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Tuesday, May 13, 2008

Krispy Kreme

2.0 Background
Krispy Kreme was established by doughnut maker named Vernon Rudolph in the mid-1930s with bought a secret recipe for yeast doughnuts from a French pastry chef out of New Orleans. On July 13, 1937, Rudolph moved to Winston Salem and opened up a wholesale business selling to local grocery stores. People who walking by Rudolph’s plant began to demand hot doughnuts, so he starts making doughnut to be available and sold them out on the street. Krispy Kreme Company have listed on the NASDAQ National market as KREM since its initial public offering on April 5, 2000 (Krispy Kreme Announces 2-for-1 Stock Split 2001). Unlike other companies that may make known of their products by advertising, Krispy Kreme Company marketing philosophy is no advertising. The Company relies entirely on public relations to establish its presence and drive sales by building a long-term relationship with its customers. After the first successfully opening its first Krispy Kreme Donut store in Issaquah, Washington State, Company is considering to open another donut store in Seattle to expand its sales channel in Washington State. In addition to this, Krispy Kreme is relatively small because it has just 292 stores compared to Dunkin’ Donuts 3,600 U.S. locations. Like Dunkin’ Donuts, Krispy Kreme expands in both large and small US markets. Krispy Kreme will go wherever there is a need. With all of the company’s publications, it is not surprise that Krispy Kreme continues to expand. For the first time, it successfully expanded nationally during the late 1990s in California. One large factor of Krispy Kreme’s continued financial success has been their expansion into international markets. They have expanded into Mexico, Canada, the United Kingdom, Australia, New Zealand, Japan, South Korea, and Spain.

3.0 Marketing Objectives
Krispy Kreme expands their company either domestically or internationally and this marketing objective was to align the company with highly capable, well-capitalized and experienced food operators. After their initial success outside of North America, Krispy Kreme became confident that its doughnuts would be well received throughout the world and to attract more customers. In addition to this, with using public relation as their marketing strategy, their main objective is to established its presence and make their sales by building a long term relationship with its customers. Besides that, Kreme Krispy also survived by word of mouth and by people recommending it to friends and colleagues, so this can be emphasized on local community and propelled the brand. Even though Krispy Kreme using at a low marketing budget with relaying on each communicate to propel their doughnut, but with their origins in Small suburban locations which will give them prime opportunity to reach the community. So this marketing objective was one of the ways to make their doughnut distribute efficiently among the consumers.

4.0 Question One – Marketing Strategy
4.1 Promotion Strategy
CE John McGuigan was quoted as saying ‘The strategy is that in many ways there is not a strategy’. According to the article, it stated that the other fast food chains such as KFC and McDonald were strongly emphasized at advertising through television advertisers as one of promotion strategy and spent two-third of their budget in advertising that aim to attract kids. Therefore, CE John McGuigan said that although spent much money in advertising and different promotion strategy aim in promote their products, there still are not a strategy to attract consumers to purchase and consume it. Besides, CE John McGuigan also stated that they are more engage in sampling as a promotion strategy that do not involve much cost rather than engaged in traditional advertising in running their business. Thus, it is clearly to show that CE John McGuigan was quoted as saying ‘The strategy is that in many ways there is not a strategy’.

According to the question one in this case analysis states that Krispy Kreme does not have marketing strategies in running their business. It is strongly disagree that Krispy Kreme does not have marketing strategies. According to this case study, it is had mentioned that Krispy Kreme emphasize on used of public relations as a marketing strategy instead of using advertising to promote their products. The marketing strategies consist of target market, product, pricing, distribution and promotion. Therefore, public relations define as one of mass communication tool in promotion strategy. Furthermore, Krispy Kreme also mainly involve in using sampling, word-of-mouth and trial of products as a promotion strategy in running their business.
Krispy Kreme is defining as using public relations as a promotion strategy in running their business it is because they create awareness and building company image with consumers. According to the Kotler, he stated that public relation is one of major mass communication tool in Integrated Marketing Communication (IMC) that uses to promote products. Thus, public relations is defined as building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image and handling unfavorable rumors, stories and events. It is clearly to say that Krispy Kreme are successful in promoting their products through public relations when they are able to communicate and build relationship with consumers as a first step close with consumers and able to create awareness among them to try on doughnut. Besides, they also use factory stores where consumers can see the process of making doughnut through a glass window to create awareness of consumers to buy and try on it immediately. Therefore, Krispy Kreme more focus on build relationships close with consumers and create awareness as a first step in promoting their doughnuts through public relations. Thus, public relations is consider as marketing strategy which can arouse curiosity and create awareness among consumers in successful ways in term of involve much resources in advertising.

