CASE 6 & 7 & 8

IM for Lovelock & Wirtz, Services Marketing 6/e

Teaching Notes for Cases - Section 5

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CASE 6 AUSSIE POOCH MOBILE

OVERVIEW After creating a mobile service that washes dogs outside their owners’ homes, a young entrepreneur has successfully franchised the concept. Her firm now has more than 100 franchisees in many parts of Australia, as well as a few in other countries. In early 2002, she and her management team were debating how best to plan future expansion.

STUDY QUESTIONS 1.

How did Christine Taylor succeed in evolving the local dog-washing service she developed as a teenager into an international franchise business? ________________________________________________________________________

Note: All financial data are in Australian Australian dollars (AUD), whose exchange value value in 2003 at the time of the case was USD 0.57 = EUR 0.58 = GBP 0.41. [More recent exchange rates reflect a sharp drop in the value of the U.S. dollar against the Australian dollar, euro (EUR), and pound sterling (GBP). By late 2006, AUD 1.00 = USD 0.76 = EUR 0.60 = GBP 0.40). These changes in exchange exchange rates would not affect decisions by APM on expansion within Australia but could have an impact on the relative attractiveness of future investments in, say, the UK versus the U.S.]

© 2004, 2007 Christopher H. Lovelock

2.

Compare and contrast the tasks involved in recruiting new customers and recruiting new franchisees.

3.

From a franchisee’s perspective, what are the key benefits of belonging to the APM franchise in (a) the first year and (b) the third and subsequent years?

4.

In planning for future expansion, what strategy should Christine Taylor adopt for APM and why?

Analysis 1.

How did Christine Taylor succeed in evolving the local dog-washing service she developed as a teenager into an international franchise business?

Taylor’s success springs, first, from her strong customer service ethic, developed as a child from working in her parents’ parents’ bait and tackle shop. She may not have completed high school, but she is clearly intelligent, very focused, hard-working, and she has a strong motivation to succeed. She evolves her approach as business grows, modifying both the physical tools of the trade—the trailer— and deciding from research that expansion would be best achieved through franchising rather than through employment of salaried personnel. In other words, motivated motivated franchisees “rent” APM’s business expertise and its trailers, leveraged by APM-controlled advertising, and seek to build business within exclusive territories. Expansion into other states has been achieved through appointment of franchise sales managers. Master franchisees also leverage the ability to expand in new locations.



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As Taylor soon discovered, there is a market for this service if delivered professionally and consistently by friendly, competent franchisees who relate well to both dogs and their owners. Expansion has been at a steady and manageable rate—Taylor seems to have avoided the trap of seeking excessively fast growth, which can lead to loss of control, poor-quality franchisees who fail, and sometimes cash-flow problems for the parent franchisor. She has maintained cohesiveness among franchisees in past through the creation of a Franchise Advisory Council (p. 528). She has also resisted the temptation to diversify into other fields, stating “Our niche is in the dog bathing business” (p. 521, col 2—also note quote immediately below): Taylor has benefited from the exposure of media stories and awards, which have helped gain recognition and credibility for both herself and the Aussie Pooch Mobile brand.

2.

Compare and contrast the tasks involved in recruiting new customers and recruiting new franchisees.

Customers •

Market potential is substantial in this category.

•

Advertising by competitors can help build primary demand.

•

•

•

•

•

•

Identify prospects by observation: dog ownership is visible/audible in suburban neighborhoods, especially in nice weather. Generate leads: advertising, PR stories, and promotions may attract prospects; brightly colored trailer is like a mobile billboard and may attract attention. Generate referrals: ask existing customers to pass the word. Persuade existing customers to change current behavior (see behavioral segments in previous section); one-time promotion may help. Trial is easy for customers and takes little time; benefits are immediately obvious to eye, nose, and touch (running hand through dog’s coat). Screening: except for extreme cases, customers’ skills and personality are not important so long as they can pay and provide hookups. May have to decline a few difficult/dangerous animals—may need to be screened out.

Franchisees •

•

Market potential may be limited—other franchisors compete for scarce talent. Advertising may encourage entry into the mobile dog-washing business of independent, selfemployed operators.



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•

APM generates leads primarily by advertising (Exhibit 8) and advertorials plus word-of-mouth.

•

Screening and selection requirements are demanding; candidates must: −

Be self-motivated and outgoing.

−

Love dogs and understand their role in people’s families.

−

Want to work for themselves.

−

Have completed at least year ten of high school.

−

Be able to handle the bookwork.

−

Have people skills.

−

Be patient.

−

Have a good telephone manager.

−

Possess a valid driver’s license.

−

Have access to a vehicle capable of towing a trailer.

−

Be able to do this type of driving in an urban setting.

−

(Inferred) Be willing to work outdoors with only limited shelter.

−

Be fit enough to handle physically demanding work.

−

•

3a.

Be willing and able to invest $24,000 (plus $2,400 for the 10 percent GST) from own or borrowed funds (p. 526, col. 2).

Undertaking a trial work period with another operator requires significant investment of time and effort on the part of the prospective franchisee.

From a franchisee’s perspective, what are the key benefits of belonging to the APM franchise in (a) the first year and (b) the third and subsequent years?

Franchisees gain an array of benefits in the first year: •

APM has developed a proven operational system that: −

−

Adds extra benefits to basic dog-washing service. Enables operator to deliver both quality and efficiency (equals more dogs, better, faster); time savings allows operator to wash more dogs.


−

•

•


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Includes custom-designed trailer rather than requiring operators to construct their own (which might not work as well).

APM offers training and ongoing support: −

New franchisees receive two weeks pre-opening training.

−

Reps spend ten hours to help open new territories.

−

Franchisees receive detailed operations manual.

−

APM supplies uniform shirts, caps, and materials for first 100 dogs.

−

APM guarantees minimum income for first ten weeks and pays six months’ insurance.

−

Monthly newsletter.

−

Telephone hotline for advice.

−

Brief, regular field visits.

−

Additional training.

−

Franchisee meetings and one-day seminars in major metro areas.

