ContentsAbout KFC and KFC in Pakistan2Game and Simulation Theory3Introduction3Sequential games3Simultaneous games4Win-Win, Win-Lose, Lose-Lose Situations5Application and implications of game theory and simulations and the involvement of KFC game theory in Pakistan6Co-opetition (Cooperation and competition)6Value net7Changing the Game8Changing the player8Changing of added value9Changing the rules9Changing the tactics9Changing the scope10Ambushes of changing the game10Playing with Substitutors10KFC entrance into the Pakistani market and the play of game with Government rules and barriers11Product differentiation and strategic interrelationships11Conclusions and Recommendations12Bibliography13

About KFC and KFC in Pakistan

KFC stands for Kentucky Fried Chicken which is found almost everywhere in the world and is liked by people a lot. It has spread its market all over the world and has distributed their products all around. They are growing under the brand named as Yum and in 2002 almost 46% of the U.S chicken food market was controlled by KFC. China had 800 outlets of KFC in 2001, and there were more than 150 restaurants of KFC in Indonesia and Thailand. KFC used different market penetration strategies and they tried to map read the political and regulatory climate. The branches and profits of KFC in China were increased in 2006. KFC is continuously growing by competing globally and they have developed their strong brand name and recognition all over the world. KFC uses advance advertisement methods that include website, newspapers, television and other ways that can attract customers. Fast food market is developing day by day and with its development, KFC needed to made changes and adding variety to its menu. They introduced dessert and buffet system to make customers more interested.

KFC is operating among many competitors in the fast food market. The major competitors of KFC are McDonalds, Nandos, Dixy Chicks, Pizza hut, Chinese and Subway etc. All of the mentioned companies are combating with each other for achieving the best position in the market. These competitions are on the basis of prices, products, brands, advertisements etc. Among the companies, there are product differentiation, price competition, and advertisement battle. They differ in quality, price and service. KFC need not focus on each and every firm operating in the food market but it should remain as close as possible to its major competitors such as McDonalds and Nandos etc. (Peter J et al. 2010)

KFC started its business in Pakistan in 1997 at Karachi. Nowadays almost 180 branches and restaurants are operating in 20 major cities of Pakistan i.e. Karachi, Hyderabad, Lahore, Islamabad, Rawalpindi, Sialkot, Multan, Peshawar, Faisalabad, Gujranwala, Jhelum, Sukkhur, Larkana, Murree, Chanab, Bhera, Sial, Sargodha, Sukheki and Mangla. The competitors of KFC producing the same products include Nandos, McDonalds, AFC, Hardees, and Fri Chicks etc. In Pakistan, KFC has captured almost 30% of the total fast food market (Peter J et al. 2010). Government of Pakistan is earning almost 10 million as taxes from KFC monthly. It provides to almost 1200 outlets and about 6000 individuals.

Game and Simulation TheoryIntroduction

Game theory is characterized by competition. Game theory means that the players are achieving something through competition. The decisions of game theory are interdependent and all the participants have some objectives. In game theory, problems are games and the participants are players. The results are called outcomes. Game theory ensures that what each player is doing and what each players strategy is. It sorts out that what other players are doing. In game theory, players make a series of moves in order to gain the best outcome. Each move is known as strategy and the move that best applies is known as optimal strategy. The two fundamental games of the game theory are as follows

Sequential game

Simultaneous game

In sequential game, players can alternate the moves and in simultaneous games, the moves can be taken at the same time by the players.

A diagram known as game tree is drawn which shows that in sequential games, players move sequentially and in different pathways to achieve different outcomes and payoffs. Game theory involves all the strategic situations and mathematically in game theory making of choices depends on the choices made by others. The four major players of the game theory are suppliers, customers, complementors, and competitors. Every player is dynamic in the market because the environment in which they are operating is not stable. New incoming players can replace the strategies of the old players e.g. suppliers can replace one another, if one supplier is providing raw material, it can be replaced by other new player thus bringing that new supplier to the game. The whole value net exhibits the relationship among the players (Hernandez H et al, 1998).

Sequential games

A sequential game is analyzed when we map out of the game tree. At first, a choice is made by Player1 and when he sees the other player mistaking in the game, he puts an optimal strategy to get the best payoff and for moving ahead. Players are required to decide the best alternative to win the game. An example of sequential game illustrates the following.