4.2 Placement
Secondly, Krispy Kreme is defining as using placement or distribution strategy in running or operating their business. Placement is defined as whole system delivery at the right time and right place. It is a fastest one to change in simultaneous way. Krispy Kreme opened their open stores at Australia and United States. In Australian market, Krispy Kreme targets their markets at international airport, in the Sydney CBD, schools, sporting and social clubs as a place those doughnuts are able deliver at the right time and right place to consumers. Those are playing a role as a retailer at different outlets. There are several channels that Krispy Kreme involves in placement strategy which are channel one and two. Channel one is direct channel and it involve manufacturer and consumers. It is meaning to say that manufacturers are referring to factory stores. They mainly involve in manufacturing doughnuts and sell directly to consumers through factory stores. It is clearly to say that retailers or buyers can order or buy directly from factory stores at different outlets.

Besides, channel two mainly involves manufacturers, retailers and consumers. Retailers normally buy products in large quantities from manufacturers which are refer to Krispy Kreme’s factory stores either through manufacturers or wholesaler and then sell smaller quantities to the consumers. Thus, schools, sporting and social clubs play as a roles of retailers and sell doughnuts to student as an end users. In this case, Krispy Kreme doughnuts delivered multiple times during the day from nearby factory stores to bakery shop at different places and sell to consumers through their own doughnut stores. Thus, Krispy Kreme is defining as using placement or distribution strategy in term of distributes and sells their products to end users through retailers such as schools, sporting and social club in order to operating their business in efficient and effective ways.

4.3 Target Market
According to the question one, it is strongly disagree that Krispy Kreme does not have marketing strategies. Marketing strategies consist of target market, product, pricing, distribution and promotion as mentioned before. Therefore, Krispy Kreme emphasizes on target market as a marketing strategy to run and operates their business in a successful ways. Target market can be defined as company decides how many segments need to target on and which ones it is able to serve. Krispy Kreme defines a set of buyers who sharing common needs or characteristics that they desire to serve on. In this case study, Krispy Kreme target their markets and open their stores at the areas of international airport, strip shopping centers along the highway, Sydney CBD, schools, sporting and social clubs. According to this case study stated that Krispy Kreme opened its first two stores at Australian in the area of outer western suburbs of Sydney at international airport and in the Sydney CBD. Thus, it is clearly to see that Krispy Kreme target their market and opened their stored at crowded place in order to gain awareness and attraction of consumers. Thus, Krispy Kreme desires to targets on their markets is children, teenagers and young adults as well.

On the other hand, the main objective that Krispy Kreme opened their stores at international airport, strip shopping centers along the highway and Sydney CBD is to attract and create awareness among consumers when they pass by the stores. It is because Krispy Kreme uses factory stores where consumers can see the process of making doughnuts through a glass window to create awareness of consumers to buy and try on it immediately. By target the market of students will also help Krispy Kreme to attract more children or students in schools, sporting and social clubs through direct and convenient ways. Thus, Krispy Kreme is able to enter their target market that desire to serve and will help the company increase the sales from each doughnuts store.

5.0 Question Two
5.1 Public Relations
Compare to their competitors like Starbuck, Panera Bread and Dunkin doughnuts, Krispy Kreme used low budget to sell their product because they use public relation as their marketing strategy instead of advertising. Public relation is one of the major mass communication tool which any activities or events helps to promote a favorable relationship between a company and its customers and prospects; activities used to influence and promote a favorable image of a company and its products or services. Krispy Kreme use public relation to attract their customer, this is because public relation can build awareness and a favorable image for a company or client within stories and articles found in the media outlets. This is because public relations consider as a highly credible form of promotion. It helps to establish Krispy Kreme in the minds of targeted customer group by capitalizing by the influence from the media. Beside that for generations, Krispy kreme have survived by word of mouth by people recommending it to people and colleagues. So, an emphasis among the people will also propel the brand and this also means that they relay on each community to propel their brand.

Further, public relation is also important in monitoring numerous media channels for public comments about a company and its product. For example, in the 1980, the folks in Winston noticed sales at the Chattanooga store were going through the roof and headquarters decided to send a man up to Chattanooga for a visit and this has cause the store manager to printed up advertisement that Krispy Kreme as one of the Hot Doughnuts at that time, with this, a sale tactics was born and this will attract more customer in trying their doughnuts and meet the purpose of the public relation which also to build goodwill among an organizations target market through community. Public relations help Krispy Kreme especially in the late 1990s, when Krispy Kreme expand domestically in California, it help them to become success in order to promote their product because they have a groundbreaking event with an entering angle to attract news outlets to cover it and advance the store opening and this marketing technique helped Krispy Kreme to break the record for sales and win the title of Franchise of the year.

