Threat Of Substitutes And Bargaining Power Of Customers Marketing Essay

Threat Of Substitutes And Bargaining Power Of Customers Marketing EssayAs mentioned earlier in part 1.3, I depart be using Porters Five Forces to analyse the extraneous environment to obtain a comprehensive understanding of a given industry. My focus here leave be the unfluctuating food industry. BK is my chosen conjunction to prize the effect of internationalization has upon fast food industry. The analysis pull up stakes be do in four beas as under and at that place whitethorn be some overlapping of points as they can be interrelated.There ar six major(ip) sources identified as barriers to a market entry which include economies of lieu base, product differentiation, capital requirement, sack personify, access to channels of distri justion and government policy (Porter, 1980). both these have had feign on BK especi every last(predicate)y as from the point of view of world(prenominal)isation.In my observation, it is very possible to open one or twain outlets bu t to globosely have a chain of outlets with the same sending requires tremendous capital requirements.Thus globalization has directly impacted BK in the way it structured its business model done franchising. BK could afford to do so as with agreements much(prenominal) as US- Canada Free Trade discernment and North American Free Trade Agreement (Reference for Business, 2010). BK took advantage of the congener free f low-spirited of resources under globalisation to expand globally.Franchising is a relative low cost and low risk business model. Most of the US franchisors often use this method to enter a new market with versatile economical, cultural and political environment (Alon, cc6). For instance, 88% of BKs restaurants populationwide are libertyd in fiscal 2009, contributing to $412.5 millions of total tax revenue globally (Burger business leader Holdings Inc., 2009). Franchising enables the business to capture in an unfamiliar market relatively fastly on a larger sc ale, allows the use of topical anesthetic partners who are familiar with local anaesthetic environment and in any case to create a standardised, global target image, generating marketing economies of scale (McDonald et al., 2002). graphs below will provide kick upstairs information on BKs franchise restaurants.Chart 1 Percentage of BKs Franchise Restaurants and corporation Restaurants Worldwide ( Burger King Holdings Inc.,2009 SEC Info, 2007)Chart 2 Revenue Breakdown From BKs Total Revenue Worldwide (Burger King Holdings Inc., 2009) nonwithstanding with globalisation, competition is globalised and relentless. McDonalds is actually BKs largest competitor as it provides better batting order variety with more valuable and affordable prices (CNN.com, 2009), biting into BKs revenue by securing a larger market share. McDonalds is as head as more a pioneer compared to BK because it opened its first restaurant in 1940 (Spiritus-temporis.com, 2005) compared to BK with its first res taurant in 1954 (WikiAnswers, 2010). world a pioneer, McDonalds has many advantages which includes entrenchment of position in consumers minds, creating exalteder thresholds for later entrants in terms of quality, advertizing and distribution support, enjoys long-term market share advantages and character benefits (Gass et al.,2003). It is the effect of globalisation where McDonalds has built around 32,000 outlets in more than 117 countries (McDonalds Corporation, 2010). With its expansion into international markets, the company is famous throughout the world and is the leader in this industry followed by BK merely at second place. The difference in number of outlets worldwide which alike translates into sales volume differences between these two fast food chain can be seen clearly in the diagrams below.Chart 3 The total number of restaurants worldwide for BK and McDonalds. ( Burger King Holdings Inc.,2009 McDonalds Corporation, 2009)Chart 4 Comparison of Sales Revenues Between BK and McDonalds (Burger King Holdings Inc., 2009, McDonalds Corporation 2007 2009, SEC Info, 2007)Based on the charts, McDonalds is approximately 3 times larger than BK in terms of outlet and 10 times larger in terms of sales revenues.Substantial capital is also needed in terms of ad to build up BKs brand. The advertising cost of McDonalds is approximately 8 times higher than BK thus creating a higher barrier entry when BKs brand name is lacking compared to McDonalds. To compete with McDonalds, BK needs more capital to increase its advertising as it is very lots needed in globalisation to introduce BK in new markets and building up its image that they may oppositewise not known about (Coulter, 2001). To ease comparison of the advertising cost, it is illustrated in chart below.Chart 5 Advertising cost of BK compared to McDonalds (Burger King Holdings Inc., 2009 SEC Info, 2007 McDonalds Corporation, 20072009)With