Threat Of Substitutes And Bargaining Power Of Customers Marketing Essay

Threat Of Substitutes And bargain Power Of Customers Marketing EssayAs mentioned earlier in art object 1.3, I leave behind be using Porters quintette Forces to analyse the remote environs to obtain a comprehensive under(a)standing of a abanthroughd industry. My focus here result be the stead desist nourishment industry. BK is my chosen caller-out to evaluate the effect of sphericalization has upon warm provender industry. The analysis entrust be done in four atomic number 18as as be natural depression and in that respect may be some overlapping of head teachers as they can be interrelated.There atomic number 18 six study(ip) sources determine as barriers to a commercialiseplace entry which hold economies of home, product preeminence, big(p) requirement, switching appeal, access to channels of distri thoion and government policy (Porter, 1980). solely these grant had clash on BK peculiarly as from the point of view of globalization.In my observation, it is very possible to open one or twain outlets yet to globally have a chain of outlets with the kindred strike outing requires tremendous capital requirements.Thus globalization has directly wedge BK in the way it structured its business model by dint of franchising. BK could afford to do so as with agreements much(prenominal) as US- Canada Free get by Agreement and North American Free Trade Agreement (Reference for Business, 2010). BK took advantage of the relative free f scummy of resources under globalisation to overdraw globally.Franchising is a relative low cost and low risk business model. Most of the US franchisors often use this manner to enter a new market place with diverse sparingal, cultural and policy-making environment (Alon, cc6). For instance, 88% of BKs restaurants solid groundwide argon franchised in fiscal 2009, contribute to $412.5 one million million millions of total receipts globally (Burger mogulfulness Holdings Inc., 2009). Franchising enables the business to develop in an unfamiliar market relatively readilyly on a bigger ordered series, allows the use of topical anesthetic partners who are familiar with topical anesthetic environment and as strong to create a standardised, global firebrand image, generating merchandising economies of scale (McDonald et al., 2002). maps to a demoralise place will fork over further information on BKs franchise restaurants. map 1 Percentage of BKs Franchise eaterys and Company Restaurants oecumenic ( Burger fairy Holdings Inc.,2009 endorsement Info, 2007) graph 2 R take put downue Breakdown From BKs Total Revenue Worldwide (Burger female monarch Holdings Inc., 2009)However with globalisation, contention is globalised and relent little. McDonalds is actually BKs largest competitor as it provides mend lineup variety with to a greater finis valuable and affordable prices (CNN.com, 2009), biting into BKs revenue by securing a bigger market share. McDonalds is as well more(prenominal) a pioneer compared to BK because it opened its setoff restaurant in 1940 (Spiritus-temporis.com, 2005) compared to BK with its first restaurant in 1954 (WikiAnswers, 2010).Being a pioneer, McDonalds has many advantages which includes intrenchment of position in call forrs minds, creating higher(prenominal) thresholds for subsequent entrants in foothold of quality, publicize and distribution support, enjoys long-term market share advantages and reputation 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 participation, 2010). With its intricacy into international markets, the lodge is famous throughout the world and is the leader in this industry followed by BK provided at second place. The difference in tighten up of outlets worldwide which in like manner translates into gross revenue volume differences mingled with these two fast food chain can be see n clearly in the diagrams on a lower floor.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 ask in terms of advertising 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 get to is lacking compared to McDonalds. To postulate with McDonalds, BK needs more capital to increase its advertising as it is very much needed in globalisation to introduce BK in new markets and building up its image that they may separatewise non known about (Coulter, 2001). To ease comparison of the advertising cost, it i s illustrated in chart downstairs.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 otherwise(a) competitors to come into the same scale as these two companies is extremely daunting indeed, thus the menace of entrants is low, though for smaller players is possible to find niches that are under or not forgeed as yet. Luckily the advertising cost have resulted in branding, which builds a better image globally and flows ultimately into higher sales and payabililty.Table below provides Best globose Brand Ranking 2009 highlighting few of BKs major competitors and where BK succeeded in positioning its brand among big top 100 in year 2009.2009 rank2008 rankbrand orbit of originsector2009 brand value ($m)68 wholeed 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 momentous barrier of entry as mentioned earlier.3.1.2 Product DifferentiationWith globalisation, BK differentiates itself from other fast food giants by acknowledging culture and democracy specific needs. For instances, porc-based Bulgogi Burgers are offered in korea and the ultra-spicy Rendang Double in Singapore (Wikipedia, 2010).Picture 1 Pork based Bulgogi Burger Picture 2 Rendang Double(flickr.com, 2008 ) ( in that respectalnurulle.blogspot.com, 2010)BK also keeps its hollo of Have it your way with customers having 221184 possible ways of ordering a whopper repast (Swabey, 2007). This will help to ease its pe clamsration into new market with different local conditions. BKs response to globalisation is apparently to cater to local tastes, as the pictures abo ve testify. Another response to globalisation has been the hold up towards enough more wellnessy by offering healthier wit with less salt and also with its product innovation to provide food with higher nutrition contents. At all times, BK is trying to differentiate itself to get wind 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 in the raw edge of emerging global consumer culture which have caused societies worldwide to blend increasingly homogeneous and deterritorialised (Friedman, 2000).Although the expansion of Western quick- serving eateries outside America and atomic number 63 has done much to transform established notions of service, taste and lifestyle (Schlosser et al., 2001), their dispersed has also given rise to rival domestic chains whose lengthened knowledge of local preferences offers real advantages in attracting and retaining customers (Matejowsky, 2008). It is the strong bargaining berth of customers which intensify the competition among various food chains with more substitutes available. To take on with these forces on a global keister, BK resorted to differentiate itself through groundbreaking marketing and menu items.3.2.1 Innovative MarketingBK has adopted a strategy which helps to differentiate them from their competitors. The family appointed TMP Worldwide Advertising communications to create an exclusive fraternity-wide employer branding labor based on the notion Fun with a Future which concentrates on brand recognition, employee engagement and delivering on brand promise. BK resolute to differentiate itself through its product and flock with its employee as brand ambassador where all employees at all levels are connectiveed to the company brand featuring in BKs advertizements and posters (Business and Finance Week, 2008). This is in form with the concept of globalisation where people of different races, culture and 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 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 instrument that BK attracted a lot of customers with this promotion, earning a nic e profit from it. examine 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.ft.com, 2006) (toadcastle.net, 2006)The successfulness 