KFC China, Episode 2

Promotion: Focusing on Taste and Health

Just as other fast food companies, KFC puts a lot effort in traditional promotional strategy, such as advertising, price cutting, contesting, etc. However, KFC applies these strategies in its own way. In order to give a good brand image to its potential customers, KFC spends 10% to 15% of its total expenses for advertising every year.^[1] From a personal perspective, I believe KFC keeps doing this mainly to deliver two advantages of KFC foods, the fantastic flavor and health. KFC uses all kinds of sources you can imagine to draw the customers' attention. KFC promotes its newest product in its TV commercials, sometimes it shows how the food is made, and sometimes there is an interesting story about the updated product. About a week after the commercial displayed on TV, people can see the posters of this newest one on the street, bus station and even in an elevator.. With so many vivid pictures (like the one on the left) around, peoples' appetite will definitely be grabbed with an invisible hand.

Another smart promotion strategy KFC uses is its in-store coupon. Like many other fast food companies, KFC also provides coupons on websites or on the newspaper. However, only less than 3% of these coupons were actually redeemed. On the other hand, even with a much lower discount rate, the in-store coupons are the most used ones. It seems that Chinese people usually enjoys this sudden price-off in the restaurant. The in-store coupons are usually in calendar form, which means there are only price-off on certain days for certain foods. This really becomes another incentive to motivate the customer to go to eat and therefore ensures a certain number of traffic in the store.

In addition, even though the coupons are named "in-store coupon", you can actually get them out of the store. Since KFC restaurants are usually opened around malls, supermarkets and city squares, it is very common to see the hired employees handing out the coupons, sometimes wearing a costume with a KFC theme. 

Logistic Network: Building Suitable Supply Chain for China

Even though the logistic networking is not categorized marketing strategy, one can never omit the important role that supply chain management is playing in KFC's widely spreading in China's marketplace. When KFC first entered China in 1987, there was even no fast food supply chain in China. Therefore, KFC decided to build its own logistic system in China. It was an extremely costing and a time consuming project. However, the Yum! Brands is now enjoying the outcome of their former effort on supply chain building.

KFC applies a fast moving consumer goods (FMCG) strategy to ensure material quality, ability to capture market opportunities and the flexibility to suit the changing market structure in China.

On material section, KFC implements a Star System, "a selection of alternative suppliers, which is specifically for a global assessment of supplier management system in China since 1996, full implementation of the supplier"^[2]. This Star System is basically a district level material sourcing system. With Star System, KFC is able to select the most preferable material with a best price discount. Meanwhile, this system also functions as an information center for demand planning. It "consists of five areas: quality, technical, financial, reliability, and communication. Every three to six months of regular assessment and evaluation throughout the year were, from KFC’s technical department and the purchasing department were assessed at the end of the composite score will determine the supplier of the volume of business in the next year in the share."^[3]

On distributing section, KFC China uses rental-based distribution centers instead of building up their own. KFC also outsources third-party carriers from local companies to transport their materials.^[ Both of these two strategies aim to reduce costs. With the information generated from Star System and the inventory record, distribution channels can easily allocate the recourses according to the specific order from each restaurant with supplementary information from the demand planning department. Due to the large number of KFC restaurants and the short distance between each in every district, material allocation can be easily adjusted with extremely low costs.

From the above analysis, we can see several big advantages in KFC's logistic system: First, the tightly connected departments strongly support the expansion of KFC. Second, the Star System ensures the quality and quantity of materials. Third, the abundant information results in accurate demand planning, which significantly reduces the costs through the entire supply chain.