Applebees Differentiation Strategy - Essay Example

Running Head: APPLEBEE’S STRATEGY Applebee’s Strategy In APA Style By I. Applebee’s Strategy A business organization’s strategy primarily defines the tools and techniques that it employs in order to attain its strategic goals and objectives. According to Johnson and Scholes (2002), “Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of the market and to fulfill shareholder expectations.” In its 2006 Annual Report, Applebee emphasizes: “Our current operating strategy is to focus on increasing comparable sales and average unit volumes in existing restaurants by improving the fundamentals of Applebee’s concepts and placing less emphasis on new restaurants development for company-owned markets in past. As part of this strategy, we are concentrating leveraging our value proposition and broadening our appeal to guests through an improved menu and consumer messaging.” This broad statement of indicates the general strategy of the business organization together with its specific elements. DIFFERENTIATION STRATEGY. In its quest to capture a large portion of the casual dining industry, Applebee has focused on employing a differentiation strategy which primarily separates itself from the other players in the market. It should be noted that its more than 1,900 stores carries the same aim of “attractive, friendly, neighborhood, establishment featuring moderately priced, high quality, food and beverage items, table service, and a comfortable atmosphere which speaks to all ages” (Company Overview, 2007) of focusing on a narrow market, Applebee’s strategy is to appeal to a broad clientele regardless of age, gender, and status. The company stresses that its aim is to appeal to a wide range of customers including young adults, senior citizens, and families with children (Annual Report, 2006). In its business operation, Applebee maintains its capability of being unique by stressing the quality of its products. Recognizing that casual dining is not just all about offering sumptuous dishes and beverages but also accompanies an intangible component, Applebee also differentiates itself from its competitors by extending excellent customer service (Ronsefeld, 2000). Through these efforts, the industry leader is able to make its distinct mark relative to its rivals. The company’s utilization of differentiation strategy is supported by the following complementary and specific strategies. 1. Product Development. Applebee recognizes that even though it needs to maintain its traditional and signature recipes, the palate and general preferences of its market changes over time necessitating the introduction of new recipes into its menu. Thus, the company continuously carries out product innovation in order to enhance its appeal to the market as well as improve the quality of its food products. It should be noted that during 2006 alone, Applebee has augmented its product line with 20 new and improved menu items including similar which were developed by the celebrity chef Tyler Florence (Annual Report, 2006). Recognizing the market’s increasing preference for healthier living and awareness of the risks of obesity, the company has also introduced Weight Watchers branded menu alternatives to its clientele (Annual Report, 2006). 2. Excellent Customer Service. Applebee capitalizes from the provision of excellent customer service in its restaurants. The restaurant chain believes that customers should always be provided with the utmost convenience: “Our restaurants are more than just food; they’re about inclusiveness, value, comfort, trust, and convenience” (Rosenfeld, 2000). The company has established a set of service procedures which are strictly followed by all its outlets. Thus, when a guest arrived at the restaurant, he is immediately greeted by its attendant who also opens the front door as a gesture of welcome. Managers openly introduce themselves at the customer. If the date of the customer hasn’t arrived yet, he is offered a seat at the bar which is a central feature of each restaurant. In order to support this strategy, Applebee regularly conducts survey in order to ascertain and ensure customer satisfaction in all its outlets. Managers have also been known to give away free tickets and flowers to customers (Rosenfeld, 2000). 3. Growth Strategy. Applebee’s growth is supported by its “conscious cannibalization” and domestic and international franchising strategies. a. Conscious Cannibalization. Cannibalization of market share has been generally viewed as detrimental to business organizations. However, Applebee used this tactic for its own benefit. The growth strategy of the firm has been focused in expanding its scope by clustering its stores in targeted states and cities. Through this strategy, Applebee is able to “increase customer awareness and convenience” while enabling it to “take advantage of operational, distribution, and marketing efficiencies” (Rosenfeld, 2000). Furthermore, conscious cannibalization allows the company to gain brand recognition and market dominance. b. Domestic and Global Franchising. Applebee’s domestic and global expansion has been strongly supported by the company’s franchising strategy. During 2006, the company reports having 77 franchise groups which include 31 international franchisees. Out of its more than 1,900 restaurants, 1409 are franchise restaurants (Annual Report, 2006). Through this growth strategy, Applegate is able to minimize investments in new outlets while gaining revenue through royalties. The company also benefits from the economies of scale in terms of advertising and administrative expenses (Thomson and Strickland, 2004). 4. Retail Outlets. Applebee invests and capitalizes by the strategic construction and appeal of its retail outlets. Through the years, the company has developed certain specifications in the design of its restaurants: “Our restaurants are primarily located in free standing buildings, end caps of strip shopping centers, and shopping center malls. Each of our restaurants generally has a bar and many restaurants offer patio seating” (Annual Report, 2006). In order to enhance its appeal and give each restaurant a local touch, Applebee customizes its outlet by featuring local history and personalities. Giving each restaurant a unique and neighborhood identify has become an important aspect of Applebee’s brand. It should also be noted that Applebee requires its restaurant to remodel every six to seven months to keep store designs “fresh and appealing” to customers (Annual Report, 2006). 