Case Study Analysis On The Maintenance Of The Brand Image

INTRODUCTION

The purpose of this case study is to analyze the China Enterprise for the Levendary Café and propose possible solutions to the challenges encountered in maintenance of the brand image, especially with the new management in place.

BACKGROUND

Howard Leventhal, is the departing CEO of Levendary Café and had been there for 32 years, from its foundation to its expansion to have over 3,500 restaurants. The incoming CEO, Mia Foster, has an impressive history but is an amateur at this kind of job, especially on the global business platform. Pressure from Wall Street made her want to disprove the critics who did believed that the Café was doomed since most of its local market had been tapped out and Mia Foster was an amateur and therefore could not lead Levendary Café to becoming an international or global brand. Several other similar Multi-National Enterprises (MNEs) like KFC, Starbucks, Pizza Hut and McDonald’s were doing very well in their global expansion, especially the ones that specialized in the quick service sector. Averagely, these brands made 20-35 % profits after the occupancy costs, labor costs, food costs and the supplies had taken their share of the generated revenue.

The Levendary Café had been mostly prominent due to their two foundational elements: delicious array of meals, cuisines and salads, and their dedication to offering the best customer service. The company had also been known to take worthwhile risks that always worked out. The former CEO always embarked on a quest of instilling a customer-centered service on the employees advising them to pay little attention to the profits and pay more attention to customer satisfaction. In 2008, Levendary Café had decided to expand their scale and scope of operations into China, a promising candidate for such due to their ever growing GDP and their impressive urban population. In as much as the quick service restaurants offering Asian food excelled, others like KFC also flourished in China and this had led the management of the company think that they could also pull it off.

This is not to say that all the investments flourished, since a number of foreign brands like Applebee failed in their conquest of the Chinese market and eventually shut down. Louis Chen had been chosen to spearhead the expansion in a two year long term contract which could be renewed. Leventhal had given almost full custody of the project with the instructions to do what seemed best to adapt to the environment. Chen had managed to pull it off, starting 23 restaurants in Pudong and Shanghai in less than year.

Statement of the problem

The problem was that Chen had gone too far in changing the brand image and menus, and seemed stubborn and hesitant when asked by the new CEO, Mia Foster, that he had to change some of the aspects he had formulated of the brand. He had for example completely changed the menu to leave only one salad from the original menu. He had also completely eliminated seats to leave a food stand in one restaurant.

This completely contrasted with the brand’s image and reputation. In his defense he said that China was a very competitive market, and the establishment of the 23 restaurants in less than a year did not come without intense evaluation of the market needs. He had therefore done what the market demanded, to try and adapt to the new culture and environment in china. He had retained the brand’s logo and design of the restaurant in most of the branches, but had made some serious changes in other branches. For him this was strategy, meant to help Levendary Café peak as a brand in China, but for Mia Foster this was a violations of the brand’s image, a compromise of the company’s principles and techniques. Chen’s strategies of course showed success, as he generated a lot of profit for the Café, but the issue was what the compromise and the changing of the brand’s identifiable objects would mean to their customers.

Changes foster should make

Since Chen’s strategies, even if contrasting to the brand’s image, have proven effective in the expansion of Levendary Café to China, it would be ludicrous to kick them out in an attempt to try and save the brand’s reputation or image.

It is true that Chen has gone far in his implementation of the strategies, but haven’t they not proven effective? It is therefore convenient for Foster to just modify the branches which have hinged too far from the brand’s image and objectives, but in a way that does not redact the effects of Chen’s strategies. She could for example introduce seating tables and chairs to the restaurant in Shanghai’s Yu Garden area. This branch had a counter only. Moreover she could train the employees who would work there in a way that would realize implementation of the company’s focus on customer service. In the restaurant to the entrance to Beijing’s Forbidden City, she could replace the local plastic chairs present with the brand’s own unique signatory set of wooden framed upholstered chairs. She could also introduce salads to the menu, but which are synonymous or similar to those of the area’s preferences. She could also hire people familiar with the GAAP accounting formats, to help translate the management and financial reports in the GAAP formats in the restaurants in China. This is better than giving those at HQ this onerous task or asking the restaurants to change their accounting ways. In her handling of Louis Chen, Foster should be more patient as Chen only had the best interests in mind when he had done those changes to some of the aspects of the Levendary Café. She should try and become partners with Chen, not exercise executive authority on him as this would only make him rebellious. Chen seems stubborn, therefore an iron fist would not work on him, but diplomacy might. Cooperating and engaging Chen in the factor decisions would help him see the issue and positively take to the changes. He is after all the reason that Levendary Café has flourished in its globalization to China.

