Marketing Proposal for Diversifying Into China Executive Summary Chuck E. Cheese’s (CEC) is publicly traded company founded by Nolan Bushnell in 19771 in San Jose CA. CEC currently operates over 500 stores domestically and internationally; expanding into countries such as Chile, Saudi Arabia, Puerto Rico, U. A. E, Guatemala and Canada2. CEC mainly provides games, entertainment, party and food for children aged two to fourteen years old within a safe environment. The marketing proposal explores the possibility of expanding CEC into untapped, high growth market areas in China.
CEC product is modified to tailor the tastes of Chinese children and families. This proposal looks at the overall country and culture, number of children and their habits. China’s growth has been unprecedented for past four decades and the Chinese family’s income has grown considerably. The analysis looked at the key prospects available for CEC and chooses Shanghai as the market place to introduce its first store. Market research for Shanghai was done from the perspective of number of children, western influence, family income, disposable income, financial status, technology, and competition.
The research revealed that there is no single company or store that provides games, entertainment, party and food for children aged two to fourteen years old within a safe environment within one single facility. In addition, Shanghai is the most westernized city in China and the Gross Domestic Product (GDP) has grown rapidly over the last few years. CEC will bring fun and entertainment to the families of China and at the same time, CEC will benefit greatly from China’s vast market size.
The marketing plan includes a strategy to expand CEC over the first five years, growing at a pace of three stores per year in first five years and eventually expanding its brand to all major cities across China. Table of Contents 1Introduction and Statement of Purpose4 2Product Analysis5 3Country, Market & Competitive Analysis9 3. 1Country9 3. 2Market Analysis11 3. 3Competitive Analysis13 4Forecast, Predications, Prognostications hopes and dreams16 5References18 6Appendices21 Introduction and Statement of Purpose Chuck E. Cheese’s (CEC) is a publicly traded company founded by Nolan Bushnell (founder of Atari), in 19773.
Originating in San Jose, CA. CEC has successfully expanded its brand internationally, specifically the following countries – Canada, Chile, Guatemala, Puerto Rico, Saudi Arabia and U. A. E4. Although CEC has had success in the international market arena, it has not come close to reaching its fullest potential worldwide. CEC has not entered into a major emerging market place and a country with one of the world’s greatest population of children, China2. China is considered by analysts and economists as a country with high potential5.
The question is “Where would that new niche be in China”? A few key components must be analyzed; the niche should have some type of influence from the western culture, since that is where CEC originated; the area where CEC enters within China should also be emerging–should be within urban area; a dense population of children from ages two to fourteen years – specific age group CEC targets there product to; and lastly the risks of entering should be out-weighed by the benefits. Among China’s most populated cities; Shanghai has the greatest western influence.
In addition to the impact from the west, Shanghai’s population of children ages between two and fourteen is greater than the entire population of the city Dallas, TX55. Shanghai’s continuous growth and free trade market sends a strong signal that entering into Shanghai’s market could be successful. The main purpose of this marketing proposal is to guide and develop the right course of actions for CEC’s entry in China’s market place. An overview of CEC’s product line and services, as well as a more in depth look into China’s culture, country, history, economic factors, market place and risks will be covered in this proposal.
These analyses will also educate and assist in eliminating any self reference criteria (SRC) and western nationalism that could hinder success in adapting to China’s culture. Product Analysis Attributes One attribute of CEC is the kid friendly environment. CEC is decorated with brightly-colored, smiling characters from beloved cartoons. The place is filled with video games, rides and other attractions. The famous CEC mouse frequently interacts with the kids. Another attribute is safety. CEC offers a menu full of kid-favorite foods prepared with a focus on food safety6.