these type of cost outlays, for opposite competitors to come into th e same scale as these two companies is extremely daunting indeed, thus the threat of entrants is low, though for smaller players is possible to find niches that are under or not employ as yet. Luckily the advertising costs have resulted in branding, which builds a better image globally and flows ultimately into higher sales and profitabililty.Table below provides outperform Global Brand Ranking 2009 highlighting few of BKs major competitors and where BK succeeded in positioning its brand among top 100 in yr 2009.2009 rank2008 rankbrandcountry of originsector2009 brand value ($m)68 unit of measuremente statesrestaurant322756164united statesrestaurant57227981united statesrestaurant38769085united statesrestaurant326393newunited statesrestaurant3233Table 1 Best Global Brand Ranking 2009 (Interbrand, 2009)It is clear that BK lags behind McDonalds though in many ways this is to be expected given its much lower advertising cost outlays, which besides outlet costs, form a significant ba rrier of entry as mentioned earlier.3.1.2 Product DifferentiationWith globalisation, BK differentiates itself from other fast food giants by acknowledging culture and country specific needs. For instances, Pork- base Bulgogi Burgers are offered in korea and the ultra-spicy Rendang Double in Singapore (Wikipedia, 2010).Picture 1 Pork ground Bulgogi Burger Picture 2 Rendang Double(flickr.com, 2008 ) (therealnurulle.blogspot.com, 2010)BK also keeps its promise of Have it your way with customers having 221184 possible ways of ordering a whopper meal (Swabey, 2007). This will patron to ease its penetration into new market with different local conditions. BKs response to globalisation is overtly to cater to local tastes, as the pictures above testify. another(prenominal) response to globalisation has been the move towards becoming more hefty by offer healthier menu with less salt and also with its product vicissitude to provide food with higher nutrition contents. At all times, BK is trying to differentiate itself to meet customers demands. Further details regarding food offerings will be mentioned in later part.3.2 Threat of Substitutes and Bargaining Power of CustomersVarious global fast food chains have successfully make inroads in diverse market settings around the world (Watson, 2006). These restaurants stand the most conspicuous symbol of globalisation and modernity in countries worldwide (Wilk, 2006). Hence, they are often viewed as the vinegarish edge of emerging global consumer culture which have ca employ societies worldwide to become increasingly homogeneous and deterritorialised (Friedman, 2000).Although the expansion of Western quick-service eateries outside America and Europe has done much to transform established notions of service, taste and lifestyle (Schlosser et al., 2001), their spread has also given rise to rival domestic chains whose extensive knowledge of local preferences offers real advantages in attracting and retaining customers ( Matejowsky, 2008). It is the strong bargaining power of customers which intensify the competition among various food chains with more substitutes available. To deal with these forces on a global basis, BK resorted to differentiate itself through innovative marketing and menu items.3.2.1 Innovative MarketingBK has adopted a strategy which helps to differentiate them from their competitors. The company positive TMP Worldwide Advertising Communications to create an exclusive company-wide employer branding campaign based on the concept Fun with a Future which concentrates on brand recognition, employee engagement and delivering on brand promise. BK decided to differentiate itself through its product and people with its employee as brand ambassador where all employees at all levels are railroad tieed to the company brand featuring in BKs adverts and posters (Business and Finance Week, 2008). This is in line with the concept of globalisation where people of different races, culture an d family background will have a common global identification as BKs brand ambassador. Pictures below feature BK employees who are of different races and cultures.Picture 3 Employees of BK in Tokyo Picture 4 Employees of BK in U.S. (associatedcontent.com, 2010) (farsons.com, 2010)BK also uses a creative marketing strategy by building an edgy, hip to(predicate) image with young men, who are targeted consumers (Jargon, 2006). For instance, in November 2006, BK began offering BK Xbox and Xbox 360 games with their value meals. After one month, 20 million of BK Xbox games had been sold. The games could only be bought with a value meal which means that BK attracted a lot of customers with this promotion, earning a nice profit from it. Comparing with BK, McDonalds on the other hand only places Nintendo mascot toys in their Happy Meals (Mattie, 2007). A picture of both BK Xbox and McDonalds Nintendo toys can be seen below.Picture 5 Burger King Xbox Picture 6 McDonalds Nintendo Toy ( blogs.f t.com, 2006) (toadcastle.net, 2006)The prosperity of BKs innovative marketing was already proven in 1999 in a TV campaign where Whopper was proclaimed as Americas Favourite Burger. That claim was based on the result of a research where 700 consumers were asked to name their favourite burger. 