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TO:

HENLEY MANAGEMENT COLLEGE

FROM:

CHEUNG TSE KIN, MICHAEL

MASTER OF BUSINESS ADMINISTRATION PROGRAMME

STAGE ONE HONG KONG

SUBJECT:

ASSESSED ASSIGNMENT (No. 2): MANAGING MARKETS

March 1996

TOPIC:

Select one of your organisation’s products or services then, with reference to

the Managing Markets study materials and associated readings, present

your own recommendations for an integrated marketing plan for the

successful future development of your chosen product or service. The

marketing plan should include all the relevant strategic and operational

considerations.

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CONTENTS

PREFACE EXECUTIVE SUMMARY

PART I CURRENT MARKET SITUATION

1.1 Introduction .............................................................. 1

1.2 Macro-Environment ................................................. 4

1.3 Market ....................................................................... 6

1.4 Product and Distribution .......................................... 6

1.5 Competition .............................................................. 6

Summary ................................................................... 7

PART II S.W.O.T. ANALYSIS and MARKETING ISSUES

2.1 S.W.O.T. Analysis ................................................... 8

2.2 Porter’s Five-Model Analysis .................................. 9

2.3 Market Research ...................................................... 10

2.4 Critical Marketing Issues ......................................... 11

Summary .................................................................. 12

PART III MARKETING STRATEGIES

3.1 Objectives ................................................................ 13

3.2 Market Segmentation ............................................... 13

3.3 Market Target ...........................................................13

3.4 Market Positioning ................................................... 15

3.5 Marketing-Mix ......................................................... 16

Summary .................................................................. 21

PART IV IMPLEMENTATION and CONTROLS

4.1 Action Programs ...................................................... 22

4.2 Projected Profit and Loss Statement ........................ 22

4.3 Controls and Evaluations ......................................... 25

4.4 Contingency Plan .................................................... 26

Summary ................................................................. 27

APPENDICES

BIBLIOGRAPHY

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Preface

Topic

This assessed assignment of Managing Markets is based on an organisation called

Combat Karate International Inc. with headquarters based in Toronto, Canada. The

organisation is expanding its operation in South East Asia, and that this report is

concerned with the marketing issues in the Hong Kong region.

The structure of this Marketing Plan will follow the outline stated in Marketing

Management-Analysis, Planning, Implementation and Control (Kotler 1994). The

assignment question in full is :

Select one of your organisation’s products or services then, with reference to

the Managing Markets study materials and associated readings, present

your own recommendations for an integrated marketing plan for the

successful future development of your chosen product or service. The

marketing plan should include all the relevant strategic and operational

considerations.

The report consists of 5300 words in 27 pages, excluding the Preface, Executive

Summary, Section Summaries, Tables and Appendices.

Confidentiality

Please do not disclose its content to those other than the evaluating tutors at Henley

Management College.

CHEUNG Tse-Kin Michael

March 1996 Hong Kong

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EXECUTIVE SUMMARY The 1996/97 marketing plan of Combat Karate International Inc. aims to become the

dominant market leader in the martial-arts training industry in the territory of Hong

Kong. The main business objectives include:

Minimum annual growth rate at 8%

Average annual profit increase at 11%

Takes 25% market share in 3 years

Generate a prestigious, healthy and high quality image in the marketplace.

The 3 major market targets are:

I. Sporty and wealthy male and female teenagers II. Ambitious and energetic male executives III. Law-enforcement personnel.

Three additional niche markets are also attacked: 1) kids from decent family

background, 2) professional and amateur athletes, 3) celebrities from show-

businesses.

CKI shall offer training and development programmes in recreational fighting skills

and self-defence techniques. Fees are priced slightly higher than industry average.

Promotional programs, HK$ 240,000, include heavy emphasis on public relations,

moderate advertising, with small amounts of sales promotions and direct marketing.

The marketing activities for the first 18 months of operations include a combination of

demonstrations at schools, TV stations, and charitable organisations.

The projected revenue for year 1 is HK$ 1,210,000; while all expenses totalled to

$1,003,000.

CKI’s marketing and operational activities can be controlled by 1) monitoring all

advertising and public relations programs, 2) measure market perceptions through

quantitative and qualitative researches, 3) critically evaluating projected and actual

performances.

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‘General management plans, organises, directs and controls a group of interrelated

operations and supporting services to achieve a defined set of objectives. Strategic

management is the process of formulating strategies and strategic plans and managing

the firm to attain these goals. Marketing management, is the analysis, planning,

implementation and control of programs designed to create, build and maintain

beneficial exchanges and relationships with target markets for the purpose of

accomplishing organisational objectives.’ (Armstrong. 1993)

Applying these fundamental marketing concepts, this case study shall illustrate how

the marketing management process can assist an organisation to fulfil its mission.

PART I. CURRENT MARKET SITUATION

1.1 INTRODUCTION

Company

Founded in 1987, Combat Karate International Inc. (CKI) is the largest martial-

arts training institution in Canada. It specialises in teaching and promoting martial-

arts to individuals, in both recreational and competitive manners. Martial art refers to

the physical fighting skills for fitness, self-defence, and competition purposes. With

headquarters based in Toronto, CKI has 25 franchising schools, with 3000 students,

spreading across Canada and the United States. See Appendix A for its organisational

chart.

The head instructor (commonly the franchisee) in each school must receive rigorous

physical, mental and administrative training from the corporate management team

before its opening. The franchisee is responsible for teaching, maintenance, student

registration, and financial reporting.