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 walloper and only 12% chose McDonalds Big Mac (Cebrzynski, 1999). Having innovative marketing is a response to the threat of substitutes and bargaining queen of customers as BK tries to imbed itself on consumer consciousness globally.3.2.2 Menu Options and ChangesBK tries to reach out more customers through its menu to reduce threat of substitutes, which of course with globalisation is a full time a nd relentless force. As mentioned in part 3.1, health consciousness was rising among people with the obesity crisis hitting globally. It was lay out that join States tops the hierarchy for obesity with 30.6%, followed by Mexico and United Kingdom with 24.2% and 23% (NationMaster.com, 2010). Even though BK tries to blunt customers bargaining business leader 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 hearty responsibility contestation 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 unveiled a healthy eating adaptation of its Have It Your Way strategy where posters in restaurants tell cust omers 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 bank bill 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 origination 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 vermiform 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 chocolate. This ma ke-to-order cocoa tree processed 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 even though globally the economic situation was dire, for instance it was found that 2009s world economic growth rate was only half percent (International fiscal 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 (my alohavibe.com, 2010)BK also imitated a McDonalds breakfast item. BKs Breakfast Muffin Sandwich was promoted through an advertisement where a cleverly disguised BK breaks into McDonalds Headquarters to steal the Top mystery Blueprints for the Sausage McMuffin With Egg (Dave, 2010). Picture below shows the contrast mingled with 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 denote 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 agree challenging BKs right to dictate maximum prices as the products costs is at least $1.10 per sandwich (Glover, 2009). Thus even though BK tries to fulfill customers other stakeho lders 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 involve to maintain the quality of services in its restaurants worldwide. As a legal community of quality control, BK will evaluate before approving the animated 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 ensure consistency, franchises are requisite 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 in capable purchasing cooperative supplements purchasing power of the BK system in United States by negotiating the purchase terms for most equ ipments, 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 faithfuls and services, managing allow agreements with over 300 suppliers and 27 distributors (Sterlingcommerce, 2009). For company restaurants and franchise restaurants in Canada, a subsidiary of RSI is responsible to purchase the products. However, thither 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 cream of suppliers who meet the company criteria3.3.2 Suppliers of BKFoodAs a global fast food chain, it is important for BK to maintain its brand name worldwide. The image of the global brand could be destroyed in a day due to globalisation where intelligence activity travels billion times accelerated than it used to be in the past. BK was labelled Murder King by animal activists forcing the company to implement new policies that are more closely monitor its suppliers. Thus by 2001, there were guidelines that require the formal 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 carvingting chickens beak 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 negatively affect its sales worldwide when being extremely announce (Burger King Holdings Inc., 2009). During an earlier case in year 1997, BK cut off its ties with one of its biggest beef 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 specify 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 Company 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 finish Greater europium, 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 chairman believes that with this renewed alliances, Coca-Cola Company, recognised as the worlds trounce 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, bargaining power of food suppliers are strong but over soft drinks especially in terms of dealing 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 (B urger 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-spot 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 reward featuring the high bargaining power of employees (Burger King Holdings Inc., 2009). However, where skip overaries 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 by chance reduce their bargaining power. The selection of employees is important as a ruin choice would lead to n egative 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 misconduct (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 sue BK seek $75,000 of compensation (Ryan, 2010). No doubt with globalisation, 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 average to high.Chart 6 Payroll and Employee Benefits for BK ( Burger King Holdings Inc., 2009)3.4 Rivalry among breathing CompetitorsGlobalisation has increased the competi tion 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 awareness among consumers, there has been intense competition among the competitors globally to gain market share. Increasing prices of raw material, agitation by social organisations, slow down of U.S economy and also increasing fuel prices has exalt 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 beam and seeking global suppliers, entry into China and other Asian countries appease 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 lo cations in most markets as well as the elevated tariffs and patchwork of inconsistent regulations that impede imports of commodities and equipment.3.4.1 New Geographical Regions and New Ventures fetching 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 modern media contributing to the creation of a borderless market but it does not correspond 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 saintly 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 f urther 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 specialised 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. ( Ruggles, 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 Year 2007-Year 2009 (Burger King Holdings Inc., 2009)In a way, th e 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 therefore 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 lettuce 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 globalisatio n.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 expiry 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 why the share prices have been sliding back down in recent times as seen below.Chart 9 BKs Share cost Ups and Downs from 2001 till 2010 ( Yahoo Finance, 2010)Recommendations made to companys performance are as follows go 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 to expand BKs growth in these two countries by using local partners, local employees and local ingredients. Furthermore, BK could also offer limited 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 Selection As mentioned earlier in the project, BK should unendingly 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 al so be ensured to meet the local taste. As mentioned by the officials of market research level 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 mayhap 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 embark 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 i n 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 support them to provide ideas and feedbacks on how to improve 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 pushing 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 s tand in this field and could perhaps be the number one fast food chain worldwide in the future.