33% of them picked Whopper and only 12% chose McDonalds Big Mac (Cebrzynski, 1999). Having innovative marketing is a response to the threat of substitutes and bargaining power of customers as BK tries to embed itself on consumer consciousness globally.3.2.2 Menu Options and ChangesBK tries to reach out more customers through its menu to smother threat of substitutes, which of course with globalisation is a full time and relentless force. As mentioned in part 3.1, health consciousness was insurrection among people with the obesity crisis hitting globally. It was found that United States tops the hierarchy for obesity with 30.6%, followed by Mexico and United Kingdom with 24.2% and 23% (NationM aster.com, 2010). eventide though BK tries to blunt customers bargaining power and the threat of substitutes through aggressive marketing as seen above, in truth they are obviously much stronger with no switching cost.New ProductsThus a response from BK is to try to be almost all things to customers. For instance, provide healthier food options. The company in its tender responsibility statement promises to work with its trained chefs and nutritionist to develop new menu options that meet customers nutritional needs globally (Burger King Holdings Inc., 2010a). BKs efforts could be seen when it unveil a healthy eating adaptation of its Have It Your Way strategy where posters in restaurants tell customers how to order a low carbohydrate, low fat and low calorie meal (Walker, 2004). The famous Whopper can also be served without the bun, mayonnaise and ketchup (MacArthur, 2004). BK also launched a new salad line offering shrimp and sirloin steak with grilled peppers and onions on it ( Walker, 2004). Besides, health drive was initiated by BK by reducing salt and fat content in burgers and fries.Even children are targeted where childrens menu also comes with a choice of apples or grapes, milk or fruit juice (Forte, 2006). In 2008, BKs kids meal underwent makeover with the introduction of apple fries as part of the meal (Burger King Holdings Inc., 2010b). A list of BKs healthier options with their calorie contents are provided in Appendix 3. Pictures below show two healthy options from BK.Picture 7 Kids meal with Apple Fries Picture 8 Bunless Whopper (fastfood.ocregister.com, 2009) (hungry-girl.com, 2010)In addition, BK also later launched its Joe Coffee. This made-to-order coffee bear upon from 100% Arabica coffee beans (The Franchise Mall, 2005). This is actually a response to global economic crisis where it was found that consumers were trading down from more expensive coffee such as starbucks into lower ranking choices, providing a perfect option for BK. Thus e ven though globally the economic situation was dire, for instance it was found that 2009s world economic growth rate was only half percent (International Monetary Fund, 2009). BK found a new market segment to exploit to further reduce the threat of substitutes and bargaining power of customers. Latest initiatives include where in February year 2010, BK decided to replace its own coffee brand BK Joe with Seattles Best Coffee, a brand owned by Starbucks to increase falling sales by improving its product offerings (Tice, 2010). Pictures below show BKs Joe Coffee and its replacement, Seattles Best Coffee.Picture 9 BK Joe Coffee (ebay.com, 2010) Picture 10 Seattles Best Coffee (myalohavibe.com, 2010)BK also imitated a McDonalds breakfast item. BKs Breakfast Muffin get up was promoted through an advertisement where a cleverly disguised BK breaks into McDonalds Headquarters to steal the Top Secret Blueprints for the Sausage McMuffin With Egg (Dave, 2010). Picture below shows the compare between the two breakfast offering from McDonalds and BK.Picture 11 McDonalds Sausage McMuffin with Egg Vs BKs breakfast Muffin (davescupboard.blogspot.com, 2010)New PricingIt is not just menu changes were offered but also menu pricing as well. To meet the changing economic conditions as an impact of global recession, BK also announced that it will offer $1 double cheeseburger in order to gain market share back from McDonalds (Johnson, 2007). This has cause BKs franchisees to file a law suit intriguing BKs dear to dictate maximum prices as the products costs is at least $1.10 per sandwich (Glover, 2009). Thus even though BK tries to satisfy customers other stakeholders may not be happy, showing the complexities in managing relationships in the era of globalisation. Further in many ways, as seen in breakfast, and even in pricing, since