Strategy

At CKI, the emphasis is on developing self-esteem, self-confidence, and respect, in a

safe and non-competitive environment.

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Today, CKI is reputable in developing students’ physical and mental strengths. New

instructors and students must pass a series of interviews, to ensure proper attitudes

and behaviours are in place. All members are consistently reminded to be courteous,

helpful to the community, and never uses the fighting skills unethically. See Appendix

B for CKI’s corporate mission statement.

CKI is targeted to households with higher income. Prices are higher than other similar

services. It enjoys a prestigious image of high quality in teaching. The in-depth

knowledge of all instructors has led many private and public organisations to receive

its training. (Eg. the Royal Canadian Mount Police and Ontario Board of Education.)

The company has succeeded in positioning its image as high-quality, high-standard,

hygienic and healthy.

Style

Led by the Chairman and founder (a former world karate champion), CKI maintains

an open and cohesive management style. All franchisees across North America hold

meetings in the headquarters regularly. Likewise, top management also pays them

periodical visits across the continent. Communications and supports at all levels are

also positively encouraged.

Product/Service

The products offered by CKI can be broadly divided into 4 categories:

Basic, non-competitive martial-arts techniques for kids age 5-15.

Recreationally-competitive, light-contact fighting skills for age 15 or above.

Professional training for full-contact competition.

Comprehensive self-defence techniques for women, law-enforcement workers,

etc.

CKI’s revenue and operating profit have been rising steadily since its establishment.

See Appendix C for a graphical expression on its financial performances.

Benefits

In addition to gaining supreme physical fitness and self-defence ability, ‘fighting’

provides a strong sense of control over life. Repetitious practice on speed, power,

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timing and accuracy, are physical strengths and tactics that can be transformed into

mental power. Controlling a fight is similar to manipulating one’s destiny.

Winning a match is symbolic to overcoming an obstacle. Facing an unknown

fighter generates courage to conquer fear. Therefore, CKI is teaching fighting

techniques in class; but in reality it develops self-confidence, self-mastery, and

mental force for all students. As stated:

‘Martial Art is a way of life and mental cultivation. It is a subtle art of matching the

essence of the mind to the techniques in which it has to work. The mind is trained to

direct the movement of the body. The mind wills and the body behaves. A martial-

artist aims at self-cultivation. A true master throws its emphasis in conservation of

energy, avoiding all physical extremities. It starts out as mental regimen as its basis,

where the sole object is to bring peace and calmness of mind.’ (Lee. 1962)

Demerits

Due to the nature of the industry and the geographical coverage of operations, CKI

has 3 major flaws.

1. Physical injuries, though being carefully avoided at all times, do occur. It is

often arguable to decide which party is responsible. Although participants have

a reasonable assumption of risk, customer relationship may deteriorate

occasionally when nobody admits the fault.

2. Difficult to plan and implement corporate promotional programs to satisfy

the needs of different schools situated across a wide area. Social environments

are sharply differentiated between provinces and nations. No single

advertisement can fulfil the needs in all franchisees.

3. CKI lacks an integrated information management system to consolidate

internal and external information for long-term corporate development.

The Seattle school is unaware of the student profiles in Ontario Province, nor it

is informed about the social and martial-arts trends in Eastern Canada. This may

impair overall co-ordination and information sharing in the long-run. As

explained:

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‘An information system uses the resources of people, hardware and software, to

perform input, processing, output, storage, and control activities that convert

data into information products. We are living in a global information society

which is increasingly dependent on the creation, management and distribution

of information resources. Agricultural workers are rapidly replaced by

knowledge workers. Information system plays a major role in supporting the

strategic objectives of an organisation. It can help a firm to (1) improve

operational efficiency; (2) promote organisational innovation, and (3) build

strategic IT resources.’ (O’Brien. 1993)

1.2 MACRO-ENVIRONMENT

Political

Hong Kong (HK) became a British colony in 1842, and will return to Chinese control

in July 1997. Although the Chinese communist government ascertained to maintain

HK’s present state of prosperity, a change of sovereignty makes its political outlook

uncertain. The 1997 transitional period is expected to have impact on HK’s legal

system and economic condition. CKI is in the recreational and athletic industry, and is

unlikely to be severely affected.

Social and Demographic

With over 6 million populations in under 400 square miles, HK has the highest

population density in the world. Over 98% of the population are native Chinese with

Cantonese and English as its official languages. The male and female population

proportion is roughly 51:49; while age bracket of 25-39 occupies the largest

percentage.

The total number of reported violent crimes increased from 15,775 cases in 1985 to

17,232 in 1994; with rape, indecent assault and child abuse rank as the top 3.

Similarly, the number of persons in criminal conviction grew from 492 to 2,727;

with sharp percentage increase on those under age 21.

The number of participants engaged in martial-arts-related activities, organised by

local government, expanded from 67,800 to 513,300 between 1985 and 1994; while

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the overall participants in recreational and athletic events, for the same period, rose

from 244,600 to 1,016,600. (HK Census and Statistics Department, 1995)

Economic

HK is a world financial and trading city. Under the British governance in the past 150

years, the territory has experienced remarkable economic growth. GDP per capita is

among the highest in East Asia. Private Consumption Expenditure increased annually

at 10% from 1985 to 1994; while expenditure on recreational activities rose at 9%.

The Composite Consumer Price Index (inflation) escalated, on average, at 11.7% per

annum. (HK Census and Statistics Department, 1995)

See Appendix D for a comprehensive summary for Macro-Environment of HK.