Cultural Differences

It is seen that China is a totally different cultural environment than the Levendary Café’s base in Denver in the US. The cultural distance between China and the US is quite large. For instance, Chen says the people there consume less dairy products and as such they would have to go down on the cheese salads. This is the opposite of Americans since they are heavy consumers of dairy and dairy products. He also says that the population is not familiar with turkey meat, so they could adjust their menus to incorporate chicken which was popular there. These are among the cultural differences that Levendary Café encountered in its global expansion into China. These cultural differences could not be changed, but they could be adapted to. Also, some popular beliefs and myths in Chinese culture had to be considered so as to ensure customers got a positive perception about the company.

1. Communication with subsidiary

It is seen that there was never really a formal visit to the subsidiary in China by the management back in Denver for one year after the launch. This speaks of ignorance and ineffective management as the management in Denver did not even know about the changes that Chen had made to the Brand’s image and strategies until Foster ordered a comprehensive review of the 23 cafés in China by the CFO, the Chief Franchise Officer who was Peter Steele. Moreover, it is seen that the Chinese branches submitted their management and financial reports in non-GAAP formats which proved difficult in processing by the Denver team. All these show that there was ineffective communication by the management at Denver to its subsidiary in China.

2. Financial considerations

Chen says that to operate in China you have to be compliant with local tax laws or else they would be shut down. He further urges that the changes Foster intended to make meant use of money to set them in accordance to the laws of the region. This shows that in global economy and expansion, there are additional costs of operations in order to be compliant with local laws. These need to be considered when planning to set up or expand an enterprise in another country.

CHEN’S QUALITIES AS A GLOBAL LEADER

1. Adaptable: It is seen that Louis Chen exhaustively researches the China market and designs the subsidiary restaurants to meet the market needs. He for example incorporates dumplings in the menu at the fourth restaurant in an attempt to make the menu more suitable to the residents.
2. Ambitious: He remarks that he has worked very hard together with his team in less than two years they have managed to set up 23 successful restaurants in Pudong and Shanghai. This is despite challenge from other global competitors like KFC and McDonald’s dominating most of the market.
3. Analytical: He examines all the possible cities and regions to set up the subsidiary restaurants. He finds Pudong and Shanghai to be the best candidates for expansion for Levendary Café as they are already operational using the American model. Chen says setting up in any other place would mean a complete change of the design and model of the café.
4. Independent: He manages to start up and successfully manage 23 restaurants in China with very little support from the HQ at Denver.

POSSIBLE GOVERNMENT INFLUENCES

The government of China or the local administration of Pudong and Shanghai could introduce policies that may influence the activities of Levendary Café. They could for example impinge high taxes on foreign restaurants and international industries like Levendary Café. This would mean hiking of the prices of the foods by the company to compensate for the margin. As a result, customers could be swayed away by the high prices. The government or local administration could also introduce policies that would promote the growth of Levendary Café. They could for example introduce policies that encourage foreign investors or liaising with the restaurants in public events in an attempt to promote them.

CONCLUSION

Levendary Café’s CEO, Mia Foster, can adapt patience and a partner-kind of solution in dealing with their subsidiary manager in China, Louis Chen who has been reluctant to adapt change to his strategies in an effort to protect the brand’s image. Several global issues like cultural differences and ineffective communication with subsidiary have arisen in this case, and this calls for an action plan to help in the resolving of these issues and realize continued growth in China. Chen as seen in his starting of 23 enterprises, is an effective manager, who just needs a little guidance, not to be fired.