In addition, through the Kid Check system, children cannot leave the establishment before they’re positively matched up via ink hand-stamps with the adult who brought them in. A third attribute is flexibility. CEC is available not only for families looking for everyday fun but also for special occasions7, for which special arrangements are made. These characteristics in CEC’s products guarantee memorable moments for children. In Shanghai operations, these attributes will be adopted to the local preferences. Pricing In the U. S. , admission to any CEC is free. While tokens for rides and games are sold $0. 5 per ride/game, the menu selection, price, and package information varies by location. In Shanghai, the value for games and rides would be approximately CNY 5. 0 for 4 tokens. The menu selection, price and package information for the Shanghai operations would be competitive with the existing food chains, (See Exhibit 1). In the U. S. , birthday parties are organized for a minimum of 10 children. There are two packages: the STAR ($14. 99) and SUPERSTAR ($19. 99) per child. These prices are comparative to CNY 100. 00 and CNY 135. 00 respectively in the Chinese market8, (See Exhibit 2).
Any package that totals to about CNY 1000. 00 for ten kids is considered a great package for middle class Shanghai customers9. In the U. S. , there is a special package for organized gatherings to host sports teams, day-cares, boy/girl scouts, etc. The price is $6. 49 per child, excluding taxes. For this price the child is entitled to two slices of pizza, a soft drink with free refills, sixteen tokens and a table is reserved for ninety minutes. The comparative cost for this service in Shanghai is CNY 45. 00. Customers have the option to customize the party with additional items such as a goody bags for $1. 9 approximately CNY 12. 00. Prizes After a great day of food and fun, kids can take their ticket winnings over the prize area to claim a reward. The child has the power to choose from the coolest CEC merchandise to the hottest new toys and gizmos. During the Shanghai festivities, toys for spring festival, lantern festival, kites, soft toys (animals such as pandas) etc, would be made available. 10 Distribution CEC is mostly a service-based product that is located strategically in over 500 entertainment centers in 48 states in the U. S. and 6 countries around the world.
At CEC, service starts right when the customer calls-in or enters the facility. CEC will target the city of Shanghai, China to begin. The rides will be installed, operated and serviced by local engineering companies and distribution centers like the “China Suppliers: Oasis Amusement Gaming Inc”. The rides will be customized to target the expectations of parents and children in Shanghai11. The ingredients for the food and drinks will also be using the local distribution channels. Technology One of Shanghais strong points is that they have a large number of software and hardware companies to provide customized solutions to a business.
There is also a significant pool of software and hardware engineers among its residents12. CEC will tap into the local inventory and payroll system for accounting purposes. Hardware and software shall be sourced from local retailer and distribution centers. Discounts By joining the Chuck E-Club, the customer receives the Best One-Time Special Offer, exclusive coupons, and birthday specials. Using on-line media, customers can download the latest “everyday coupons” and get more for their money. Also, coupons are available via local newspapers. The same concept can be transferred to Shanghai.
Promotion In addition to TV commercials and discounts, teachers are an important resource to promote CEC. Teachers reward learning and motivate their students under the “Reward Calendar” and “Tokens for Grades” programs. Also, CEC creates partnerships with kid-friendly brands such as iTunes and Snack Cheeses to expand the promotional strategy. For Chinese parents education is very important, therefore in Shanghai, CEC will partner with teachers in the same way as in US. CEC Shanghai will also partner with popular local vendors and service providers.
In Shanghai, CEC will strongly advertise on the popular HAHA TV station which broadcasts local lifestyle programming with emphasis on kids’ entertainment. CEC will launch a friendly web site with a Chinese domain, register on search engines such as Baidu (most popular search engine in China) and Google in entertainment and food searches. Furthermore, CEC will target customers using Ozone which is China’s top social network with 388 million subscribers in 2010. Services As is in the U. S. , CEC will sell gift cards for holidays, birthdays, and other special occasions in both of the Shanghai locations.
Gift cards will also be sold in local retail stores such as “Tong Ren Tang”13. Country / City specific customizations to CEC CEC-Shanghai will customize its services to the local preferences. Rides, games and entertainment activities will be an extension of the kid’s school cirriculum14. For example, there will be activities that help reinforce the laws of physics, gravity etc. In China membership cards are considered a status symbol; hence CEC will offer Kids-Advantage membership for kids. Refilling drinks will be done by employees carrying cooler backpacks; a common practice when serving Chinese young customers.