However, applying public relation as marketing strategies might not be effective. Firstly, because public relations use many of same channels as advertising such as newspapers, magazine, radio and others , it will differ significantly from advertising in that marketers because they do not have direct control over the message that will be delivered and where it is place by delivery. Secondly, public relation can be less effective as marketing strategy because the final message may not be exactly what the marketer has planned. It was while other promotional messages are carefully plan and distributed written through pre- determined placement in media channel and public relations normally will conveys information to a member of the news media which then will redrafts the information as part of a new story or feature. Thus, the final message which distributed by the media channel might not be meet by the objectives which has been set by the marketer. Thirdly, public relation campaign has the potential to yield a high return on promotional expense and also potential to produce the opposite if the news media feels that there is little value in running the story inclined by the marketer.

5.2 Sampling
In addition to this, Krispy Kreme also uses sampling to attract and sell their product. Sampling is free or discounted product provide by a store level which often use to introduce new product. With this, Krispr Kreme can attract more consumer with encourage consumer to try their product and after they have try it and think that their product was better than their competitors this will make the consumer to purchase it more frequently. This loyal customer make Krispy Kreme doughnut become well known and cause word of mouth to spread about it and attract other consumer to try and purchase their product. However, sampling also has several weaknesses that will affect marketing strategy seem to be less successful. The main factors or circumstances that will affect Kripy Kreme’s marketing strategy seem to be less successful in terms of different preferences of doughnuts among consumers, emotional of consumers during purchase and consume doughnuts and experienced that consumers gain after consume doughnuts. Thus, both strategy have several circumstances that will affect the marketing strategy seem successful or less successful.

6.0 Question Three
6.1 Strategies to handle criticism
Krispy Kreme has been criticizing as contributing as rising level of obesity especially in Australia. This Health consciousness is affecting the marketing strategies for indulgent fast-food products. Over 27 percent of adult’s nationwide report that they are controlling their diet.

One of the strategy that could be use to counter this critics is, according to Holland (2003) article in Fortune claimed that Ron Paul, President of Technomic in one of the Chicago food consulting company, have comment on Krispy Kreme and claim that all kinds of company sells sweet product but Krispy Kreme have their own strategy to sell and distribute their own product. In addition to this, Holland (2003) have argue that, krispy Kreme have success to gain good image in the market cause by their strategy which about developing long and happy customer relationships. In addition to this, according to Sweet Temptation(2003), many people relate Krispy Kreme with the sort of doughnuts that they ate when they were young and this have been supported by Krispy Kreme’s Vice President of Marketing, Parker. Beside that, Holland (2003) argues that Krispy kreme was here to stay and he has claim that its product not only loved by the people but understand and share it with the world. For example the world can see Krispy kreme memorabilia displayed in the Smithsonian Museum of American History in Washington where its sit next to the Fonz’s leather jacket from the Sitcom Happy days.

Further, Krispy Kreme can criticize that the collection depict stories of entrepreneurship and invention of the introduction of mass production and the marketing of prepared foods and connections in the Krispy Kreme between regional culture and commercial culture. Another strategy to overcome the critics is through survey. Krispy kreme can manufacturer trial produce of doughnut which are more nutrition for example less sugar or low carbohydrate doughnut and conduct a survey. This survey might be in person survey or online survey. If the trial was success and have good response from their customer then they can continue to produce and sell the doughnut. Krispy Kreme also can use testimonial to identify the weakness of their product so that they can improve their product and compete well with their competitors.

7.0 Question Four
7.1 Importance for market research
Based on the article, it seems like Krispy Kreme has not doing much research on its market performance, competitors, products, customers demand, etc. Thus, they faced downturn when a problem on obesity occurred in Australia and the policy of low-carbohydrate Atkins diet was enforced in the US. Instead, they would have prepared on something as a back up whenever something unexpected happen in future.

Krispy Kreme should have surveyed or does market research on its customers demand. This is because due to the customers’ rapid change in taste and preferences from time to time, they tend to switch to other brand (doughnuts) and Krispy Kreme will face customer losses. Competitors like Starbucks and Dunkin’ Donuts will most probably take this chance to produce better doughnuts or other related food in the range. Since they also sell homogenous food, they will easily get customers attention just by simply adding new flavours to their food. Moreover, customers always expect for something new to come and that is when food-based firms take the opportunity to produce demanded particular food at the moment.

Less market research of Krispy Kreme has created less awareness among consumers. Since the company only rely on word-of-mouth, public relations and sampling to make expose its products, public are not really aware of its existence in the market. Word-of-mouth will most probably only be told among neighbourhoods, public relations is something to do with opening the glass window to allow customers to see how the doughnuts were made and this way of promoting is only limited to people of the area. Sampling in the other hand has been carried out and yet since there is only limited amount for sampling, Krispy Kreme will not giving out people free doughnuts everytime they said it is their first time tasting it. Again, market research on what are the customers demand is important as to ensure which type of doughnuts are at the peak demand at the particular period of time. This way, Krispy Kreme can avoid marginal cost added to every single unit of doughnut of which its demand is not very responding at the moment.