the RM $1 cheeseburger, BK is imitating McDonalds.3.3 Bargaining power of suppliersWith globalisation, BK is required to find the quality of servi ces in its restaurants worldwide. As a measure of quality control, BK will evaluate before approving the existing or potential manufacturers and distributors of food, packaging and equipment products used in the restaurants. Evaluation is done based on their delivery, timeliness and financial conditions. To contain consistency, franchises are required to purchase their products from approved suppliers. (Burger King Holdings Inc., 2009).3.3.1 Purchasing Power of BKRestaurant Services Inc. (RSI), a not-for-profit independent purchase cooperative leverages purchasing power of the BK system in United States by negotiating the purchase terms for most equipments, food, beverages, toys and paper products used in the restaurants (Burger King Holdings Inc., 2009). RSI currently involves in the negotiation of purchase with BK for more than $3 billion a year in goods and services, managing supply agreements with over 300 suppliers and 27 distributors (Sterlingcommerce, 2009). For company res taurants and franchise restaurants in Canada, a subsidiary of RSI is responsible to purchase the products. However, there is currently no appointed purchasing agent that represents franchisees in other international regions. BK will work closely with their franchisees to implement programs that leverage their global purchasing power and to obtain lower product costs outside the United States and Canada. (Burger King Holdings Inc., 2009). Globalisation has increased the purchasing power of BK and therefore reducing bargaining power of suppliers with the ease of selection of suppliers who meet the company criteria3.3.2 Suppliers of BK provenderAs a global fast food chain, it is important for BK to maintain its brand name worldwide. The image of the global brand could be washed-up in a day due to globalisation where news travels billion times faster than it used to be in the past. BK was labelled slay King by animal activists forcing the company to implement new policies that are mor e closely monitor its suppliers. Thus by 2001, there were guidelines that require the lump suppliers battery cages to contain two water bottles, allowing the birds to stand upright and be at least 75 square inches (Detweiler, 2001). BK further discourages its suppliers from trimming chickens vizor and breaking their wings to save packing space when transporting (Detweiler, 2001).Reports in media of one or more cases of food-borne diseases in one of BKs restaurant also vetoly expunge its sales worldwide when being super publicised (Burger King Holdings Inc., 2009). During an earlier case in year 1997, BK cut off its ties with one of its biggest rush supplier, Hudson Foods Inc. as its beef supplies were contaminated with E.coli..Hudson voluntarily recalled the beef after the severity of E.coli contamination was discovered at its plant in Columbus, leaving some BK restaurants without sufficient beef supply for 24 hours to 48 hours (Papernik et al., 1997).Soft DrinksIn fiscal 2000 , BK decided to enter into a long term contracts with The Coca-Cola party and Dr Pepper/Seven-Up Inc to supply all restaurants of BK in United States with their product (Burger King Holdings Inc., 2009). BK prolonged its long term liaison with The Coca-Cola Company as an approved soft drink supplier for its international region covering Greater Europe, Latin America and Asia-Pacific (PRNewswire, 2003). With the effect of globalisation, consumers in around 200 countries enjoy Coca-Cola products of more than 1 billions servings per day (The Coca-Cola Company, 2010). BK International President believes that with this renewed alliances, Coca-Cola Company, recognised as the worlds best known brand (The Coca-Cola Company, 2010) will help to grow the BK brand rapidly by providing the best burger experience to their consumers in all restaurants globally (PRNewswire, 2003). Getting into alliances with suppliers is a good way to also set up higher barriers of entry.From my analysis, bargaini ng power of food suppliers are strong but over soft drinks especially in terms of relations with companies with strong brand name is weaker. Obviously, the extent to which the other party uses branding and distribution network as leverage globally as well.EmployeesOther than external suppliers, internal supplier is also an important piece of puzzle which without, BKs supplier network would not be complete. Hence, the bargaining power of its employees should not be shoved aside. BK had approximately 41320 employees in its company restaurants, field management offices and global headquarters as at 30th June 2009 (Burger King Holdings Inc., 2009). As mentioned in part 3.2.1, there are diversity of employees with different backgrounds, race, religion and cultures. It is clear that like globalisation, the