−

Advice from expert franchisees through Franchise Advisory Council (p. 528.).

−

Providing a temporary replacement operator during sickness or vacation.

APM offers a credible, reputable brand and strong marketing support. −

−

Aussie Pooch Mobile is a recognized and respected brand name—creates confidence. APM is a member of Franchise Council of Australia and complies with Federal Franchising Code of Conduct.

−

Trailer serves as mobile billboard to promote the brand, attract recognition.

−

APM places ads in local newspapers for twenty weeks plus human interest stories.

−

Other promotional activities at launch include distribution of pamphlets, writing to local pet stores and vets.

−

Ongoing marketing support includes monthly newsletter, expert advice, PR.

−

Corporate Web site (www.hydrobath.com).

−

Advertising templates available.


−

•


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Nearest local franchisee.

Strong brand name plus corporate assistance facilitates resale of all or parts of developed territories.

APM strategies and techniques enhance productivity and thus profitability. •

APM’s focus on getting franchisees to build up business in a tightly defined territory enhances efficiency: operators make money only when washing dogs, so minimizing driving distance increases ratio of productive time to downtime.

•

Trailer design simplifies and facilitates task and may speed washing process.

•

Good training and expert advice accelerate learning curve and may improve productivity.

•

•

Pooch parties are a big boost for both marketing and productivity. “Host” customer is motivated by discount (first dog is free—p. 522) and may pre-sell service to neighbors; set-up and close-up time for trailer is reduced because more dogs are washed at a single site; can have assembly line operation. On average, APM franchisees earn a good income. Exhibit 10 tells us that in 2002 the average franchise royalty (equal to 10 percent of gross franchisee income) was $5,583. Therefore annual gross must be $55,830. Deducting total annual operating expenses of $18,947 leaves a net operating income of $36,883, as compared to the Australian national average for employed persons of $35,000 (p. 523). Some franchisees must earn more than this average.

3b) In the third and subsequent years •

•

•

Franchisee’s need for marketing and operational support declines with experience, but royalties (10 percent) and advertising levy (2.5 percent) rise with income. APM has created options for experienced franchisees to exploit their talents within the franchise system. −

Participate in Franchise Advisory Council.

−

Develop new ideas for APM to disseminate.

−

Volunteer to help new franchisees.

−

Sell a portion of a territory and make capital gain.

−

Purchase a second territory and install an operator.

−

Become a master franchisee.

APM needs to continue to refine its concept and its operations, add excitement and differentiation, even sell new products, without undercutting current efficiency and quality (note that Christine



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Taylor is leery about becoming a “pet shop on wheels,” but HydroDog already sells dog food). Students should be pressed to suggest ideas.

4.

In planning for future expansion, what strategy should Christine Taylor adopt for APM and why?

Assessing future market potential requires looking at existing penetration. How much potential remains in the Australian market? We must assess how deeply mobile dog washing has penetrated the universe of domestic dogs (wild dingos don’t count). Consider APM’s home state of Queensland, which has a population of 3.6 million people (Exhibit 4) and slightly above average dog ownership (p. 523)—let’s say a ratio of 1 dog to every 4.5 people, which gives us a total of 0.8 million domestic dogs in Queensland. There are 55 APM mobile units in the state (p. 520) plus 49 HydroDog units (p. 529). In addition, the Greater Brisbane Yellow Pages lists 19 competing mobile suppliers (Exhibit 11). Assuming that most are single unit operators but that a few have two or more units, round the figure up to 28. Guesstimating another 12 units for the rest of the state gives us 55 + 49 + 30 + 10 = 144 mobile units. How many dogs can a unit wash per week? APM finds that the upper limit is around 80 (p. 529). Let’s guess an average of 65 x 144 units = 9,360 dogs; assuming the average washing frequency is threeweekly, this suggests that mobile units collectively wash some 28,000 individual dogs a year in Queensland, which is only 3.5 percent of the state’s dog population! Conclusion: there is still a lot of room for growth in APM’s home state, and if APM doesn’t seize this opportunity, HydroDog or independent operators may well do so. There are, however, some constraints: to wash family dogs (p. 529). •

•

•

The mobile concept requires a suburban environment in which the service provider can safely work in the street and dog owners can provide power and water hook-ups (p. 522). It can’t easily be used in high-density areas with high-rise apartments. To minimize travel time and stimulate word-of-mouth between neighbors, homes need to be reasonably close together (and close enough to the street for power and water to be supplied). This makes low-density suburbs, small towns, and rural areas unattractive. APM (and other franchisors) must be able to recruit new franchisees as operators. (Note that Melbourne-based Jim’s Dogwash has found that growth is hampered by a shortage of suitable franchisees, p. 526.). One option for APM to explore –not mentioned in the case--would be to see if it can convert existing independent operators to franchisees However, this would work only if financial analysis showed that independents could (a) make a lot more money as a part of the APM franchise and (b) were not already competing within existing APM territories. APM might have to offer a more attractive financial arrangement for initial franchise purchase to lower the switching cost; further, existing franchisees would have to approve the strategy.

Comparison of APM and Competitors Across Australian States and Territories



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Exhibit 1: Assessing Market Potential by States and Territories State/ Territory

1 Populatio n (000)

2 Dog Ownership

3 Franchised Units*

APM

NSW ACT Vic Qld WA SA Tas NT TOTAL

Jims

H’Dog

Franchise Units per Million Pop. TOTA L

6,533 314 4,829 3,628

Average Below Avg Below Avg Above Avg

42 8 8 55

7 36 -

9 1 49

58 8 45 104

9.9 25.4 9.3 28.7

1,910 1,502 470 198 19,384

Average Average Above Avg Above Avg

** 12 125

3 4 2 52

8 1 1 69

11 17 3 246

5.8 11.3 0.0 15.2 12.7

* Excludes independent operators ** Note that APM is planning to enter the WA market Sources: (1) Case Exhibit 4, (2) p. 523, (3) p. 520, Exhibit 12, p.529