Appetizers and sauces also will be customized using local favorites. For Chinese parents and grandparents who don’t fancy Pizza, local alternatives will be available. Country, Market & Competitive Analysis Country This section looks into details of China as a country mainly from marketing perspective. History Traditionally, the Chinese saw their domain as the self-sufficient center of the universe, and from this image they derived the traditional (still used) Chinese name for their country—Zhongguo, literally Middle Kingdom or Central Nation15. The 20th century began with more reforms and ultimately formed the republic of China.
By mid of the century, China was built on the Marxist-Leninist model and renamed itself as People’s Republic of China. At the end of 20’th and beginning of 21’st century, China’s next generation leaders accelerated reforms and had great influence from the west on their policy decisions. Society China is the largest country in the world in terms of population16, (See Exhibit 3). The most densely populated areas are located in eastern China (average 550 persons per sq kilometer) 17. China adapted one child policy in 1970’s to contain the population growth and this policy helped more stable and much-reduced fertility rate.
In 2007, the literacy rate in China is about 93%, (See Exhibit 4)18. The society has been accepting the westernized life style for last 40 years. Economy After more than a quarter century of reforms and opening to the outside world, China’s economy had become the second largest in the world after the United States when measured on Purchasing Power Parity (PPP) basis by 200519. The government fosters a dual economic structure that has evolved from a socialist, centrally planned economy to a “market economy with socialist characteristics”20. Restraints on foreign trade were relaxed when China joined the World Trade Organization in 2001.
A sign of the affluence that the reformed economy has brought to China might be seen in the number of its millionaires (measured in US$): a reported 236,000 millionaires in 2004, an increase of 12 percent over 2 year’s earlier21. Investors are attracted because of the cheap, unskilled labor, which is about a one-third of the cost of that in most other Asian countries. Inflows of Foreign Direct Investments (FDI) continued to rise during the first quarter of 2010 as investors remain confident about China’s economic prospects, (See Exhibit 5).
Government and Politics China is a unitary and socialist state that constitutes calls on the nation to “concentrate on socialist modernization by following the road of building socialism with Chinese characteristics”. The government has an Executive Branch led by the President and Vice President; Legislative Branch led by National People’s Congress (NPC) and Judicial Branch-which has four-level court system. China has twenty-two provinces (sheng), five autonomous regions (zizhiqu), and four municipalities (shi) 22.
China also has two special administrative regions (SARs): Hong Kong, which reverted from British control in 1997; and Macau, which reverted from Portuguese control in 1999. Beijing also claims Taiwan as a province. China political system is considered stable and foreign investment friendly since joining WTO in 2001. Urbanization & Consumer Behaviour As of 2004, 38% of population lives in urban areas and is predicted to increase to 70% by 203523. The two most populous cities in China, Shanghai and Beijing have the highest average household expenditures of $5,482 and $5,127 per year, (See Exhibit 6).
Due to the “one child” policy, Chinese families have more spending power than families in other countries in Asia. Estimated number of children under 14 years old is 265 million of the total population, (See Exhibit 7). Chinese families like to spend money on their kids; particularly on food and entertainment, (See Exhibit 8); this point alone could be a major reason why CEC needs to enter the Chinese market. Market Analysis Reasons for diversifying into the Chinese Market China, with its market-oriented economic development has quadrupled its exports since 2000. The GDP growth rate and PPP of China stood at 8. % and $6,600 respectively in 200924. This drastic economic growth has impacted China in a many ways. First, it has resulted in people migrating from rural to urban areas in search of a better life – (2005 – 2010 estimates 2. 7% annual rate of change)25. In 2008, 43% of total population lived in urban areas26. Secondly, people’s living standard has drastically improved in major cities such as Beijing, Shanghai, and Qingdao. This has resulted in increased spending by families on children for recreation purposes27. Thirdly, it has resulted in increasing the middle class segment.
