Analysis of Competition in the Industry
Competition is an important aspect of the market setting which also determines the number of players and the price level in the market. From the perspective of the buyers, the competition is desirable and from the perspective of the sellers, a lack of competition is more beneficial. There are many market settings in the real-life markets which operate differently from each other. The objective of the study is to examine the competition in the market of fast food service outlets which are located in proximity to each other. The companies chosen for the analysis are KFC and Oporto. While the former one has a more global presence the latter one has a unique Portuguese theme that meets the unique demand of the customers of the market. The paper will first discuss the competition and the marketing strategy of the two companies and then will go on to furnish the growth strategies and the process of becoming a dominant business in the market. Subsequently, the paper is also going to highlight the pricing and the non-pricing activities that are going on in the market. The analysis of the paper is carried out using the secondary data collected from the websites of the company and the articles that have previously worked with them.
Competition in the market
Competition is an important aspect of market setting as discussed above that determines the price level and the quality of goods and services offered to the customers of the market. Therefore, it is important to consider the competition of a market between two important fast food outlets such as KFC and Oporto. According to Fels & Lees (2018), the government also has the responsibility to make sure the agents of the market are operating competitively as social welfare is highest when the competition is present among the rivals in the market.
KFC and Oporto are two different types of market players located very near to each other. While KFC has a better brand reputation in the market of Australia, Oporto has been able to have some loyal customers that enjoy the Portuguese theme in the burgers and other food items that it sells (Xu & Wu, 2018). Therefore in terms of economics, the products are slightly different from each other and there are loyal customers present in both the companies. In addition to that, the number of other significant players in the market is also low with a low share of the market. Therefore the market structure is similar to an oligopoly and hence the level of competition is lower compared to a perfectly competitive market. The nature of the market is dynamic with new sellers entering the market. Therefore the market has the potential to become a more competitive market than this (Mialon et al. 2016). However, one of the largest problems with the entrants in the presence of the two largest fast-food companies in Australia which are located near to each other. Therefore the new entrants find it tough to penetrate the market and attract new customers to their food items. The successful entrants often remain a small company even in the long run due to the dominance of big companies like KFC and Oporto. Therefore the competition does not change with any kind of indigenous changes in the structure of the market.
Growth Strategies
Although from the perspective of the businesses, it is desirable to have less number of sellers and lack of competition in the market, government intervention and governing make it inevitable for them to increase competitiveness with the rivals so that more market share can be captured. Antitrust laws are in place in Australia that aims to increase the competitiveness of the market. Therefore the companies need to have market strategies in line with the regulation of the government.
Therefore Oporto has formulated a number of market strategies to combat the fierce rivalry coming from the management of KFC. One of the major advantages of KFC over Oporto in terms of production is that, due to the scale of the operation, they can charge lower prices for a similar item, say burger (Pulker, Scott & Pollard, 2018). Therefore, the management of Oporto has used a matching pricing strategy to compete with KFC. Oporto has also taken initiatives to address the changing needs of the customers of the market as well. Koeberl et al. (2018) noted that the management of Oporto acknowledges the new preferences of the customers for healthier food items. Oporto, therefore, has come up with a range of alternative items which are low in calorie with slight changes in the tastes (Anaf, Baum & Fisher, 2018). Given the fact that KFC does not have a range of healthier alternatives yet, this can provide a competitive edge to Oporto.
Oligopolistic firms often tend to engage in cooperation that can be detrimental to society as a whole. Therefore, to have a competitive environment, Oporto can look to have no informal co-operation with rivals such as KFC (Richards, Kjærnes & Vik, 2016). In line with that principle of the company, it has also reacted with matching offers and promotions in the market of Australia. Promotions help in the improvement of the brand reputation of a company and hence will help Oporto to match the level of awareness among the customers. The company is looking to increase the investment in promotion so that, it can combat the rivalry from the side of KFC that can further foster competitiveness in the fast-food market of Australia.
Along with the operational pattern, there is a difference in terms of growth patterns between the chosen companies as well. KFC is an internationally recognized company with outlets in other parts of the world as well. The decision making regarding the operation of the company is done internationally taking a wide view of the world market. Oporto, on the other hand, has a lower scope to consider the world market and hence has a low opportunity to have access to resources that can cater to the faster growth of the company. KFC also receives internal investment from the central management of the company that helps the company to have faster growth in the Australian scenario (Connell & McManus, 2016). The number of outlets of KFC in Australia has increased from 14 in the year 2007 to 167 in 2018. The company also uses a pre-emptive growth strategy that helps the company to have a solid consumer base before any similar company arrives at the location. Another important growth strategy followed by the management of KFC is an alteration of the menu as per the specific needs of the customers in the regional market. For example, compared to ham, chicken is more popular in Australia and hence it offers some of the best products with chicken variations that are equally as tasty. The company is also looking to respond to the growing number of vegans in the market with a vegan burger and fries that will meet the specific needs of the customers of the market (Zhu, Anagondahalli & Zhang, 2017). Therefore the approach of the management of KFC for operational growth is customer-centric more than financial planning.