Conclusion: Huge Potential Remains in Australia, but Strategies Should Vary Assuming proportion of independent operators is similar across different states and territories, huge potential remains in Australia for franchised mobile dog-washing services. If supply of good operators is limited (note Jim’s experience, p. 525), then APM should be hustling in less developed markets, especially western Australia (mainly Perth/Fremantle), south Australia (mainly Adelaide), and possibly Tasmania (mainly Hobart and Launceston) to recruit new franchisees. The relatively low penetration in Victoria, Jim’s home state, needs study—is it because of shortage of prospective franchisees? If so, why the shortage? Because of the huge distances involved, Chris Taylor cannot hope to maintain the same presence and control in western Australia, south Australia, Tasmania, or the Northern Territory that she can in Queensland, New South Wales/ACT, and possibly Victoria. Delegation of franchise marketing and franchisee oversight to locally based staff is necessary, and master franchising may be the way to go. Question: is weather a factor in recruitment? Note that Melbourne weather is cooler than Brisbane’s and fluctuates sharply (p. 524, case exhibit 5), which is probably why Jim uses fully enclosed trailers, in contrast to APM’s trailers, which have open sides (less claustrophobic?); Perth, in western Australia, has a semitropical climate like Brisbane; Sydney, Adelaide, and Hobart have temperate climates; Canberra freezes in winter; Darwin is tropical. Students can be invited to comment on this issue. Question: is pricing a factor in recruitment? Consider relative costs for APM, Jim’s Dogwash, and HydroDog of purchasing a franchise (includes GST):


APM Jim’s HydroDog

Franchise price $26,400 $11,000 $24,950


No. of homes 12,000 2,000 10,000

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Price per home Source $2.20 pp. 526–527 $5.50 p. 529 $2.50 p. 529

Although a Jim’s franchise may be more affordable, it costs twice as much per home. Assuming roughly equal returns per dog, this means that Jim’s franchisees must penetrate more than twice the number of households in order to generate the same return on investment as APM and HydroDog franchisees. Furthermore, there will be much less scope to divide up a Jim’s territory and sell off part of it. With its broader product line (mainly food), HydroDog franchisees should be able to achieve higher dollar sales for each dog served. Given a choice of competing franchisors, which firm would a prospective franchisee be likely to choose? Students can be invited to comment on this issue.

Domestic vs. International Strategy in 2002 The table below shows how few international operations APM actually has.

Australia New Zealand Malaysia New Caledonia United Kingdom

APM Units Launch Date 125 1991 1 1996 2 2001 1 2000 4 2001

Jim’s Units Launch Date 52 1996 9 ? -

APM’s international operations are very scattered, and the company is very thin on the ground in each of its four international locations. It is surprising that after six years, Kiwi Pooch Mobile in New Zealand still only has one unit—perhaps this may reflect a lack of interest or requisite skills on the part of the franchisee in operating outside the small city where KPM is currently located. By contrast, Jim’s (which presumably started post-1996 in New Zealand (although no date is listed) has four master franchisees (case Exhibit 12) running nine units. APM’s British subsidiary seems to be off to a good start, but one wonders whether it was wise to grant exclusive rights to the entire country (whose population is three times that of Australia) to a single individual. Mobile dog washing is an industry with almost no barriers to entry. It would be difficult to patent protect the design of company trailers. Only the brand name is legally protectable. The concept is infinitely replicable—with some concessions to colder climates—and there are some economies of scale in advertising and administration when a franchisor has multiple units operating within a tightly defined metropolitan market. But most of these benefits are lost when the firm enters a new and distant region, so the task in those markets is to build up a substantial presence as quickly as possible.

Conclusion: further international expansion may distract from potential in Australia.



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Although licensing new master franchisees in other countries will bring in some royalties for APM, it will be very difficult for the management of this small company to exercise any quality control, marketing consistency, or financial oversight. Operating in two foreign languages (French in New Caledonia and Malay in Malaysia) and four foreign currencies only complicates these issues of control. Chris Taylor and her management team need to consider the opportunity costs of trying to oversee foreign operations. The key question for students to discuss is whether it would be better for the company’s longterm future to focus instead on achieving penetration of the large Australian market and maintaining competitive advantage in the different states and territories in the eyes of both dog owners and current/prospective franchisees.

CONCLUDING COMMENTS Franchising offers a way for an entrepreneurial company to expand quickly without having to invest its own funds. In business format franchising—the approach most commonly used in service firms—the originating firm licenses use of its service concept, processes, and branding to independent businesspeople, who agree to pay an upfront purchase price in order to get started. Typically, a portion of this charge goes to cover the purchase of necessary capital equipment, training, and initial promotional efforts. In return, the franchisee receives access to what he or she hopes is a proven system for operating a business and delivering services that customers will want to purchase because they know and trust the franchise brand. To protect the integrity of this system, the franchisee must also agree to follow carefully prescribed guidelines and may not subsequently abandon the franchise and set up a similar business under another name. Additionally, the franchisee must pay a royalty on all sales and, typically, an advertising levy to cover the cost of regional or national advertising and promotional support, designed to build and reinforce brand preference. Franchisees may have the option of doing their own advertising and promotion, but content and terms tend to be tightly controlled by the franchisor. The ideal scenario is one in which the franchisee injects a great deal of entrepreneurial energy—beyond that expected of a hired manager—yet benefits from association with the brand and franchisor support. One franchisor describes this environment to prospective franchisees as “Going it alone . . . together.” Initially, franchisees tend to be heavily dependent on the franchisor. But as they gain experience and their revenues increase, some franchisors may come to resent the constraints under which they operate and the royalties they must pay. This can lead to conflict. Well-managed franchise firms seek to keep franchisees engaged through such strategies as: •

Continuous improvement in service processes and product features.

•

Involvement in franchise advisory councils.

•

Facilitating sale of all or part of an existing territory.

•

Encouraging successful franchisees to purchase additional territories and install managers to operate stores in those areas.