The implications for the importance of market research is that it creates awareness to customers, as mentioned earlier. With proper advertisements and simulated test markets, customers will be aware of the new product in the market and they are curious people, tend to try on something new. As long as the advertisement is effective, it has created curiosity among the customers of which most probably they will go down to the nearest store and buy a small packet at least to have a try on it. Another implication is customer loyalty. Through market research, a firm knows its customers current demand, taste and preferences. This is also the way to maintain the relationship between customer and producer. Once the firm is updated with the current taste of its customers, it will produce the products at certain amount to satisfy the customers’ wants and demand. Thus customer loyalty is maintained. Apart from that, the implication of market research is to know what has the competitors done recently. Meaning to say what has they come out with recently; be it a marketing strategy, new products in the market, or promotions. Market research can be done through the observations of the products’ packaging, positioning, target market and the product’s rebranding strategy. A firm is to be aware of these threats because without updated market research from time to time, customers will easily switch to other better brands offered in the market if the particular firm does not make any improvement on its products to compete with its competitors.

8.0 Question Five
8.1 Early Indicator
Krispy Kreme’s problem in the US in 2004 was about the enforcement of the low-carbohydrate Atkins diet by the government as to make Krispy Kreme release low-carbohydrate doughnuts. Since this company’s main ingredients in making doughnuts is wheat flour of which is contains 80% carbohydrate, Krispy Kreme think this is a real threat to its core products. Other stores took this opportunity to produce low-sugar doughnuts, of which led Krispy Kreme to the bottom of the market.

In the other extreme, in Australia Krispy Kreme also faced a challenging market environment whereby it competes with KFC and McDonald, two strong franchise fast food firms. In 2003, there was an obesity issue among children and other fast food lovers. This issue has set a very low demand on fast food including Krispy Kreme which produces sweet products with chocolate and cookies toppings. Yet to say problems in the US leads to the fall of demand in Australia, it is not true. This is because the low-carbohydrate diet policy in the US has nothing to do with Australia demand on doughnuts, because at any way it will not affect the consumption of Aussies having doughnuts as their favourite and most rated fast food compared to KFC and McDonald. Obesity issue can be solved by reducing the amount of sugar in doughnuts. Even if Krispy Kreme does not reduce the amount of sugar, it may come out with other alternatives such as ‘Traditional Cake’, original taste doughnuts with no toppings and fillings. The fall in demand in Australia will most probably caused by the lack of advertisement and marketing strategy. Word-of-mouth, public relations and sampling are not enough to keep Krispy Kreme runs smoothly in few years time due to free market entrance of other competitors which may come out with new fast food in future. But somehow, this company still survived with its so-called marketing strategy such as public relations, sampling and word-of-mouth. Although without practicing the traditional way of advertising like such other fast food companies, Krispy Kreme has successfully sent its doughnuts to media outlets, made available to 1200 schools, sporting and social clubs as fundraising media. It was a sign of ‘sharing’ that Krispy Kreme did so, not for profit alone.

8.2 Fad Product
Krispy Kreme may be a fad product if the company does not have proper or effective advertising media such as newpapers, brochures, television, flyers, billboards, etc. Defined as a product which caught fame early and drops early in a short run, Krispy Kreme might be one if the company is unaware of other competitors’ strategies because other competitors will always try to grab customers’ attention by creating or innovate their existing products to be better or improved.

9.0 Conclusion
In conclusion, Kripy Kreme has marketing strategy in running their business at Australian and US market. Therefore, it mainly involves in the marketing strategies of promotion, target market, placement or distribution and product strategy in attract and running their business. Public relations and sampling plays an important role in attracts their customer, create awareness and build a favorable image for a company or client within stories in the media outlets. Besides, Krispy Kreme is also using placement or distribution strategy in term of distributes and sells their products to end users through retailers such as schools, sporting and social club in order to operating their business in efficient and effective ways. Furthermore, Krispy Kreme target their market at international airport, strip shopping centers along the highway, Sydney CBD, schools, sporting and social clubs in order to gain awareness and attraction of consumers in running their business in a successful ways. On the other hand, there are several strategies to overcome the issue of rising level of obesity in Australia and US such as giving trial of doughnut which are more nutrition in term of less sugar or low carbohydrate doughnut, conduct an online survey in order to improve their ingredient of doughnuts and use testimonial prove by nutritious to handle such criticism. Moreover, they also can use the strategy of product rebranding and innovation of product packaging to handle the issue of obesity. Besides that, Krispy Kreme should focus on the importance of market research when other product launches in the market. Lastly, Krispy Kreme should focus on the implications that will affect their business and be initiative in doing more market research from time-to-time in order to create awareness, customer loyalty, able to stand and to compete with competitors’ new products.