Pricing and Non-Price Strategies
On the other hand, Oporto is a domestic company headquartered in St. Leonard in Australia. Therefore the opportunity and the know-how of the management regarding the scope of growth are limited compared to KFC. However, being the domestic counterpart, the company has accurate knowledge pertaining to the social changes and the dynamic nature of the customers (Shumba & Zindiye, 2018). Therefore Oporto also uses customer-centric strategies to grow in terms of size and operation. Similar to KFC it uses the changes in the customer preferences and the specific needs of the customers to stay relevant in the market. This, in turn, helps the company to have a higher demand and hence growth in terms of revenues. The company also uses a franchisee method, unlike KFC that allows Oporto to have better control over the finance of the company without worrying about the operations of the company. Apart from that, the company has also used acquisition as a means of growth in the markets of Australia. In the previous year, the company has acquired small players in the Australian market so that the scale of operation can be used by the company. It has used the acquired facilities for centralized processing of the food items that have helped the company to reduce the cost of production within a year. Ferreira & Ferreira (2018) stated that the scale of operation is the biggest concern for business managers as this can magically reduce the average cost of production for a company. Oporto management has used this fundamental of economics to have a reduced price for the products with intact quality. This has helped the company to experience a higher demand for the products in recent years. Again, the fast-food products have an elastic demand and hence the fall in the prices have resulted in proportionate higher increases in the demand leading to an increase in the revenue. The revenue of the company has increased by 39% since 2010 which a massive improvement is given the size of the company.
Both the companies being studied in the paper have the quality to become dominant in the market given the current structure. There are a huge number of small-sized players in the market that cannot reach the level of these two companies. However, there are medium-sized companies like Burger King that can provide pressure from below. Therefore it is important for these two companies having an outlet very much near to each other to have a better growth strategy that will ensure them to become more dominant in the market.
Recommendations
Product expansion strategy is one of the strategies that are not currently used by any of the chosen firms. Australian demographic is changing year by year and hence the demand for a variety of products is high. Given the higher scale of operation, the diversification in terms of food items can attract more customers for both the companies (Krueger, 2019). This will not only help the companies grow but will also increase the competitiveness between them if the regulations of the government are followed. The growth through diversification is another expansion strategy that is not being used by any of the chosen companies. The benefit of this growth strategy is that it compels the companies to hit other submarkets as well. For example, the companies can also tie-up with airline companies to supply food items other than their outlets. It will increase the fixed demands for the products of the company and hence the revenue will increase in the long run (Salindal, Ahmad, Abdullah & Ahmad, 2018). These increased revenues can further be used by the companies in acquiring new facilities whereby the management will become capable of using the scale even more effectively in the future.
Being two of the largest companies in the market along with some of the medium-sized players, the pricing strategies of KFC and Oporto are similar to each other. According to Hsieh & Lin (2016), oligopolistic firms often use matching strategies to keep the pressure on the first mover. For example, if KFC decides to reduce the price of the food items in the short run to attract more customers in the market and hence increase the market share, Oporto will come up with similar offers that will further bring some of the consumers of the market to the products of Oporto. Therefore an obvious price strategy of price war is always present in the fast-food market of Australia (Nair, 2018). The price war is beneficial for the customers of the market as well as for the companies to some extent. The price war is not always desirable if the price drops to low for the company so that profit reduces after some point. For elastic products like fast food, the profit, and the price have a relationship that can be shown by the inverted U curve where profit is on the vertical axis. Other than the matching price, the companies also engage in undercutting the price level charged by the rivals as well (Jain, 2018). The impacts of this pricing strategy are more effective than matching as the customers have a clear choice between the two in this case. However, the pricing strategies of the companies to be successful, the government and the concerned authorities need to play a virtual role. Improper implementation of antitrust laws and corruption can result in a co-operation among the companies and price level can remain high. However, Hsieh & Lin (2016) contrasted that, in the case of the products which have elastic demand, the sellers naturally will avoid price cooperation has higher price level is associated with lower revenue for the company.
Conclusion
Other than the pricing strategy, a Non-pricing strategy such as the issuance of the coupon is widespread in the fast-food market of Australia. Both the companies have tied up with supermarkets which provide the customers with coupon (Hollebeek & Brodie, 2016). This not only works like a loyalty program but it also helps in the promotion of the companies as well. KFC also has loyalty programs that are different from that of Oporto. KFC provides points for each of the transactions to the customers which they can retrieve in the next order. Olbrich, Jansen & Hundt (2017) stated that no price strategies are a very effective process to attract consumers and increase the market share. Other than that, gifts are also a non-price strategy that is used by Oporto. Gifts make the customers of the market feel that they are valued and hence this works as an approach to increase the customers’ loyalty towards the company. Ahmad, Radzi, Shahril & Othman (2016) noted that in terms of customer loyalty programs the companies have shown creativity and have not matched each other’s approach as there are ample alternatives available to the companies. Another important non-price strategy that is used by these two companies with slight variation is the buy one get one free (Camilleri, 2018). These companies often put free items with one item to increase the sale of the food items sold by these two companies.
Conclusion
Therefore to sum up the operation of KFC and Oporto shows that there is an oligopolistic market setting that is prevalent in the market. These are the two largest players in the fast-food market of Australia with a huge number of medium-sized and small-sized companies. Due to the elastic demand for the foodstuff sold by these two companies, naturally, they do not want to cooperate in the market and hence competition in the market is immense. The competition is beneficial both for the consumers as well as for the companies as the low price can increase the revenue. This increased revenue is also used for the expansion and growth of the companies as well. The study also furnishes the other growth strategies that are used by these two companies. Lastly, the paper discusses the pricing strategy of the two companies and the non-pricing strategies that are also effective in increasing the customer base and the market share.
Based on the study of the paper few of the recommendations are given to the management of both the companies. These are listed below:
- It is recommended to the management of KFC to expand the product portfolio in order to meet varied types of demand of the market. The demographics in Australia is changing over the years and hence that will allow the company to have a better acceptance in the market.
- It is also recommended to the management of Oporto to use a competitive price rather than the existing price strategies that will allow the company to be more attractive to the customers of the market.
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