•


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Developing opportunities for master franchising, which allow successful franchisees to manage large clusters of stores or outlets, delegate day-to-day operations in the stores to hired managers, and/or to become responsible for recruiting and supervising franchisees within a large geographic territory in return for a portion of the latter’s royalties.

One of the biggest challenges in planning expansion franchise strategy lies in deciding how to balance the lure of moving into distant virgin territories and making a pre-emptive strike against possible future competition versus penetrating existing markets more deeply. Franchises in distant territories are harder and costlier to oversee from the main office and thus run the risk of deviations from established procedures and also possible fraud on the part of franchisees themselves. Hence, it may be necessary to install regional managers or master franchisees, both of which can cut into profitability.



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CASE 7 JOLLIBEE FOOD CORPORATION

OVERVIEW Jollibee Foods Corporation (JFC), a Philippine fast-food company, has achieved market dominance in three segments in its home country—burgers and chicken, pizzas, and Chinese food—beating such wellknown international competitors as McDonald’s and Pizza Hut. What is the key to its domestic success and what are the lessons for its international ventures? JFC operates Jollibee, the Philippines largest and most successful homegrown fast-food chain. By targeting the niche Filipino market, Jollibee has beaten global players, including fast-food giant McDonalds, in the Philippine fast-food scene with its own unique menu and excellent service. Jollibee commands a 58 percent share of the quick-service restaurant market in the Philippines and some 70 percent of the burger-based meals market. To cater to the ever-changing needs of Filipinos, JFC has acquired a portfolio of complementary fast-food concepts, Greenwich Pizza, Chowking, and Délifrance (a French franchise). The company has been honored many times, being recognized for its entrepreneurship, as the number one food company in Asia, as the best-managed company in the Philippines, and as Asia’s most admired company. It has also been consistently ranked among Asia’s best employers. To secure its leadership position, JFC intends to focus its efforts on increasing its presence in both local and international markets. However, it has not been particularly successful in establishing the Jollibee and Chowking brands overseas. In 2004, it purchased the Yonghe King chain of Chinese fast-food restaurants in China and has high hopes for the future of this brand in the People’s Republic.

DISCUSSION QUESTIONS 1.

Evaluate Jollibee Food Corporation’s performance in the Philippines. What are the secrets of its success in terms of marketing, operations, and human resource strategies?

2.

In what ways does JFC’s strategy of adding new brands leverage or dilute the strengths of the original Jollibee concept?

3.

What rational and emotional attributes do you look for in a fast-food restaurant? Do these attributes fit your favorite food establishment in your country?

4.

Evaluate JFC’s performance overseas. To what extent can the company transfer its core competency to its overseas operations? Should it modify its consumer-driven strategies to suit foreign markets, even if that means Jollibee becomes much less Philippine in nature?

5.

Should Jollibee continue in its efforts to go international or concentrate on expanding and consolidating its foothold in the Philippines only? Why?

ANALYSIS 1.

Evaluate Jollibee Food Corporation’s performance in the Philippines. What are the secrets of its success in terms of marketing, operations, and human resource strategies?



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Going against a global competitor like McDonalds, the pioneers of Jollibee learned that they did not have to reinvent the wheel in order to save its market position. Lessons derived from observing the operations of big players drove the company to identify its strengths as well as its limitations and from there to build a competitive edge for the Jollibee chain.

Marketing Concentrating on the Filipino palate and offering variety and convenience. Jollibee’s phenomenal success in its hometown can be attributed to several factors, one of which is its strategy of niche marketing. By concentrating its resources on satisfying the Filipino palate, Jollibee has been able to serve localized dishes that are unlike any found in the other fast-food chains in the Philippines. In addition to offering the usual French fries that accompany the meals found in McDonald’s, KFC, Burger King, and so forth, Jollibee also serves rice or spaghetti, Filipino style. Even the burgers are cooked exactly as Filipinos want them done— sweeter and with more seasonings, often likened to what a Filipino mother would cook at home. By offering a menu with a wide variety of dishes that aims to satisfy children and adults, families enjoy the convenience of a one-stop dining outlet that appeals to all taste buds. Through the constant revamp of its menu lineup and introduction of seasonal offerings (i.e., tuna sandwich during the Lenten season), Jollibee is able to stir up excitement in its customers with each visit to the outlets.

Building brand equity. By having an integrated marketing communications strategy anchored on the values of a closely-knit Filipino family, Jollibee was able to establish a strong brand equity supported by heavy advertising in both traditional and nontraditional media. As its advertising messages bore a tinge of nationalistic sentiments captured in snippets of daily experiences of the common Filipino, Jollibee soon became a household name. Filipinos were proud to have their very own local fast-food chain that was able to compete head on with global names like McDonald’s (see Exhibit 5, Value Proposition of Jollibee versus McDonald’s in the Philippines). The well-loved bee, matched with a popular local movie screen idol, Aga Mulach, further earned Jollibee a place in the hearts and minds of Filipinos. Investing in socio-civic programs designed to serve its host communities further secured Jollibee’s position as a Filipino company for the Filipino. Advocacy campaigns such as the early Christmas drive “ma-Aga ang pasko sa Jollibee,” again endorsed by Aga Mulach, the poverty housing project with Habitat for Humanity, and the Kaya Mo Yan Kid” or “You can do it, kid!” campaign to encourage kids to show their potential contributed to the company’s overall success, not only with its customers but with all its stakeholders.

Operations By benchmarking McDonald’s operations and developing an understanding of its business model, Jollibee executives were able to bring their own chain up to world-class standards. In particular, they focused on learning about the sophisticated operating systems that enabled McDonald’s to control its quality, costs, and service at the store level—an area of weakness in the local firm that had constrained further expansion. Subsequently, through use of IT in its operations and state-of-the-art automation in its



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commissary, Jollibee has been able to drastically reduce production time and ensure quality consistency and the highest standard of cleanliness in its food products.

