s different from their competitors. We can do this through designing
new service product like establishing quick service through the net. Kinko’s could
adopt a trial period for some “prototypes” for a sample group of customers before
full scale deployment throughout the organization to minimize unforseen problems.
The move of the company to cyberspace can lure customers because of
convenience, ease of search (obtaining information and searching for desired
items or services), broader selection, potential for better prices and 24-hour service
prompt delivery. As well as reinventing its signage and store layout enhancing a
user friendly environment to avoid confusion among customers.

5.) Quality – “check, recheck and check again.” It is but just very important to give the
customers the high quality of service you give them. Although Kinko’s cannot
always prevent service problems, it can learn how to recover from them. Kinko’s
was supposed to make the people’s lives more convenient not giving them a
headache if something’s incorrectly done. And so, with this watchword, Kinko’s
employees must then guarantee the expected high quality of service to customers.

Although greater service quality entails higher costs, it also leads to greater
customer satisfaction and thus creates customer loyalty. Usually, investment in
service usually pays off through increased customer retention and sales. When
Kinko’s will finally recover a good service, it can turn angry customer in to loyal
ones. And according to Kotler “Companies should realize that losing a customer
means losing more than a single sale: it means losing the entire stream of
purchases that the customer would make over a lifetime of patronage.” So, Kinko’s
must aim high in order to attract and hold on to their customers.