It is expected that the middle class segment will increase from the current 25% to 50% of the total population by 2015. Lastly, the one child policy and all factors mentioned above have contributed towards the middle class discretionary income spending on their children’s education and recreational purposes28. It is predicted that in the long run the economic strength of China will not be as an exporting nation but as a vast market for internal consumption29. Market segment CEC strategy would be to focus on the middle class families with children between the ages of two and fourteen.
It is estimated that around 60 million children in 1999 were living in large cities30. Current Trends in the Chinese Market There were several trends in the Chinese market that supports CEC entry into this market by focusing on the kids segment. One way is that there is an increase in urbanization (Urban population will be 63. 9% by 2030), which has contributed to the increase in the middle class base and middle class buying power31. Another way is that there is an increase in awareness and the liking for American products/brands among children and parents. The popularity of McDonalds, Pizza Hut among this segment, proves this fact.
There is also an increase in spending among children. In 1999, children spent US$6. 2 billion on their own interests using their own money32. Lastly, there is an increase in children’s influence on spending by their parents and grandparents. In 1999, influenced by their children, parents and grandparents spent US$61 billion33. Cultural Implications Some of the marketing decisions and marketing mix were influenced by certain elements of Chinese culture, such as the age old tradition of grandparents showering there grand children with gifts and money and the Chinese parent’s preference for education. 34, 35 Entry Strategy
The strategy would be to enter the Chinese market by franchising, as this provides skill centralization and operational decentralization36. Reasons for choosing Shanghai as the initial place of entry There are several reasons for CEC to enter into Shanghai37. First of all, it is the largest city with province-level status in China. It is a Free-Trade Zone and is forecasted to remain the largest city with a population of 7. 2 million in 203038. Secondly, it serves as the financial, cultural, commercial and largest industrial base in China. Thirdly, it has a huge kid’s population between the ages of two and fourteen.
In 2005, this segment was 8. 9 % (1. 58 million) of the total population39. Lastly, its GDP rate and PPP are remarkable. PPP has grown between 2000 – 2009 and reached $11,36140, with a disposable income of approx US$3500 in 2009 (Rate used $1 = 8 CNY). Competitive Analysis Chuck E. Cheese’s Chuck E. Cheese’s stores feature musical and comic entertainment by robotic and animated characters, arcade-style and skill-oriented games, video games, rides and other activities intended to appeal to the primary customer base of families with children between two & 12 years of age. Chuck E. Cheese’s Strategy
CEC strategy is to offer families a safe, fun place to share a meal, enjoy the? games, rides and amusements, and be entertained with? lively shows. The goal is to encourage families to? spend time together — always keeping quality and value top of mind. Research couldn’t find a single company that provides a combination of all three in single place in Shanghai. Competitive analysis is limited to few companies that have capabilities of “party” and “eat” or the places to “party” with little amusement (but no games). Some of these companies that CED competes with are McDonald’s, Kidzania and Children’s Technology Workshop.
There are other small companies like “Fun for Kids”41 and “Party box”42 which provide facilities for organizing parties and fun, but are limited to one or few locations. ?McDonalds McDonalds is the largest fast food restaurant in the world and number two in China in terms of revenue43. McDonalds in Shanghai provides fast food and family party room, but has limited activities and no educational games. McDonald’s strategy44 McDonald’s overall strategy is to increase brand awareness, provide more convenient fast food, and a continued focus on the breakfast market.
McDonald’s focuses almost entirely on chained burger fast food, and believes that the burger fast food subsector still has considerable potential in China, with more young consumers accepting Western concepts and Western-style foods. Except for providing fast food options, it doesn’t have any intention to enter fully into entertainment business (no plans mentioned in the annual report). 45 On the contrary, CEC provides fast food with kid’s entertainment in a family dining setting. CEC will only be competing with McDonalds in fast food segment. Kidzania It is Mexican chain of “kids amusement park”46.