Legal

Martial-art was quite popular in HK during the 60s, 70s and early 80s, when different

bodies can organise and establish independent training centres for recreational and

competitive purposes. But there had always been negative association between these

‘boxing clubs’ with the ‘Triads’, which means criminal organisations (‘Mafia’ in

western term).

In 1985, the Government executed a policy to prohibit the operations of all illegal

‘boxing clubs’, to minimise triads’ exposure to the public. Since then, all martial-arts

related organisations must pass through rigid examinations by the Government, whom

would not give permission even with the slightest connection with triads. This policy

has almost made the entire martial-arts training industry extinct from the territory.

Today, one can hardly find a proper martial-arts institution that is similar to CKI in

Canada.

1.3 MARKET

As of December 1994, the population of HK is 6,061,400, in which 21% falls between

ages 30 to 39. The population is expected to grow at an average annual rate of 0.7% in

the next 10 years, reaching 6,132,800 and 6,365,500 in 1998 and 2002 respectively. A

prominent future trend is the continual ageing of the population. The median age is

projected to increase from 32 in 1991 to 37 in 2001. Also, population under age 15

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will fall by 5% by 2001. In contrast, the proportion of age 30 to 60 shall experience a

steady rise at 2% per annum. (HK Population Projections 1992-2011, HK Census and Statistics

Dept.)

1.4 PRODUCT and DISTRIBUTION

CKI has no information on product situation and distribution for the HK market

because it has no existing operations.

1.5 COMPETITION

As of 1996, there is no well-organised martial-arts institution in HK. There are,

however, a limited number of small schools located at different districts. These ‘clubs’

were visited and researched between 1994 and 1995. The general findings were:

They have no official office hours. Phones are often unanswered.

No company brochure, advertising leaflets, class schedules, or application form.

Instructors are not internationally recognised.

Teaching contents have little ‘mental’ and ‘spiritual’ elements.

Overall, they appeared to be disorganised, non-market-driven and non-customer-

oriented.

SUMMARY

Combat Karate International is the largest martial-arts organisation in Canada,

with sound structure, system, and strategy.

Hongkong is a densely populated territory with rising economic prosperity.

Sports-related participants swell dramatically while population increases at

0.7% per annum.

There is little, if any, well-organised martial-arts-related institution founded in

HK. It is because its traditional image of association with the Triad/Mafia

makes the Government to impose strict regulations on their operations.

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PART II. S.W.O.T. ANALYSIS and MARKETING ISSUES

2.1 S.W.O.T. ANALYSIS

‘An executive is operating on the basis of a sort of map. There are boundaries and

limits marking off the class of customers he is trying to reach, or, the trade

channels through which he is willing to sell. There are routes he can move in

attaining his objectives that are better than other routes. Strengths refer to the

competitive advantages and other distinctive competencies the company can exert

in the marketplace. Weaknesses are constraints that hinder movements in certain

directions. This framework provides a systematic scheme for an objective

appraisal of the performances and strategic moves of the marketing side of the

business.’ (Jain. 1990)

This S.W.O.T. analysis was conducted from the corporate management perspective.

Strengths

In depth knowledge and skills in martial-arts and fitness.

Corporate missions and objectives promote a total approach to long-term human

fitness.

Products are distinctly differentiated from pure physical workout.

Enjoy positive image of practising courtesy, respects, discipline and self-

confidence.

Present management is well organised; system, structure, style and strategy are

clear.

No indecorous person is ever allowed to become an instructor/student.

Weaknesses

Exposure to physical injury.

Difficult to maintain a personalised program when student number swells.

Lack an integrated information management system for overall corporate

administration.

May not possess complete local expertise in developing Asian markets.

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Difficult to plan, implement and co-ordinate corporate-wide promotional

programs.

Opportunities

Dominate the markets in countries where similar products are absent.

Expand to other fitness training (body-building, weight-loss centre).

Be the training consultant for law-enforcement or national security (army)

organisations.

Provide training and consultations to secondary schools and Universities.

Threats

Instructors/students abuse the fighting skills unethically.

Social perception of associating martial-arts with ‘Mafia’/‘triad’.

Public fear on getting hurt in training.

May get replaced by substitutes: eg. Tennis, dancing.

Expanding internationally too fast without proper long-term management

system.

Hostile provocation from local martial-arts schools.

2.2 PORTER’S 5 MODEL ANALYSIS

A Structural Analysis, or Porter’s 5 Model Analysis, is then followed:

‘Industry structure has a strong influence in determining the competitive rules of the

games and the strategies potentially available. Competition in an industry is rooted in

its underlying economic structure and goes well beyond the behaviours of current

competitors. The collective strengths of these 5 forces determine the ultimate profit

potential. The goal of competitive strategy is to find a position where the firm can best

defend itself against these competitive forces, or, can influence them in its favour.’

(Porter. 1980)

Rivalry Among Direct Competitors

The threat from direct industry competitor is weak because no direct competition can

be founded.

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Threat of New Entrants

The threat of new entrant is also weak because experience in teaching martial-arts

cannot be imitated easily. School reputation needs years to build up. World class

martial-artists must exist in top management: such characters have to be earned, and

can hardly be faked.