Human Resource Management High standards of service. Jollibee ensures that it provides top-notch services in all its outlets. Jollibee’s success can also be attributed to its organizational culture. Through stringent recruitment and selection procedures, Jollibee ensures a service-oriented staff to man its outlets. Willing to pay above-average compensation, Jollibee ensures loyalty among its staff members and this translates into better service performance and dedication toward serving the customers. Training programs equip its staff with the necessary skills needed to better perform their tasks. By hiring professionals to devise strategies for its store operations, Jollibee is able to create a working environment that boosts high standards of professionalism and service excellence.

2.

In what ways does JFC’s strategy of adding new brands leverage or dilute the strengths of the original Jollibee concept?

JFC’s addition of three new brands to the original Jollibee has created a portfolio of four brands, each with its own separate identity and menu: Greenwich Pizza (pizza and pasta, purchased 1994), Délifrance (French bakery-café, franchise rights acquired 1995), and Chow King (Chinese fast food, purchased 2000). Greenwich Pizza and Chow King were both the leading brands in the Philippines in their respective categories at the time of purchase. Although each of these chains has its separate identity in the marketplace, JFC can leverage its skills in site selection, management, staff recruitment and training, logistics, and marketing, as well as achieving further economies of scale in operation of its commissaries. In the Philippines all four brands have seen significant growth in number of stores since 2000 (source: Exhibit 1):

Jollibee Greenwich Chowking Délifrance

Q3 2004 No. of stores % increase 478 27.8% 226 17.1% 276 68.3% 28 115.4%

2000 No. of stores 374 193 164 13

It is noteworthy that the Chow King chain has grown at a much faster rate than either Greenwich or Jollibee. Although the growth rate for Délifrance looks impressive, it is on a very small base. Moreover, there has been no growth since 2002. In fact, the chain has actually lost two stores since 2003. So long as each brand continues to be marketed independently, there should be no dilution of the original Jollibee concept. One can assume that most consumers are unaware that all four brands are owned by JFC. The main risk is that management time will be diverted to the other three brands and that insufficient attention will be given to managing the evolution and expansion of the Jollibee chain. By offering four different food concepts, JFC broadens its appeal in the fast-food market and hedges against the risk that any single menu concept will either fall out of favor or be upstaged by aggressive competition. However, there is probably less opportunity to customize these other three food concepts to Filipino tastes. Also,



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advertising for these brands probably cannot hope to employ the same level of appeal to nationalistic pride exercised by Jollibee.

3.

What rational and emotional attributes do you look for in a fast-food restaurant? Do these attributes fit your favorite food establishment in your country?

Based on the survey conducted by DLSU advertising management students (Exhibits 6 and 7), the following are the rational and emotional attributes people look for in a fast-food restaurant:

Rational Attributes (see Exhibit 6) 1. Affordability. Are the prices of the food items affordable enough? 2. Accessibility/many outlets. Is the outlet accessible to an interested customer? Are there many outlets you can go to? 3. Taste. Are the food items tasty enough to allow you to keep on coming back? 4. Frequent and effective ads. Are the ads often seen on television, heard on radio, read on print, and encountered in nontraditional media persuasive enough to attract a potential customer to visit the outlet? 5. Variety of food chains. Is there a variety of food chains a customer can select from particularly when he/she visits a mall or a chain of restaurants? 6. Faster service. Is the service crew efficient enough to render faster service? 7. Usefulness of promotional items. Are the seasonal promo items offered by the food chain useful enough particularly to the kids who love to use or play with them? 8. Accommodating personnel. Does the food outlet have courteous service crew and do they attend to the customers when they need them? 9. Delivery services. For home delivery, does the crew deliver the food just on time or does it get delayed? 10. Seasonal product offerings. Is there a variety of products particularly during some special occasions like Valentine’s, Holy Week, or the Christmas season? Emotional Attributes (see Exhibit 7) 1. Family togetherness. Does the food outlet encourage families to eat together? 2. Friendly atmosphere. Do the customers feel comfortable eating because of the friendly ambience as shown by the service crew and staff? 3. Patriotic. Does the outlet nurture patriotism by providing local foodstuffs with just the right taste appealing to a local customer? 4. Mass appeal. Does the outlet appeal to a mass audience and never discriminate against them? 5. Likeable Filipino selections. Are the foodstuffs likeable enough and do they stimulate their taste buds? 6. Better environment for kids. Does the food outlet provide a game area where kids can play? 7. Use of Filipino/local language. Does the service crew talk to the customer in his/her own native language to make him/her feel at home? 8. Wholesome/“cute” endorsers. Do the endorsers of the food outlet look wholesome and appealing to the customers especially the kids? 9. Hang-out. Is the place a hang-out area particularly for teenagers? 10. Brings you closer to home. Do the customers feel as if they are eating from home when they eat in the outlet?



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The relative importance of these attributes may vary from one food outlet to another. It would, therefore, be an interesting assignment to have your students conduct their own survey to investigate the attributes of a local fast-food establishment in their respective countries and undertake a comparative analysis of these attributes.

4.

Evaluate JFC’s performance overseas. To what extent can the company transfer its core competency to its overseas operations? Should it modify its consumer-driven strategies to suit foreign markets, even if that means Jollibee becomes much less Philippine in nature?