After many international successes, it plans to open its doors in Shanghai by 2012. 47 “The Kids City”, will open its doors to children between the ages five and ten, giving them an opportunity to live a “day in the life” of their dream jobs. The theme park with streets, museums, grocery stores, airports, and other buildings designed at a 7:10 scale, will give children a chance to experience different jobs such as “police”, “kitchen chef” etc. The “city” consists of 7000 square meters, and each admitted child will receive a bank account budget with a currency that can only be spent at the park.
Taking on a “job” while at the park allows them to earn extra money. Kidzania’s Strategy Kidzania’s strategy is to provide family edutainment through fun, and realistic role playing. As compared to CEC, it is designed only for kids (without parents) and it focuses on group role playing games, where kids spend more than five hours to explore and experience being an adult. CEC has a different focus – individual games and family fun within a limited time frame of couple of hours while enjoying being a kid.
Kidzania facilities need to be established at larger places due to the fact that they need to set up several different role playing games. CEC’s facilities can fit inside of a mall and shopping complexes. Also, there is only limited times a kid would want to try Kidzania due to the fact that only limited role playing games can be setup at each site. On the other hand CEC’s games can be played many times and addicting. Children’s Technology Workshop Children’s Technology Workshop48 is a place in Shanghai more focused towards educational games, whether it’s a LEGO, science, or technology themed party.
They customize the party experience for large or small groups; provide superior Lego-centered entertainment for individual, school, community or club functions. Parties are a great way to engage children from four to fourteen in a building project that allows them to interact with friends and enjoy the special day in a kid-friendly environment. Children’s Technology Workshop’s Strategy This product is focused more on educational games lacking the fun aspect that children enjoy at CEC while still offering an educational experience. Forecast, Predications, Prognostications hopes and dreams
Political Forecast and Risk Assessment In China’s political environment risky change is not expected. After the global economic crisis of 2008-2009 the Chinese government continued to pursue a proactive fiscal policy to boost domestic demand and fend off structural imbalances such as high investment ratios, imbalances between investment and consumption, and excess capacity in some sectors. 49 Together, they will help promote structural adjustment and balanced growth. The government is more concerned in economic recovery than with policy changes. 50 Economical Forecast and Risk Assessment
In the economical arena, important changes have been occurring. After the 2009 economic crash, imports and exports in China are now restoring to where they were. GDP growth is beginning to slow down not because of global economic crisis but because the country cannot support that growth much longer51. The real GDP is expected to maintain an 8% to 9% growth over the next few years and then drop to 4% in 2030. The Chinese environment is restoring itself after the crisis, but it is still susceptible to instability due to the fact that it depends largely on exports, this trend is predicted to change in the near future.
Market Forecast and Risk Assessment The highest consumer expenditure’s sector in Chinese economy is the Food and Non-Alcoholic Beverages sector52, (See Exhibits 9, 11, 12). This sector is expected to grow as the Chinese are demanding more and the rural populations are incorporating into the urban landscape. The Chinese disposable income has been growing in the last few years and is expected to continue rising. Much of this income is going into food, leisure and recreation. China’s population is aging and it may not be able maintain their current economic model in the years to come53.
Beijing’s one-child policy and the desire for male heirs have disrupted the population growth and gender balance. This in an important sociopolitical concern in China, however, it will not have a strong effect on CEC market entry. While there is a decrease of youth, the population is still very large and growing. Also the rural population growth and movement to the cities will be a contributor to CEC market54. The population problem for CEC market is not expected to hit for at least 15 to 20 years and still to them it won’t be an issue to business, (See Exhibit 14).
CEC Forecast, Hopes and Dreams CEC is foreseeing that the economical, political and social risks in China are not going to develop further during the following years. CEC hopes to expand rapidly in first five years and as GDP per capita increases; it is expected to expand into smaller cities. CEC investment in China is expected to grow smoothly as it establishes two franchises in the first year in Shanghai, later following with at least one more in Shanghai and two in Beijing. It is planned to expand to 8 cities at the end of the 5th year and totaling the number of stores at 25.
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