Threat of Substitutes

The threat of substitutes is high. ‘Identifying substitute products is a matter of

searching for other products that can perform the same function. Substitute products

that deserve the most attention are those (1) subject to trends improving their price-

performance tradeoff, or (2) produced by industry earning high profits.’ (Porter 1980)

It would be foolish to assume that business will rise if CKI becomes the sole supplier

of martial-arts training in HK. Consumers view martial-arts as one of the individual

sports available in the marketplace. CKI is in the recreational and athletic industry,

not ‘martial-arts’ industry. Consumers will consider CKI among all other individual

sports activities that can provide similar results.

In sum, many sports can be substitute products and are, therefore, potential

competitors. Among them, Tennis, squash, swimming and badminton are undoubtedly

close substitutes. These individual games may also provide much ‘mental benefits’,

such as self-confidence, determination and discipline, to the players.

Bargaining Power of Buyers

The bargaining power of customers is high. Simply put, in the minds of customers,

there are a wide range of substitute products to replace martial-arts training. Many

private clubs offer body-building, swimming, dancing and other ball-games facilities

at considerably low prices.

Bargaining Power of Suppliers

Lastly, the bargaining power of suppliers is low. CKI’s suppliers include training

equipments manufacturer, Public Accountants, facility maintenance workers, etc. CKI

is the client of these bodies and not satisfying CKI’s needs means no more business.

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Based on the Porter’s 5 Model Analysis, it becomes obvious that for CKI to gain a

competitive edge in the HK marketplace, it must make special efforts to differentiate

itself from its substitutes, so that the threat of substitutes and the bargaining

power of customers are reduced.

2.3 MARKET RESEARCH

No formal market research has been done with regard to CKI’s operations in HK.

However, an informal and simple questionnaire was designed and employed by the

author, to test the general perception of martial-arts training in the territory, between

1994 and 1995. The complete questionnaire is shown in Appendix E. Sample size was

approximately 60, with various demographic, social and ethnic backgrounds. The

overall results were summarised as follow:

Many will participate for fitness and self-defence; less than 5% will practice it for

competition.

About 50% rejects it because ‘the possibility of injury is high compare to other

sports’.

Over 60% concerns with the association with the triads. But if it ‘can be proven

the school is “clean”, acceptance level will rise sharply’.

Households with higher income level, surprisingly, are more willing to allow kids

to participate, as long as ‘the training has a positive influence on attitudes and

behaviours’.

85% interviewees strongly believes that the physical and mental benefits resulted

from fighting skills training is far superior than from Tennis, swimming, dancing,

or the like.

The 4 primary factors in the buying decision process are 1) Instructor’s

knowledge, 2) attention to details in teaching quality, 3) personalised programme

for individual needs, and 4) on-site cleanness.

Secondary factors include 1) location, 2) prices, and 3) school reputation.

Inevitably, this is only an informal research with very small sample size that cannot be

treated as representative of the entire market. Nevertheless, the above findings provide

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some important clues for formulating the marketing strategies at this point. Formal

marketing researches are required at later stage (Part IV).

2.4 CRITICAL MARKETING ISSUES

Based on the previous analysis, CKI faces 3 critical marketing issues:

1. What would be the primary and secondary market targets?

2. What company image should it generate to totally eliminate the

connection with ‘triad’?

3. How can the product be delivered to differentiate itself from substitute

product?

SUMMARY

Major strengths/opportunities of CKI include comprehensive martial-arts

knowledge, well-positioned image and decent company culture. Its

weaknesses/threats are essentially injuries, absence of integrated information

management system, and difficult to co-ordinate corporate-wide promotional

programs.

All elements in the Porter’s Five Model have low influences except 2: threat of

substitutes and bargaining power of buyers -- because fighting can be replaced

by other individual sports.

An informal market research indicated that: the general public accept the idea of

martial-arts training when proper image and safety precautions are in place.

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PART III. MARKETING STRATEGIES

3.1 OBJECTIVES

Financial Objectives

Achieve an annual sales growth rate of 8% in first 2 years of operations; and not

less than 12% in the subsequent 3 years.

Produce an annual profit increase of 11% in a 5-year time span.

Marketing Objectives

Become the long-term dominate market leader in the martial-arts industry.

Take 25% of market share by the end of a 3-year operation.

Expand market share at an annual rate of 7% from the forth year.

Generate the best possible prestigious and healthy image across the region.

3.2 MARKET SEGMENTATION

‘Markets consist of buyers that differ in wants, purchasing power, locations, attitudes

and practices. Market segments are large identifiable groups seeking different needs.

A niche is a more narrowly defined group demanding a special combination of

benefits.’ (Kotler 1994)

HK is a densely populated territory and no geographic segmentation is needed.

However, demographic, psychographic and behavioural segmentation are applicable

here. They are more conveniently presented in tabular format in Appendix F (shaded

boxes are the target markets). In sum, focuses are on 1) higher income levels and

education standards, 2) higher social class with athletic and ambitious personality, 3)

those who seek physical and mental benefits enthusiastically.

3.3 MARKET TARGETS

3 major market targets are identified from the preceding analysis. Then, other niche

markets, although might not be as big as the first 3 in size, can also be attacked as

they are currently not being adequately served.

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Primary Target

Age 15 to 24, male and female, teenagers and young adults, with household

income mid-high or above, intelligent and successful students. Sporty in nature,

face life challenges positively. Their parents do not want them to engage in indecent

hobbies and therefore are willing to pay for healthy recreational activities at a

premium price.

Secondary Target

Male 25 to 40, with high personal income, College graduates working at

supervisory level or above. Heavily focus on entrepreneurs. They may already be

doing other exercises regularly to improve fitness level on long-term basis. They

understand physical strength can transform into mental force, and appreciate good

teaching quality. Ambitious, forward-looking and optimistic in character.