Suppose FC (Fast Cleaners) is a leading company with monopoly pricing and it makes almost $300,000 per year and is a winning company. If a challenging company enters the market, FC has to choice between accepting the competition and combating for the price. The two choices have two different implications. If FC is going to accept the competition, both the companies will have the opportunity to earn a profit around $100,000. And if FC accepts the price war, they tend to lose $100,000 and the other company will have to face the demise of losing $200,000 of payoffs. The game tree for the above situation is as follows:

Figure 01: Cleaners Example Game Tree; source: (ESD, 2009)

The game tree further provides the information that the new company entering the market is a competitor of FC. FC should accept the competition and it should also accept to earn a profit of $100,000 rather than losing them. In the real and market situations, taking decisions involve more stages and more factors which affect the profit or loss. The leaders should apply optimal strategies for playing sequential games. The optimal strategies are checked before playing the game and then there are two options for each player either to play the game or not to play.

Simultaneous games

Here the players do not know about the strategies of each other. The decision making is done without looking for the strategies of opponents. The players are unaware about each others strategies and the players are moving at the same time for playing the game. Here the players have their own choices which are strategically planned and the payoffs are also strategic. The choices of strategies as well as the payoffs are different. For example if player1 chooses strategy Y and the player2 chooses strategy X1, then their payoffs are E and F respectively. The strategies of both the players are different and dominant at their own place but there are times when some strategically dominant strategies do not work and they do not lead to maximum payoffs and hence the factor of communication becomes important and if they do not communicate, there is a demise of lose for both.

Player 01

Player 02

Strategy X1

Strategy X2

Strategy X

A, B

C, D

Strategy Y

E, F

G, H

Figure 2: game table showing relationship between the players and their payoffs

Win-Win, Win-Lose, Lose-Lose Situations

Every game has two sides win and lose. These are the only two possible outcomes of the game. One has either to win the game or to lose it. When the outcome is matching our expectations or when it is above our expectations-the situation created is known as win situation. And when it is not matching our expectations or when the outcome is below our expectations-the situation created is known as lose situation. In game theory there are three possible outcomes which are

Win-Win situation

Win-Lose situation

Lose-Lose situation

Win-Win situation is created when there is integrative bargaining cooperation. It uses a negotiation strategy of integrative bargaining. It deals with the interests of the players such as their desires, needs and fears. The outcomes produced are very satisfactory as the name indicates. Both the players are satisfied enough in this situation because they both win the game and there is a perception of positive outcomes. According to this theory both the players are enhancing their abilities and moving towards the win-win situations. Here they are taken as joint problem-solvers, goals are same and the decision is goal oriented, they almost work together to know that who is getting what, here they are interest in interests-not in positions, they use fair principles to move towards the win-win situations.

Win-lose situation is attained through distributive bargaining strategy. Here one player perceives positive outcome while the other negative. It is not cooperative in nature; it is competitive. It distributes resources between the two parties. In this strategy, one player uses more resources than the other and hence one player wins the game while the other loses. The winning player has moved more strategically and has used tactics more wisely than the other.

Lose-lose situation is one in which both the players have to face the failure and they end up the game with lose outcomes.

Application and implications of game theory and simulations and the involvement of KFC game theory in Pakistan Co-opetition (Cooperation and competition)

Co-opetition is a phenomenon in which there is cooperation in the competitive market. It shows that how business operations are to be carried out by being in limits and by identifying competitive environment which is complex enough. Competitive analysis of the players in conducted in order to examine their relationships. In co-opetition between the two players, cooperation and competition co-exist at the same time and in competitive environment, they cooperate with each other. The cooperation between the players in helpful when they are creating new markets or when they are expanding the current markets. When the new markets are set up, competitive strategies are used by the players to achieve win-lose situations and they try to gain more resources from each other. To achieve win-win situation, cooperation is necessary because the resources are to be integrated so that they can benefit both the players. And it comes to lose-lose situation when there is no cooperation. For example, if KFC is expecting to grow and if it wants to expand its business globally, than it has to be cooperative with the other industries of the same type. KFC should communicate with the strong and interconnected networks of segmented industries of the same type and competition and cooperation is needed by KFC to run its business (Hernandez H et al, 1998).