5. Strategic Alliances. The differentiation strategy of Applebee is supported by its strategic alliances with related businesses. During 2004, the company has entered into an exclusive partnership with Weight Watchers International in order to offer healthier items on its menu. The supply chain management of Applebee is also efficient due to its established relationship with suppliers which grant it and its franchisees volume discounts (Annual Report, 2006). 6. Online Business Model. Applebee complements its brick and mortar business model with its website which allows customers to check the availability of its items in its restaurants worldwide. Through this, the company is able to market itself and its products to a wider clientele. II. Strategy Effectiveness DIFFERENTIATION STRATEGY. The global leadership of Applebee in terms of market share and total revenue reflects the overall effectiveness of its differentiation strategy. Through its effort in differentiating itself from its competitors in the casual dining market, the company is able to capture the palate, purchasing power, and preference of customers in the geographical regions that it serves. By being in the forefront of providing quality products coupled with excellent service, Applebee is able to charge a relatively higher price. One good thing about the company’s strategy is the focus on both tangible and intangible aspect of its product. Applegate does not just satisfy the palate but gives an experience of convenience and comfort to all its guests. By differentiating itself from rivals, the company is able to enhance its image in the industry as well as create strong brand equity for itself. However, as with any business organization, Applebee’s survival and success in the industry where it operates primarily depends on its ability to modify its strategy in order to respond to the different opportunities and challenges that it faces. The differentiation strategy that the company employs nowadays should be regularly evaluated in order to align it with the recent trends and developments in the market. Having the leadership in the industry does not excuse Applebee in constantly reinventing itself in order to adapt to the emerging needs and wants of its market. It should continuously strive to maintain its position by further separating itself from its competitors through the provision of maximum value to its customers as well as other stakeholders. 1. Product Development. The casual dining market is strongly influenced by the changing preferences in the firm’s environment. Related to this is the perception of individual customers regarding dining trends and health. Applebee’s strategy has of continuously improving its product line and introducing new additions to its menu has ensured that customers are changing preferences are taken into account. Product development has also been essential in stimulating the excitement of customers in the company’s products. It makes sure that customers have something to look forward to when dining in the restaurants. The addition of low calorie and healthier product line in Applebee’s menu is in line with its quest of providing satisfaction for almost all the segment in the market. This also indicates the company’s commitment in developing products which suits the needs of the target market. Instead of being cautious in exploring new food ventures, Applebee has perceived the growing preference for a healthier lifestyle as an opportunity to serve customer better (Annual Report, 2006). It should be mentioned though, that Applebee should be take precaution in its product development strategy. Innovation may erode the image of the restaurant chain especially if it deviates too far from its intended and original lines. Product development should be coupled with an effort to enhance and not to change the position that it occupies in the mind of the market (Thomson and Strickland, 2004). 2. Excellent Customer Service. Kotler (2005) emphasizes that the business arena is evolving into a hypercompetitive environment which is characterized by higher bargaining power of the customer and more stringent competition among industry players. This is especially true in the casual dining market. Excellent customer service is one of the most important aspects of Applebee’s strategy in order to differentiate itself and battle head-on with its competitors. The company has recognized the intangible aspect of the product that it offers and its provision of customer service has insulated it from the attacks of its rivals. This has also given in the much needed edge which it needs in order to capture the preference of its customer. The provision of excellent customer service has been instrumental in making Applebee the market leader in casual dining. 