Tertiary Market

Male and female, age 25 to 50, engaging in law-enforcement-related bodies, that

are required to be physically fit regularly. Eg. Police force, firemen, security

guards. They are probably required to be in peak physical and emotional conditions at

all times by their job nature, and regard doing rigorous physical exercises as part of

their daily routines.

Niche Markets

3 additional niche markets will be attacked:

I. Kids 6 to 14, from wealthy families, with successful school grades. They

may not appreciate the philosophical meaning of practising martial-arts, but are

active in schools and at home, have strong passion to participate in all sports.

Their parents probably understand the significance of self-respect, self-

confidence and discipline, and want their kids to develop such skills from an

early age.

II. Professional and amateur athletes, age 21 to 35, male and female,

frequently involved in athletic contests. Including players in soccer,

basketball, swimming, track and field, ball-games and body-building. They are

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people ‘born-to-be-fit’, carry out intensive physical exercise daily as a

pleasurable habit. May not have very high income but are willing to spend the

dollar on quality instructions.

III. Male and female, age 15 to 50, engage in the show-business. Specifically,

TV and movie celebrities that are action-oriented. HK has a prosperous

entertainment industry. Action pictures, inevitably, are the most popular type of

all. To be competitive in the show business, many actors and actresses are

required to do fighting sequences elegantly. They make astronomical amount

of money and are willing to pay for high quality martial-arts training, which is

beneficial for health, career development and self-defence purposes.

3.4 MARKET POSITIONING

‘Differentiation is the act of designing a set of meaningful differences to distinguish

the company offer from competitors’ offers. Positioning is the act of designing the

company’s offer and image so that it occupies a distinct and valued place in the target

customers’ mind.’ (Kotler 1994) In line with these principles, CKI shall project the

following image:

CKI is a high-quality, high-standard martial-arts institution that only admits

students with righteous, decent and ethical attitudes. CKI pays heavy focus

toward self-discovery, self-mastery and self-improvement. All CKI instructors

are committed to bringing the very best potential out of every student, so that they

can achieve a balance in school, jobs and exercise. Nobody with a questionable

attitude and behaviour are allowed to be part of CKI: all members are

respectable, decent and probably well-educated.

A Karate master once put:

‘The goal of martial-arts is not for destruction of an opponent, but to be used as a tool

for self-growth and self-perfection. The training should be a practice of love - the love

of the preservation of your life, your body, your family and friends.’ (Inosanto 1982)

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3.5 MARKETING-MIX

PRODUCTS

Contrary to the North American market, the HK marketplace does not have much

public martial-arts competition. Thus, the product scope will pay heavy focus on the

recreational side. The main products are:

Recreationally-competitive, light-contact martial-arts skills for teenagers and

adults.

Basic, non-competitive martial-arts forms and techniques for kids age 5-15.

Comprehensive self-defence techniques for women, law-enforcement workers,

etc.

PRICE

The pricing strategy will be higher than current market rate. A recommended price list

is shown on TABLE 1 (next page). They are set in HK dollars in accordance with HK

living standard, irrespective of the Canadian economy.

COMPETITIVE ADVANTAGE

CKI will differentiate itself from the competitors and substitute products by satisfying

various needs. Maslow Hierarchy of Needs Theory applies here: the self-defence

class fill the Safety Needs – security and protection from physical harm. Teenagers,

young adults and executives receive achievement, status and recognition to fulfil their

Esteem Needs. Self-Actualisation Needs are relevant to athletes and movie stars –

growth, releasing potential and self-fulfilment. (Robbins 1994)

Instructors shall pay careful attention to individual development, provide praise,

appraisal and encouragement to students. Practices in speed, power, timing and

accuracy are then transformed into mental forces. Individual goals are set to generate

a directive effect to breed effort and persistence. (Casio 1995) Thus a stronger and more

courageous character results. This, then, forms a concrete competitive advantage over

other similar products.

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TABLE 1. RECOMMENDED PRICE-LIST FOR CKI HK OPERATIONS

Package Price Package Price

Class Type Training Content Targets 3-Month 6-Month

Regular Light-contact, Sporty teenagers $1,800 $3,400

recreationally- and young adults competitive with wealthy backgrounds Managers and professionals with high income

Occupational For law-enforcement Law-enforcement $2,500 $4,600 institutional needs professionals Athletes

Junior Non-contact, Kids, 6-14. $1,450 $2,600 non-competitive Managers Sporty teenagers and young adults

Practical Practical self- Athletes $2,500 $4,600 defence skills Law-enforcement professionals TV and movie celebrities

Price Per

Hour

Mini-group In small group of not Athletes $600

more than 4, on any of the above class type Law-enforcement professionals TV and movie celebrities

Private One-to-one, on any Same as 'mini- $800 of the above class type group'

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PLACE

CKI shall establish a fixed training centre, with fixed class schedule. A recommended

weekly timetable has designed and shown in Appendix G. Having an office, private

gym and facility, yield confidence to the public that CKI is committed to the HK

market for the long-term.

To be consistent with the corporate image, the location must avoid industrial areas,

preferably at semi-commercial or semi-residential district. The entire office must be

no less than 1,700 square feet – with showers, lockers, carpets and wall-to-wall

mirrors.