Value net

Every business should strive to create value and capture its market by providing excellent services to its customers. KFC also strives for value creation and capturing market. Different players play in the market for value creation. Value net is helpful in explaining the four players of the market i.e. suppliers, customers, competitors and complementors. Value net consists of suppliers and customers with the firm vertically and competitors and complementors with the firm horizontally. Value of the organization is created by customers and suppliers, organization listens to both of these players and the supply process of the organization is affected when we listen to the suppliers of the organization. The value net represents the four players of the organization who strive to develop the business strategies of the organization and by developing the strategies they move on to develop and gain competitive advantage while playing the game. Value addition is also a part of the game. A company can gain competitive advantage by adding more value to the products and services and thus lowering the value of the other company. Value addition is done by either altering the products or fine tuning them according to the needs and wants of the customers, by building a brand and promoting it thereby using resources efficiently or by creation of competition or price wars among the suppliers. Every game follows a set of rules and regulations to be played but there is not any universal law. Business is also a game of rules and it has more uncertainty involved in it therefore more wise tactics should be used to win the game (Peter J et al, 2010)

Pepsi and K&Ns are the major suppliers of KFC and they supply their final products to KFC. Furthermore, McDonalds, Nandos, Fri chicks and Subway who are the competitors of KFC and also the substitutes of the fast food against KFC are also get supplied by the same companies such as Pepsi and K&Ns. They are all the competitors in the fast food market, they sell the same products to the customers and they also are get supplied by the same suppliers-they get raw materials from the one and the same supplier. The major competitors of the KFC are McDonalds and Fri-chicks which are supplied chicken by K&Ns. It is the point where competition is very tough and here everyone has to use proper and wise tactics to move around and to win the battle of the quality, service and price.

According to Hernandez 1998, the value net of the four major players of the market across symmetries is as follows:

Figure 3: Value net of the players of the market

Changing the Game

Suppliers, Customers, Complementors and Competitors are the four major players of value net. In order to apply correct optimal strategies, managers need to examine and understand the symmetries of the value net properly. To change the game, managers need to the change the existing strategies across the symmetries. Across the vertical symmetry of the value net, customers and suppliers should be working together so that both the players can get benefits. Across the horizontal symmetry, the two players can both play as friend as well as enemies-they can create either the win-win situation or the lose-lose situation respectively. Changing the game by using different tactics such as value-addition to the game or by value-reduction added by the other players, applying strategic tactics, changing tactics, changing rules of game can expand or shrink the business. Same rules can also be applied by KFC to expand its business in market.

Changing the player

Value net shows that suppliers, competitors and complementors are the players of the KFC. For changing the game, KFC can make a shift of its suppliers for example it can shift the supply of chicken from K&Ns to Zenith or it can use the supply of different suppliers. This can lead KFC to reduce the bargaining power of its suppliers. The bargaining power of the customers can be reduced by introducing safe and healthy products whose target market is elder people, it can also introduce sea food for fish lovers-yet a new market, it can expand the business of KFC leading to more profits. Entrance into new markets by targeting and segmentation, price differentiation and value addition is helpful in lowering the power of the complementors. The competitors power can be reduced by increasing the range of in-house products.

Changing of added value

KFC is striving a lot to add value to its products, KFC has a very excellent corporate image which it has build by making and developing public relations, offering deferent deals for their tangible products, various events are organized for celebration, other activities involve students appreciation programs, teacher workshops which are very useful for assisting KFC to build its social image. KFC also deals well with corporate social responsibility. Its brand name is also promoted by having various sponsorships. KFC should add more value to its dining facilities and should improve its hygienic conditions by which customers are not that satisfied. The cleanliness and hygienic conditions of the KFC are not rated by customers in such. KFC can add more value to its operations by facilitating online ordering and menu and meal customization according to the needs of the customers. It will be more convenient for the customers. KFC can add value to its products by changing or either by switching its supplier line from just chicken to sea food and fishes etc. It can also add beef products to its menu by getting raw material from Zenith Company. It can create the win situation for KFC.

Changing the rules

There are no universal rules for playing a game but depending upon the locations of the KFC rules of the game can be changed. The rules can also be changed depending up on the differing situations. For example, Muslim countries have some hard and fast rules regarding fast foods. Muslims must follow the law of halal foods, work ethics, and government regulations relating to different cultures and multinational cultures etc. KFC follows rules of price which states that one price to all and their prices are very reasonable and are acceptable by most of the customers as compare to the other competitors in the market.

Changing the tactics

In the Muslim countries KFC must have to follow the rules of halal food and if it fails to do so, its reputation will be greatly affected and the brand name could possibly face the demise. KFC should either use the tactics to serve the halal food in Pakistan or it can organize to change the perceptions of people in Pakistan. People these days are focusing more on their health and they are more concerned about their obesity related issues. So KFC can promote its products by using low fat vegetable oil which will also change its taste and then advertising it as well. This will help customers change their tastes, to buy their products more and it will also be helpful in changing their perceptions.