factors in Porters Five Forces are interlinked and do not stand alone.The success of BK is highly dependent on its ability to attract general managers with necessary competences to be part of the management team to motivate the employees to sustain high service levels and maintain sales growth. The competition for the right employee candidates causes higher payment of wages featuring the high bargaining power of employees (Burger King Holdings Inc., 2009). However, where boundaries between countries became narrower and communication made easier with globalisation, the search for the right employee is more efficient and effective through online application, which could perhaps reduce their bargaining power. The selection of employees is important as a wrong choice would lead to negative publicity. In one of the cases, a BK employee in Jacksonville had tried to poison a customer as he was pissed due to his suspension for muck up (Morbid, 2010). In another case, a Washington State Deputy, Edward Bylsma after discovering a spit on his Whopper ordered from a BK employee decided to execute BK rendering $75,000 of compensation (Ryan, 2010). No doubt with globalisatio n, these news would definitely spread fast and adversely impact the companys brand.Further, since a large portion of outlets are franchised as a result of BKs decision on this bus model to move globally, employees become even more important as front link assets to keep sales and profits up. With payroll expenses on the increase as seen in the chart below, it is clear that for employees, their bargaining power is, in my opinion, rated medium to high.Chart 6 Payroll and Employee Benefits for BK ( Burger King Holdings Inc., 2009)3.4 Rivalry among Existing CompetitorsGlobalisation has increased the competition among the fast food chain. With various quick service restaurants mushrooming worldwide, other than competing on a national or regional basis, they are competing with each other globally.As an effect of globalisation causing increases in degree of sensation among consumers, there has been intense competition among the competitors globally to gain market share. Increasing prices o f raw material, agitation by social organisations, slow down of U.S economy and also increasing fuel prices has prompt many fast food chain to divert their attention to eastern part of the world especially China ( Naim, 2008). Although globalisation has ease the expansion of fast food chain worldwide with the ease of information transfer and seeking global suppliers, entry into China and other Asian countries still pose logistical and political challenges. As quoted from Martin (1994) in Nation Restaurants news Among the most frustrating obstacles are the scarcity and inordinately high cost of prime locations in most markets as well as the steep tariffs and patchwork of inconsistent regulations that impede imports of commodities and equipment.3.4.1 New Geographical Regions and New VenturesTaking a closer look, even though globalisation has blurred boundaries, there are still differences in cultural issues between United States and other countries resulting in different eating habits of consumers ( Glazer, 2007). From consumer point of view, globalisation has resulted from development of sophisticated media contributing to the creation of a borderless market but it does not mean it is without internal differences or local tastes (Ziedman, 2003). When a company goes global, they are bound to satisfy the demands of local customers. For example in India, cows are sacred and worshipped by the Indians, beef could not be served and the muslims, they could not consume pork (Kulkarni et al., 2009). Hence, it is a must to substitute the beef and pork in the product offerings.To further compete globally, BK invested in Whopper Bars. BK opened their first Whopper Bar in Orlando during spring 2009, and the first in Asia in Singapore during September 2009 (International Wire, 2009). It offers a specialise burger menu with more than 20 toppings (Ruggles, 2010). On 8th February 2010, BK further announced that beer sales will be added at a new unit opening in South Miami. ( R uggles, 2010). BK changes may not be rapid enough to obtain further market share from McDonalds but the company has been spending more effort in improving its sales in this global competition ( Anderlini et al., 2010).Competing on a global scale gives rise to global income streams. This would help BK to sustain the worldwide competition where the profit from a restaurant would balance the loss in another. The pie charts below show the distribution of revenue from different geographical region.Chart 6 BKs Geographical Sales from yr 2007-Year 2009 (Burger King Holdings Inc., 2009)In a way, the company is more dependent on its home market, as showed in the pie chart above where most portion of global stream income is generated. In a recent case in 2009, BKs