A review of data in Exhibit 1 reveals a disappointing performance for Jollibee operations overseas. At the end of 2003, prior to the purchase of Yonghe King in 2004, JFC had only thirty-three overseas stores, representing a mere 3.3 percent of total JFC stores, an increase of only six from the twenty-seven it had at the end of 1999 (at which point overseas stores represented 3.7 percent of total). JFC’s key success factors in the Philippines are (1) its understanding of local tastes and skills in catering to the needs of a specific niche market, (2) its operational efficiency in its commissaries and use of IT, (3) its ability to deliver consistently high levels of customer service, and (4) its skills in site selection. Exhibit A suggests how these success factors might be translated to overseas markets. The large number of stores in the Philippines also enables JFC to take advantage of economies of scale (and the purchasing power this conveys) in buying food and other supplies or its commissaries and in managing the logistics of delivering supplies to individual stores. The Jollibee chain’s initial overseas expansion strategy sought to capitalize on its understanding of Filipino tastes, because most outlets were established in communities with large concentrations of Filipinos working overseas, thereby taking advantage of awareness of the Jollibee brand. By the early 1990s, Jollibee restaurants were operating in Hong Kong, Brunei, Saipan, and Guam (both islands in the northwest Pacific), Vietnam, Indonesia, Dubai, and Kuwait. In 1998, the firm entered one of the most demanding fast-food markets in the world, the United States, which had at the time an estimated 2 million Filipino immigrants. True to the firm’s consumer-driven strategy, some adaptations needed to be made in the Jollibee menu to suit the local culture. In the United States, Jollibee had to serve larger portions to cater to the eating habits of both the locals and those Filipino immigrants who had already gotten used to the American way of life. The company’s annual reports state that its international expansion strategy focused on markets where management believed it “could successfully develop the Jollibee brand and put up the supply chain to support the critical mass of stores in these selected markets.” However, one must question whether critical mass has been achieved in any of the foreign markets that JFC has entered, because the number of stores in each country is very small. In the United States, by late 2004, six years after its entry into this market, JFC only had seventeen stores—nine Jollibee and eight Chow King. Marketing effectiveness has been diluted in the very competitive California environment by the need to promote three separate brands, each representing a different ethnic food category: Filipino, Chinese, and Japanese. Management time and resources have been wasted on the purchase of a Japanese food franchise (renamed Tomi’s Teriyaki), a food category in which JFC had no prior experience.

Exhibit A: Transferability of Jollibee’s Key Success Factors to Overseas Markets


Jollibee’s key success factors (KSF)


Transferability to overseas markets

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Actions required to allow a successful transfer of KSF

Niche Market

Highly localized menu. Food variety that targets the Filipino palate.



-

Likely.

-

Overseas markets that are chosen are locations with high concentrations of Filipinos. -

Introduce the more popular Jollibee meals that are found in the Philippines. Slowly bring in the other varieties. Ingredients used must be identical to those used in the Philippines to ensure consistent quality and taste. Use a marketing strategy that leverages on Jollibee’s brand equity.

Operations and IT

State-of-the-art automation of commissary. Use of IT to speed up operations efficiency and study consumer trends.



Likely.

-

-

Replicate the same kind of technology and operating efficiency.

Use the blueprint of the commissary in the Philippines. High initial investment to bring in state-of-theart automation that will help generate the volume and efficiency required by the overseas branch.

Customer Service Fantastic customer service: Service orientation pervasive in many of its activities. Recruitment, selection, and training (cycle for success) of staff. Empowerment and motivation of staff.



-

Likely. The mission statement and strong management beliefs in recognizing the importance of its front line staff in profit generation.

-

-

Jollibee should seek to understand the expectations of local customers and adapt its performance standards, and so on accordingly. Jollibee should bring in the best crew from its Philippines’s branches to train the local hires in Jollibee technology. Important that Jollibee has a management team in the overseas market that shares the same zeal and ideals as those in the Philippines headquarters.

Location 

Moderate

Good, high traffic and convenient locations. Communities are populated largely with Filipinos.

-

Jollibee may be a late comer in the fast-food industry of the overseas market. Launch pad strategy of setting up outlets in places with high Filipino concentration may help offset the late comer disadvantage.

-

Jollibee should continue to expand to areas with high Filipino concentration and gain a foothold in such areas first.

One possible conclusion that may be drawn from JFC’s international experience is that there is only limited demand overseas for the Filipino-style fast food served by Jollibee. Students can be invited to suggest which Asian foods are best known outside their native countries. The answers are likely to be Chinese, Indian, Japanese, and Thai. Typically, ethnic foods first get established in a table-service restaurant environment and may later become available on a take-out basis from those same restaurants. It is only much later (if at all) that a fast-food format is created. Thus Jollibee, offering an unfamiliar cuisine in fast-food format, faces a much higher hurdle in gaining acceptance among non-Filipinos than does Chow King.



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JFC’s entry (or rather, re-entry) into China through purchase of an 85 percent interest in the Shanghaibased Yonghe King chain, which serves Chinese-style fast food in ten cities, plays to JFC’s capabilities in taking over ownership and management of an already successful fast-food chain and strengthening its marketing and operational capabilities.

5.

Should Jollibee continue in its internationalization efforts or concentrate on expanding and consolidating its foothold in the Philippines only? Give reasons to support your answer.

This is not necessarily an either/or decision. Obviously, management’s primary focus must continue to be on the Philippines market, because this is where 89 percent of all stores are located and where rapid growth is continuing. It is noteworthy that most of this growth seems to be accounted for by franchised outlets as opposed to company-owned ones (Exhibits 8A and 8B). The second most important area of focus is China, where JFC must manage the growth of the eighty-ninestore Yonghe King chain and transfer relevant JFC operational and marketing expertise to enhance both YK’s appeal to consumers and its productivity. Given China’s rapid economic development and the success of both the KFC and McDonald’s fast-food concepts in numerous cities, building sales and market share for Yonghe King presents an outstanding opportunity. If YK stumbles, competing chains may spring up and seize the initiative. By contrast, expanding in other overseas markets—such as the United States and Vietnam—and entering the Indonesian market—seems to offer less immediate potential and should therefore receive lower priority. One question concerning the U.S. market is which of the JFC brands to emphasize: Jollibee or Chow King? (Note that there has been no attempt to export the Greenwich Pizza concept and JFC is only a franchisee for Délifrance.) Expanding the Jollibee chain overseas cannot rely just on sales to expatriate Filipinos. But selling to foreigners involves persuading them to try a food concept from the Philippines, an unfamiliar source, which may require significant marketing effort, whereas the Chinese food offered by Chow King is much more widely known and accepted. A relevant strategic criterion for determining the rate of expansion in each instance is the relative ease of attracting franchisees for each concept (however, there is no information on this topic in the case). If JFC wishes to capitalize on its strengths in logistics, then the firm should concentrate on building up a critical mass of stores in a limited number of geographic areas. This strategy would also facilitate more efficient marketing efforts.