PROMOTION-MIX

Promotion-Mix Expenditure

The projected annual revenue for HK operations is HK$ 1,728,000. 14% of sales, or

HK$ 240,000, shall be spent on promotion expenditures. The allocations are:

Advertising 60% HK$ 144,000

Public Relations 20% HK$ 48,000

Personal Selling 0% HK$ 0

Sales Promotions 10% HK$ 24,000

Direct Marketing 10% HK$ 24,000

ADVERTISING

The marketing objectives previously mentioned are now translated into advertising

objectives:

Generate the desired corporate image in the marketplace.

Create awareness and proper perception on martial-arts training.

Attract potential customers to visit the premise.

CKI shall not engage in expensive advertising media, such as TV, in the first 12

months of operations. It would be unwise to invest heavily without understanding

consumer’s tastes and opinions thoroughly. Nevertheless, adopting the advertising

copy and layout of the North American operations, a simple ad can be placed on

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selected periodicals and newspapers. These will create attention, cover large number

of target market, while keeping cost down. The major steps in building an effective

Advertising Plan (Ishak 1992) are:

1. Identify profiles of market targets.

2. Collect media information, ie. ratings, readership profiles, costs per thousand on

selected target group, and nature of media.

3. Analyse the strengths and weaknesses of each potential media.

4. Match the media information with the target market.

5. Select the most appropriate and cost-effective media-mix to gain maximum

efficiency.

6. Set evaluating procedures to measure the results.

PUBLIC RELATIONS

Public relations programmes are the most critical factor in the promotional-mix. They

determine whether CKI can distance itself from being associated with the triads. In

the recreational and fitness industry, word-of-mouth reputation is 10 times more

effective than a glamorous advertising copy. CKI’s P/R strategy shall cover 4 areas:

1. Through arrangement with the Board of Education, conduct demonstrations

and provide special-day training to local schools (Primary, Secondary and Post-

Secondary). This specifically target to those at age 10 to 24. An effective way to

get audience involvement is to ask them to participate in the demonstration. These

programmes highly accelerate image building.

2. Provide free training to crime victims, such as those suffered from child abuse

and assault. There are a few social welfare organisations that specialise in mental

rehabilitation. Arrangements can be made to help these victims to regain

confidence in life: ‘to become the best person possible’: supporting the business

philosophy.

3. Offer free classes to high-ranking personnel in Police Force. At corporate level,

CKI can invite these professionals to workout for a short period to appreciate the

practicality of self-defence techniques. Such action shall totally erase the possible

23

association with criminal organisation. Plus, the candidates will spread around the

services in the law-enforcement community.

4. Participate in selective charitable activities and volunteer works. The important

aspect of this area is that not only the instructor(s) will participate, but the students

are asked to get involved too. Teaching kids and teenagers to serve the community

is part of the corporate culture.

All these align with the concept:

‘A public is any group that has an actual or potential interest or impact on a

company’s ability to achieve its objectives. The wise company takes concrete steps to

manage successful relations with its key publics, to distribute information and

communication, in building goodwill.’ (Kotler 1994)

SALES PROMOTIONS

CKI shall also be prepared to offer special discounts to different bodies and the public.

An excellent example is to make group-offer to local television stations and movie

production companies: to attract actors and actresses who are involved in action-

oriented shows.

PERSONAL SELLING

Personal selling will mainly be done internally at CKI office/gym by instructors. As

stated earlier, all instructors shall receive strict physical and mental training by the

corporate management team before school opening. Thus, they are well prepared and

aware in this area. No expenditure and new activity are needed.

DIRECT MARKETING

This area is considerably less important because such programmes cannot let the

consumers to see and feel the products/services. Basically, direct marketing/direct

mail serves as a supportive function to those promotional programmes mentioned

above.

24

SUMMARY

Objectives:

Strive for an annual sales growth rate of 8%, with profit increase at 11%.

Take 25% market share in 3 years.

Dominate the martial-arts industry.

Generate a prestigious, healthy and high quality image.

Market Targets:

Male and female teenagers and young adults. Sporty, wealthy background.

Male executives, college graduates. Ambitious, forward-looking, optimistic.

Law-enforcement personnel.

Niche Markets:

Kids, with wealthy background, active and sporty.

Professional and amateur athletes.

Celebrities from show-businesses.

Types of training offered in HK: 1) recreationally-competitive, light-contact, 2)

non-competitive, 3) self-defence techniques.

Spend HK$ 144,000 on periodicals and newspaper advertising. Conduct aggressive

public relations programmes with schools, Police Force, and charitable bodies.

25

PART IV. IMPLEMENTATION and CONTROL

4.1 ACTION PROGRAMS

This topic essentially deals with who, when, where and how the strategic plans can be

transformed into activities in achieving the marketing objectives. TABLE 2 on next

page indicates the core action programs that would take place in the first 18 months of

operations. Note that all activities shall be conducted by the instructor and an assistant.

Inevitably, the schedule is subjected to changes when special incidents arise. The

management must maintain high flexibility in response to social changes.

4.2 PROJECTED PROFIT and LOSS STATEMENT

With reference to the recommended Timetable and Price List stated before, if

maximum capacity is in place, the annual sales of one school works out to be HK$

1,728,000. However, for brand new operations in HK, full capacity is unrealistic.

Hence, discounting 25 to 30% is necessary. Thus, the conservative projected revenue

for year one is $ 1,210,000.

On the other hand, various expenses must be considered. Fixed costs, expenses

incurred regardless of output level, include 1) rent, 2) salaries, and 3) equipments and

materials. Conversely, variable costs consist of 1) light and power, and 2) promotional

expenditures.

In short, the projected Profit and Loss Statement for first year’s operations is revealed

on TABLE 3.