Changing the scope

Games can also be expanded throughout the markets by creating the linkage of the game with other games. KFC is working on the basis of the scope of providing best chicken to the customers by changing their perceptions of food. The same scope is used by all other players in this industry as well. KFC should change their scope for gaining competitive advantage and by adding beef, fish, and desserts to the menu.

Ambushes of changing the game

Most of the players of the fast food industry are in the first trap, they try to find only one place, they settle there, and they only strive to make profits. KFC are also doing the same. They are only focusing on one recipe made by chickens only; they have to come out of the one and the same shell and should enhance its range of products. It can move its business to beef and fish industry thereby not losing the scope of the fried chicken. They are focusing on win-win opportunities only rather they should also focus on win-lose opportunities which can be beneficial in the long run. At start when KFC was introduced in the Pakistani market, it has no major competitors like McDonalds and Fri Chicks etc. so; it easily captured the market by using win-win strategies, the demand for fast foods in the Pakistani industry was increased by KFC. In win-win situations most of the companies imitate other companies in running their businesses.

Playing with Substitutors

With the introduction of substitute products in the market, customers often switch to the substitute product, but the main reason for their switching lies in the prices of the products. Customers look for cheap products. In the Pakistani industry, many substitute products are present in the fast food market. For playing with its substitutes, KFC has to order ready to cook products from its suppliers such as K&Ns and therefore many such products are present at KFC for their customers to satisfy them. There are many substitutes of KFC in Pakistan which are playing at their best against KFC by offering a range of products with low prices and long period of expiry; their quality is also very best and different products are of different range. But these days the main focus of the people is health and they are very conscious about the obesity related issues so they look for low fat and hygienic food in which KFC is more innovative as compared to its competitors as such.

KFC entrance into the Pakistani market and the play of game with Government rules and barriers

An entry of the new market is controlled by the government in either a positive or a negative way. Sometimes health and safety related issues compel govt. to put barriers on the entry of markets in some areas. Pollution control and product safety is the responsibility of the govt. and govt. always tries to control the competition in its domestic firms and their policy is to limit competition thereby limiting the access of the raw material. Government is always expecting a huge investment when any new firm enters the market (Blees J et al, 2003).

Pakistani government obeys some specific rules and regulations related to the fast food industry. Some of the related issues include production of the halal food, selling best products to the customers, keeping quality control of the product, corporate social responsibility and protection of the local farmers. The barriers are not that much strict and any food industry working in Pakistan should follow the rules and barriers and should produce halal food for the market. KFC is very much in line with the govt. rules and policies and they contribute to sell 95% halal food in the Pakistani market by purchasing halal chicken and packaging material from its suppliers. KFC is in line with the govt. of the country to maintain their brand image and to retain in the country.

Product differentiation and strategic interrelationships

If a business expects to grow in a competitive market, it must have to differentiate its product. The customers are also attracted by applying the strategy of product differentiation. In Pakistan, the products of KFC are highly differentiated in order to capture the market and it has introduced special recipes on the basis of fun and festivity and it offers various different deals from time to time in order to be differentiated from its customers. It also offers various seasonal promotions such as Ramadan discount, sales promotions and special parties etc. All the above changes contribute a lot to gain maximum profit and output and it also has lead KFC to gain competitive advantage over its competitors.

KFC is contributing a lot in providing hygienic products to the customers. Along with this it has also contributed to increase the economic profits of Pakistan and it also has strong relationships with other foreign suppliers such as Copula and K&Ns. The franchises of KFC in Pakistan are run by Copula. KFC has established and is running a very strategic business throughout the Pakistan and although due to the presence of a lot of competitors, it is very difficult to take it out of the country.

Conclusions and Recommendations

Game theory and its principles are simply exciting and its implications can be seen in real and they are very far-reaching. Communication is very important to play any game and different strategic layers are set by different players in order to win the game.

The brand name of KFC is well established, it can moderately do product differentiation and that it has high capital requirements. To come against the KFC is very difficult for the competitors. KFC does not focus that much on the pricing strategies. Substitute products of KFC also have very much power. Pepsi and K&Ns are the major suppliers and are very important in the value chain of KFC. KFC have gained competitive advantage by playing different strategies. It mainly focuses on the win-win situations.

KFC has strong strategic position in the market based on secret of recipe and brand name. They always depend on fried chicken therefore competitors can cause severe damage to KFC brand anytime. KFC must differentiate its products soon in order to play game with other competitors and substitutors.

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