3. Growth Strategy a. Conscious Cannibalization. Cannibalization has always been perceived as an inefficient strategy. However, Applebee needs to be commended for its effectiveness in using this strategy. Conscious cannibalization has given the company access to a wider neighborhood and exposure to wider markets. Through this strategy the company is able to make itself more accessible to customers. Conscious cannibalization has also allowed Applebee to build smaller restaurants which are “cheaper and faster to build and easier to fill” (Rosenfeld, 2000). The present market share of Applebee in the casual dining industry should have been enough to access the effectiveness of this strategy. However, looking deeper into the company’s quantitative performance will show the company’s underutilization of its large number of stores. This is indicated by Applebee’s decreasing profitability and sub-par financial performance than its rivals. The business organization’s investments in huge number of stores mount up its cost of operation to the point of eroding its profitability. b. Domestic and International Franchising. Applebee’s growth strategy through franchising allows the restaurant chain to focus on the day to day operation and strategic concerns of the business by freeing itself from the hardship of securing financing and investment. Franchising has also ensured that the company augments its revenues through the annual royalty fee paid by the franchisees. Through this Applebee also accomplished its goal of opening up more stores in a number of locations. The use of franchising also leaves out the company in settling the regional disputes within the workforce. This has created a decentralized organizational structure which facilitates relatively faster decision-making especially within the international chains of the company (Thomson and Strickland 2004). 4. Retail Outlets. The major rationale of focusing on improvement and development of Applebee’s retail outlets is to further enhance the customer experience through the creation of the appropriate atmosphere for casual dining. Applebee has make its mark in the market because of its effort to create a standard for all its restaurant, the company also stresses its effort in recognizing the differences in the geographical areas that it serve by customizing some of its restaurant features in order to create that “neighborhood feel.” Improving and development of retail outlets enhances the reputation of the restaurant chain as well as enable it to deliver more value to its customers. 5. Strategic Alliances. The establishment of strategic alliances among business organizations in related and unrelated industries has been an evolving trend. Applebee and Weight Watchers International apparently have a mutually beneficial relationship by helping each other leverage its position in promoting a healthier lifestyle through the provision of healthier products. Applebee gains from this through the increase in number of customers. Applebee’s strategic alliance with its suppliers allows it to get volume discounts and cut significant costs in its input. This also insulates the company from the risk of input shortages during hard times. However, the company should also take note that overdependence on a large single supplier can be detrimental to its operation in the long run. Overdependence can increase the leverage of the supplier relative to Applebee thus, decreasing the company’s bargaining power. 6. Online Business Model. Applebee’s online business model has been in response to the technological advancements and the wide acceptance and popularity of the internet as a medium for marketing. The website has been helpful in the company’s quest of informing customers of the products which are served in specific stores. However, the company has not been fully efficient in exploiting this business model. Applebee should find ways to generate revenue through its website by offering online booking and reservations. III. Other concerns and strategies The evaluation of the company’s strategies done above highlights Applebee’s strengths as well as area for possible and future improvement. Overall, the restaurant chain is in challenging position where it needs to find ways in order to maintain its market leadership. The most important issues that Applebee faces which are identified in this paper are the following: 1. Overdependence on the US market. The business operation of Applebee is largely concentrated on the United States exposing the company to the risk presently faced by the economy. It should be noted that the economic hegemony of the nation is threatened by the possibility of recession at the end of this year. Being its primary market, Applebee’s operation is expected to be adversely affected as per capita income of each customer drops. The recession can also bring an overall slowdown in the growth of its market as well as higher prices of the company’s input. 2. Decreasing profitability. As stated above, the financial position of Applebee is weak indicated by its decreasing profitability and its sub-par performance compared to its competitors. This weak financial position can be alarming as it indicates the incapacity of the business organization in managing its costs of operation as well as creating value for its shareholder. The company’s weak financial position, in the long, can harm Applebee by discouraging its current inventors and potential its stockholders from financing its operation. If this situation persists, the company might not also be able to support its operation efficiently. Between the identified concerns, the most important and pressing at the moment is the company’s decreasing profitability. This paper prescribes that Applebee pursues a strategy which is focused on eliminating inefficiencies and unwanted costs in its operation. Lean Manufacturing Strategy. The main idea of lean manufacturing strategy is the elimination of wastage in order to increase the efficiency of a business organization while reducing the company’s cost. It is recommended that Applebee conducts a value chain analysis which focuses on how each activity in its value chains adds value to the customer. The company then tries to eliminate non-value adding activities in order to minimize and manage costs more efficiently. Through this strategy, it is expected that Applebee will be able to improve its profitability in the long run. References Applebee’s International Inc. (2006). 2006 SEC Form 10-K. Retrieved April 23, 2007, from http://library.corporateir.net/library/10/107/107582/items/ 235131/2006%2010-K%20Final%20030707.pdf Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy. New York: Pearson Education Kotler, P. (2005) Marketing Management. New Jersey: Prentice-Hall Rosenfeld, J. (2000) Down-Home Food, Cutting Edge-Business. FastCompany.com. Retrieved 2 May 2007, from http://www.fastcompany.com/magazine/33/applebees.html Thomson, A. & Strickland, A. (2004). Strategic Management. Boston: McGraw-Hill/Irwin Read More