26

TABLE 2. ACTION PROGRAMS FOR FRIST 18 MONTHS OF OPERATIONS

Dates Actions/Programmes Duration Costs

96/6 School demonstrations at HK Island western district. 5 weeks $6,800

7 Joint promotion with Royal HK Police-western HK Island. 2 weeks $0

8 School demonstrations at HK Island central district. 5 weeks $6,800

9 Joint promotion with Royal HK Police-central and eastern HK Island. 3 weeks $0

10 School demonstrations at HK Island eastern district. 5 weeks $6,800

Demonstrations at Television Broadcast Ltd.-English and Chinese channels.

1 week $10,000

11 Joint promotion with Royal HK Police-western Kowloon. 2 weeks $0

Participate in the Annual Urban Council Fund-Raising Festival. 1 week $0

12 School demonstrations at Kowloon western district. 5 weeks $68,000

Demonstrations at Asia Television Ltd.-English and Chinese channels. 1 week $10,000

97/1 Joint promotion with Royal HK Police-central and eastern Kowloon. 3 weeks $0

2 School demonstrations at Kowloon central district. 5 weeks $6,800

Sales promotion in HK Annual Marathon Championship. 1 week $10,000

3 Joint promotion with Royal HK Police-western New Territories. 2 weeks $0

Advertising campaign in periodicals and newspapers. 2 weeks $72,000

4 School demonstrations at Kowloon eastern district. 5 weeks $6,800

5 Joint promotion with Royal HK Police-central and eastern New Territories. 3 weeks $0

Advertising campaign in periodicals and newspapers. 2 weeks $72,000

6 School demonstrations at New Territories eastern district. 5 weeks $7,000

7 Joint promotion with HK Juvenile Rehabilitation Centre-HK Island. 3 weeks $0

Direct Mail campaign to foreign companies. 1 week $12,000

8 School demonstrations at New Territories central district. 5 weeks $7,000

Direct Mail campaign to local companies. 1 week $12,000

9 Joint promotion with HK Juvenile Rehabilitation Centre-Kowloon. 3 weeks $0

10 School demonstrations at New Territories eastern district. 5 weeks $7,000

11 Joint promotion with HK Juvenile Rehabilitation Centre-New Territories. 3 weeks $0

12 School demonstrations at outlying islands. 5 weeks $9,000

Total Costs : $330,000

27

TABLE 3. Projected Profit and Loss Statement for year 1 operations of CKI in HK

Revenue HK$

Student Fees $1,210,000 Merchandise Sales $6,000

Total Revenue $1,216,000

Expenditures

Rent $660,000

Salaries

Head Instructor $19,000 Assistant Instructor $14,000

Co-ordinator $7,000 Sub-total $40,000

Equipment and Materials $24,000

Light and Power $24,000

Promotional Expenditure

Advertising $144,000 Public Relations $48,000 Sales Promotion $24,000

Direct Mail $24,000 Sub-total $240,000

Miscellaneous $15,000

Total Expenditures $1,003,000

Net Profit $213,000

28

4.3 CONTROL and EVALUATIONS

3 control techniques are employed to ensure organisational success.

1) Evaluate the effectiveness of the abovementioned promotional programmes.

To do so, CKI must answer the question: ‘How many students are derived from

the promotional programs?’ This can be done by stating a question at the

student enrolment/application form, asking for the source of reference: ‘How

did you learn about CKI?’. Replies are then consolidated to determine areas for

improvements. If, for instance, the actual amount of law-enforcement workers

registered is substantially less than the projected number, then obviously it must

rethink the P/R programs.

2) Measure the satisfaction level and perception from both students’ and non-

students’ perspectives. Identifying direct and indirect customers and

understanding their expectations are keys to gaining a long-term competitive

advantage. (Detoro and Tenner 1992) Students who actually received martial-

arts instructions from CKI will have varying needs and expectations. ‘How do

they feel about the intensity of training? Are they learning what they want?’

Likewise, non-students are those parents, spouses, families and work partners

who have an interest on the student’s development. ‘How do they feel about

their closed-one learning how to fight? Do they see any emotional and physical

improvements on the practitioner?’ Hence, ‘checkpoints must be set along the

operating process’ to ensure public perceptions are consistent with the intended

corporate image. (Imai 1991) Thus, it is recommended that market researches

are done every semi-annually. Customers are randomly selected so that a

representative sample size is collected. The medium of interviews can be by

telephone during in first 12 months, and afterwards by focus group, which is

more expensive. CKI headquarters shall assign additional budget on these

researches.

3) Match the business performances with the projected figures, quarterly. Are

sales levels progressing as predicted? If not, reasons and corrective actions are

sought. There are broadly 2 causes: internal and external. When sales are lacked

due to internal factors, CKI must consider repositioning, reorganising or

29

restructuring, depending on the problem nature. If factors are external, ‘strategic

analysis and choices are identified to result a good fit between the company and

the environment’. (Hill and Jones 1992)

4.4 CONTINGENCY PLAN

Three possible adverse scenarios and appropriate solutions are identified.

1) Public perception of associating CKI with triads persists.

Solution: Obtain decent testimonials from Government bodies and individuals (Police

Chief, athletic champions). Include this message in all advertising and P/R

programmes. Add a new class type call Anti-Triads: emphasize training for self-

defence and crime prevention. Fully enforce student admission policy to prevent

admitting indecent individuals.

2) Competition from substitute products intensifies.