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CASE 8 ACCRA BEACH HOTEL OVERVIEW The sales manager at a Caribbean hotel wonders whether to accept a large block booking at a discount rate from a group participating in an international sporting event. Do the promised publicity benefits justify the risk of turning away guests from higher paying segments? Note: If you have taught this case from SM5, please notice that the figures in Exhibit TN-7-A have changed. These changes cascade through the financial computations of this case, and they make the decision to accept the block booking less obvious and allow for a stronger qualitative discussion.

STUDY QUESTIONS 1.

What factors lead to variations in demand for rooms at a hotel such as the Accra Beach?

2.

Identify the various market segments currently served by the hotel. What are the pros and cons of seeking to serve customers from several segments?

3.

What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board?

4.

What action should Cherita Howard take and why?

ANALYSIS

1.

What factors lead to variations in demand at a hotel such as the Accra Beach? •

Seasonal cycles. The weather is better at certain seasons of the year than others (July-October

is hurricane season in the West Indies). Also, guests from North America and Europe will be more tempted to seek a warm sunny vacation in Barbados when the weather in their own countries is cold and damp. Business activity may drop off during major holiday periods. •

Economic cycles. When business is down, there is less business travel, fewer people attend

conferences, and tourism may also be affected. •

Days of the week . Business travelers are more likely to stay Sunday through Thursday nights;

some individual vacationers will just look for weekends. Exhibit 1 of the case shows that occupancy at the Accra Beach Hotel (ABH) is highest January through March (nice weather in the Caribbean, horrid weather in North America and northern Europe) and lowest in September (peak of hurricane season).

2.

Identify the various market segments currently served by the hotel. What are the pros and cons of seeking to serve customers from several segments?



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Different segments at hotel. Most customers can be segmented by whether they are part of a group or not and whether they are traveling on business or pleasure. This gives us four segments: 1. 2. 3. 4.

Individual business travelers Business conference participants Individual vacationers Tour group participants

At ABH, another form of segmentation is guest’s home location—Barbadian, other Caribbean, North America, and Europe. The key marketing implications have to do with channels for reaching individuals versus group organizers, and allocation of promotional budget across different regions.

Pros of serving several segments. Segments are often counter-cyclical. Thus, vacationers and individual travelers may come at times of year when business travel is down, and vice versa (Exhibit 4 suggests, however, that is not the case at the ABH). Similarly, vacationers wanting a quick weekend getaway may fill rooms at weekends when there is no business travel. Filling all available capacity with a single segment may be impossible much of the time, so attracting a mix of segments may be essential to success.

Cons of Serving Several Segments. Different segments behave in different ways and their needs and expectations may clash. Groups can be noisy (sometimes raucous if they all party together), they tend to all eat together and thus swamp dining rooms when it is their meal time. Vacationers dress casually and are out to have a relaxing carefree time. Business people tend to dress soberly, spend time on the phone, bring their laptops to the restaurant, use their cell phones, and may look out of place in a vacation environment. Note the comments from vacationers who think it’s “weird” to see suit clad businessmen chatting on their cell phones at the beach (p. 548). Tension between different segments and hostile glances may lead to a stressful atmosphere. Conclusion:

ABH patronage seems to be shifting from vacationers to businesspeople (p. 548). Because business customers pay more and the business is more stable, ABH should probably market itself in ways that will eventually reposition the hotel as a business hotel with attractive conference opportunities.

3.

What are the key considerations facing the hotel as it reviews the booking requests from the West Indies Cricket Board? •

•

Financial impact —Will the hotel lose money on the WICB deal? Marketing impact —How valuable is the publicity that the WICB booking will generate for the

hotel? Will it be positive for the hotel’s image, neutral, or negative? In addition to the impact on room sales, will it help/hinder the hotel in obtaining local patronage for meals, bar, and conferences/group events for customers from the Bridgeport area who don’t need rooms (note that it has state-of-the art conference facilities). •

Guest experience impact —Will the presence in the hotel of a large group of sportsmen enhance

or detract from the experience of (a) vacationers, and (b) businesspeople staying at ABH?


•


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Guest relations’ impact —Will loyal guests be upset if they cannot reserve a room at the hotel

during the periods when the cricket home series is playing? Will this weaken their bonds with the hotel?

4.

What action should Cherita Howard take and why?

Financial Analysis. The necessary analysis is shown in Exhibits TN-A, TN-B, and TN–C. We need to calculate: • •

•

The revenues received from the WICB booking. The direct costs associated with that booking (in this case, defined simply as breakfast and laundry). The revenues lost due to turning away guests who would have stayed if the hotel were not full due to the presence of the WICB group.

Exhibit TN-A calculates the revenues for the WICB group. It consists of 50

28 = 1,400 room-nights at $130, less VAT and less the cost of breakfast, both of which are included in the price. Breakfast costs are calculated at 95 percent of the theoretical maximum because not all will eat it. In total, net income from the WICB bookings should generate $154,045. x

Exhibit TN-B uses Case Exhibit 5 to calculate the excess demand resulting from the WICB booking

(assuming that in the absence of WICB, daily bookings would have been the same as last year). Add the fifty rooms/night demanded by WICB to last year’s sale for that date, then deduct the capacity figure of 141, and the difference is excess demand expressed in room-nights. Multiplying the excess demand for each night by the average revenue for that day from last year gives us the revenue forgone by having to turn away guests. For the twenty-eight days of the WICB bookings, room revenue forgone totals $112,551. To this figure must be added lost margins on meals from the tuned-away guests. Exhibit TN-C shows the calculations, recognizing that only 80 percent of regular guests have breakfast and 30 percent have dinner. The lost revenues are $2,519 for breakfast and $1,817 for dinner. Adding these to the room revenues foregone yields a total loss of $116,887. Thus, the net financial impact of accepting the WICB business is $(154,045 – 116,887) = $38,407. In other words, it would be profitable to accept the booking.