advertisement for Texican Whopper burger in Europe had angered the Mexicans where a small wrestler featured in the advertisement was dressed in a cape resembling a Mexican flag. Mexicans have high respect for their flag and therefo re could not tolerate such an insult from BK ( The Assiociated Press, 2009). This adverse publicity could have adversely impact its profits. Still, the company had not done unduly badly as seen in the charts below.Chart 7 Revenue, Gross Profit and Net Profit of BK from Year 2005 2009 (Burger King Holdings Inc., 2009, SEC Info, 2007)It is clear that BK has done well as seen in increasing absolute figures of all sales, gross profit and net profit. A look at gross profit and net profit margin also shows that on a relative basis the company is handling itself well in the world of globalisation.Chart 8 Gross Profit Margin and Net Profit Margin of BK from Year 2005- 2009 (Burger King Holdings Inc., 2009, SEC Info, 2007)Even though Gross Profit Margin has been decreasing slightly, its net profit margin has been increasing with a drastic improvement from year 2006 to 2007. This is definitely a good sign.3.5 Conclusion and RecommendationGlobalisation can be a threat to the company and also it may help its expansion. Being a global brand, BK has a lot benefits which include cost-efficiencies, sharing of resources and ability to attract partners, employees and customers on entering new market. It all depends how the company took opportunities and work towards their goals. Management of globalisation is the key to success and most importantly, BK need to balance between global and local control (Samli, 2008).The company has retreated back to the US market, which is wherefore the share prices have been sliding back down in recent times as seen below.Chart 9 BKs Share Price Ups and Downs from 2001 till 2010 ( yahoo Finance, 2010)Recommendations made to companys performance are as followsMoving In Developing countries, Especially India and China Aggressively India and China both has a steady high economic growth rates of 8.8% and 10% in 2010 (India Brand Equity Foundation, 2010) and will probably be the major players in the world economy. It is definitely a wise option t o expand BKs growth in these two countries by using local partners, local employees and local ingredients. Furthermore, BK could also offer special(a) promotions during festive seasons or special events, for instance during Chinese New Year or Deepavali as this will help to attract more customers during that period.Broader Menu choice As mentioned earlier in the project, BK should continuously provide more choices of menu which allow customers to pick from wider choices. This step should be taken to also reduce threat of substitutes from new entries and existing competitors. Its product offerings must also be ensured to meet the local taste. As mentioned by the officials of market research firm of the NPD Group, quick service operators who are expanding their brands outside the United States must customise each unit to meet the specific needs of consumers in the country and region they seek to enter (Glazer, 2007).Promotions and Advertising As observed so far, BKs advertising has been giving positive impact on its sales. Hence, BK should continuously invest in its promotions and advertisement to gain market share. BK could perhaps invite its employees to give their opinion as they are also the brand ambassadors. This would allow a fresher and a more creative in flow of idea and to boost the motivation of the employees as they are invited to participate in the companys program. However, BK should avoid price wars with its competitors ie. McDonalds as this would pull down the profits of all burger chains. BK should choose to differentiate from its competitors. There is only one winner in cost strategy but there may be more than one winner in differentiation strategy.Relationships with Franchisees There has been cases where the franchisees are not happy with the decisions of BK Inc..The most obvious example is the sale of doublecheese burger at $1. BK should strengthen its ties with the franchisees by encouraging them to provide ideas and feedbacks on how to im prove sales. When there is a disagreement between them, BK should understand the reason behind and to solve it on a win-win situation. If this could be practised, law suit against BK Inc. could be avoided.In conclusion, Porters Five Forces Analysis that was used to analyse BKs stand in the industry gives a birds eye view of the company and industry globally. Globalisation plays a major role in get-up-and-go and shaping the company. The survival of BK is dependent on its ability to adapt to constant changes in business environment due to globalisation. With BKs effort in improving its performance, it will definitely survive in this field and could perhaps be the number one fast food chain worldwide in the future.