Other Considerations CONS •

•

If regular guests are turned away, what is the risk that they will find another hotel and not return to the ABH? In that case, there would be a long-term revenue loss for ABH, not just a one-time loss. If the cricket group is noisy and boisterous, it may spoil the experience for other guests, both businesspeople and tourists. This may generate bad word-of-mouth and lead to long-term loss of business, with existing guests fearful that more large sporting groups will be using the hotel in future.


•


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Large groups of this nature run counter to the hotel’s shift in positioning toward a hotel for business people.

PROS •

•

•

•

This will be great publicity for the hotel, especially throughout cricket loving nations in the English-speaking Caribbean and perhaps in the United Kingdom. (It won’t, however, do much to stimulate North American business where few watch cricket and where the matches are unlikely to be televised). Many guests and staff who follow cricket will be excited to have the teams staying at the hotel. April and May are not the busiest times of the year (occupancy for those two months during the past two years has ranged from 74.7 percent to 82.0 percent), so filling the hotel for twenty-eight days is a coup. Incremental revenues of $48,000 are good to have (although not a huge item in a $7 million operating budget).

TEACHING SUGGESTIONS It’s good to assign Chapter 9, “Balancing Demand and Productive Capacity,” with this case. If you are teaching in North America, most students will be unfamiliar with cricket and the passions that it evokes among its devotees—just as strong as baseball, American football, soccer, basketball, rugby football, or hockey! So you might want to warm up the class by asking if there are any cricket fans/cricket players in the class (students from the English-speaking Caribbean, India, Pakistan, South Africa, Australia, New Zealand, and England are your best bets). If so, get one of them to take a couple of minutes to explain the game, its traditions, terminology, the uniforms and, if possible, how it differs from baseball. You can move easily through discussion of the first three questions, devoting more or less time to each topic as you wish. If Chapter 9 is assigned, Figure 9.1 (p. 261) is particularly relevant. You might consider preparing a diagram of last year’s demand levels (case Exhibit 5) and then overlaying an extra fifty rooms on top of this to demonstrate how much excess demand is created by the WICB booking. Note that on six of the twenty-eight nights last year, the hotel was at capacity and this means having to turn away fifty customers. Consider asking students whether the concept of optimum capacity is relevant here (i.e., high room occupancy but not to the sold-out level where service speed/quality might drop and there are delays at the front desk, room service, meal service, bar service.) Being full, day after day, may be good for the bottom line but can be exhausting for staff and frustrating for the customers.



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One insight from comparing Case Exhibit 5 with Case Exhibit 1 is that there are often wide daily fluctuations in occupancy, so that even if the average monthly occupancy is only in the 70–80 percent range, that doesn’t mean the hotel isn’t sold out some nights. The discussion of question 3 should result in drawing out the four types of impact from the WICB booking: 1. 2. 3. 4.

Financial impact Marketing impact Guest experience impact Guest relations impact

You should write these on the board to frame the balance of the discussion. Exhibits TN-A, TN-B, and TN-C show the calculations necessary to determine the financial impact. Here are some of the things that students may do wrong: •

•

•

•

•

•

•

Forget to include meals as revenue from WICB (dinner only). Forget to strip out VAT from the room price received from WICB. (Unlike U.S. and Canadian sales tax, which is added to the quoted price at the time of sale, prices in countries levying value added tax is usually quoted inclusive of VAT.) If VAT is 7.5 percent (rooms) and a price is quoted inclusive of VAT, then the net price received by the hotel is (100 – 7.5/107.5) = 93 percent of inclusive price. Forget to strip out VAT when computing meal costs and revenues. If the rate is 15 percent (meals), then the formula is (100 – 15/115) = 87 percent of inclusive price. Forget to deduct the cost of breakfasts served to 95 percent of WICB guests. Forget to include in foregone revenue the margin on meals that turned-away guests would have purchased. Forget to include the cost of laundry, included in WICB package price. Forget to amend the number of extra/lost meals by an appropriate percentage figure representing average utilizations of dinner and breakfast service (varies by meal and between regular and WICB guests).

•

Use the full price of the meals instead of the margin on, or cost of, the meals (as appropriate).

•

Get confused in calculating how much regular business is being turned away each night.

•

•

Fail to use the ADR figure for that specific night in calculating revenues forgone from regular guests. Make computational errors.



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If we pro-rate laundry at the outside rate of $200/day across the fifty rooms, that would reduces the ADR by $4. From the calculations, it is clear that the hotel will benefit financially by accepting the WICB booking. Using the assumptions in my calculations (see Exhibit TN-C), the net gain to ABH is $38,407. Student numbers may vary, according to the assumptions made (e.g., inside or outside laundry makes a difference of $5,040), but probably suffer from serious errors if they are outside the range $30,000–$42,000. Be sure to allow sufficient time, after arriving at the positive financial conclusion, for the class to discuss the pros and cons associated with the other three types of impact. Just because the hotel can make money from the WICB doesn’t automatically mean it should take the business! Ask students how ABH management could minimize the guest experience and guest relations’ impact. Possible options include serving the cricketers breakfast in a separate location with a dedicated staff, lodging them on dedicated floors (WICB has already requested the same floor for each team), and even letting them use a separate entrance and exit rather than cluttering up the lobby when other guests are trying to check in or check out. To avoid the risk that loyal guests will be turned away during the periods of the cricket games, consider one or more of the following options: •

•

•

•

Compile a list of frequent guests and advise them by mail/email that the hotel will be very busy during parts of April, May, and June, so they should book early. Block ten to twenty rooms for nights when it is predicted the hotel will be significantly overbooked and only release them to frequent guests or favored travel agents. Raise the rates for busy days during these periods to discourage price sensitive customers (probably vacationers). Decline block bookings from tour operators during these periods (probably lower rate).

WHAT HAPPENED? ABH accepted the WICB booking and everything went well. It is not known how reservations from frequent guests were handled during this period. The hotel did get good publicity. ABH continues to shift more toward the business and conference business, but will always need tourists/vacationers to help fill capacity during seasons/days when business usage is lower.

CASE 6 & 7 & 8

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