Solutions:

I. Offensive action. Increase teaching quality. Add health and general fitness

consultancy services to members. Request headquarters to add research and

development on martial-arts training methods and techniques. Relate physical

workout more frequently with mental exercise to constantly remind students that

CKI empowers both body and mind.

II. Defensive action. Arrange joint-promotions with other bodies, ie. merge with

similar athletic organisations. Let customers to receive maximum benefits. Eg.

Sign up as a CKI member and get 1 week free Tennis instructions from the HK

Tennis Association. Let the consumers to pick the best for themselves. Seek

collaboration, not competition. Avoid price-war.

3) Low sales level prolongs.

Solution: Conduct internal and external analysis to identify cause-effect relationship.

Isolate irrelevant factors. Adapt internal policy to fit the external environment as far

as possible.

30

SUMMARY

Action plan involves 1) demonstrations at all Primary, Secondary and Post-

Secondary schools, 2) joint promotions with Royal HK Police, 3) advertising

campaigns aiming at CKI’s market targets, 4) together with other supportive

activities.

The projected revenue is HK$ 1,216,000 for year one, while all expenditures are

forecast to $ 1,003,000 – resulting a profit of $ 213,000.

Evaluate the effectiveness of all promotional programs by identifying how much

revenue is derived from each of those programs. Measure market perceptions by

quantitative and qualitative market researches. Critically analyse the differences

between projected and actual performances, then make appropriate corrective

actions.

31

Appendix A

Combat Karate International, Inc. -- Organisational Chart

Corporate Management Team

Europe (To be developed)

Hong Kong

Open in 1996

Macau

Open in 1997

Japan

Open in 1997

Singapore

Open 1998

Corporate Management Team

Asia (To be developed)Corporate Management Team

North America

Ontario Province X 6 British Columbia Province X 4

Quebec Province X 4 Alberta Province X 3

Manitoba Province X 3 Seatle (Washington, US) X 1

Portland (Washington, US) X 1 Newfoundland Province X 1

North West Territories X 1 Yukon Territory X 1

Training & Development Manager

Operations Manager Accounting/Finance Manager Marketing Manager - Corporate Manager - Information System

Wally Slocki

Chairman

Combat Karate International, Inc.

32

Appendix B

Combat Karate International, Inc.

Mission Statement

Combat Karate International is a martial-arts institution that aims at

developing physical and mental strengths through self-esteem, fitness and

discipline, making every student the best possible person. To realise one’s

full potential, we strive to provide personalised programmes for different

needs. All students are taught to believe they can achieve more in life.

Our instructors must receive that highest quality in training and

development. Their efforts and contributions are recognised and rewarded

appropriately.

We are also responsible to the public. We will make every effort to ensure all

instructors and students do not damage public order. We shall provide free

consultations and classes to charitable and law-enforcement organisations –

to assist those who need these techniques in this unpredictable and unsafe

world.

33

Appendix CCombat Karate International, Inc. Toronto, Canada. Graphical Expression of Revenue, Operating Profit and no. of franchises.

Years 1987 1988 1989 1990 1991 1992 1993 1994 1995

Revenue $330,000 $561,000 $987,000 $1,240,000 $1,700,000 $2,300,000 $2,530,000 $2,800,000 $2,940,000

Profits $89,000 $157,000 $276,000 $372,000 $527,000 $736,000 $835,000 $952,000 $1,000,000

No. of schools 3 5 9 11 15 20 22 25 25

Revenue & Profit Comparison

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

1987 1988 1989 1990 1991 1992 1993 1994 1995

Years

Am

ou

nts

in

Can

adia

n $

Revenue

Profits

34

Appendix D

Comprehensive Summary of Macro-environmental Information for Hong Kong.

1985 1988 1990 1991 1992 1993 1994

Participants in recreational sports (including martial arts) 104,200 161,600 188,300 200,000 208,100 250,600 593,300

Total violent crimes reported 15,775 15,340 18,820 19,560 18,570 17,450 17,230

Rape 80 97 111 114 116 103 100

Indecent Assault 801 922 1,078 1,101 1,099 1,030 1,066

Assault on Police 546 649 842 953 1,018 888 854

Child Abuse & Kidnapping 47 54 74 81 94 90 115

Total non-violent crimes reported (Eg. Burglary, theft) 71,100 63,850 69,480 69,100 65,490 65,110 70,570

Criminals arrested with age 7 to 20, ie. kids & teenagers 14,460 14,200 14,890 15,210 14,190 15,380 16,200

Total male in prisons, drug treatment & detention ctr., with age under 20 1,607 1,607 2,403 2,047 1,869 1,993 2,200

Total female in prisons, drug treatment & detention ctr., with age under 20 98 160 251 288 290 322 576

Total minor narcotic offences 9,248 5,604 2,822 3,672 6,815 7,201 8,664

Population with age 5 - 14 856,200 858,300 850,600 836,800 825,100 813,800 806,300

Population with age 15 - 24 1,052,000 950,700 896,100 882,900 871,300 872,700 879,200

Population with age 25 - 39 1,481,700 1,653,400 1,710,200 1,733,900 1,754,600 1,791,100 1,840,400

Salary Indices for Managers & professionals in all economic sectors (Jun 1983=100) 113 139 158 164 170 178 185

Value index of total retail sales (1989=100) 60 90 102 120 142 160 179

Rental indices for private offices (1989=100) 32 61 101 95 101 110 134

Composite Consumer Price Index (1989=100) 72 85 103 114 125 136 148

Expenditure-based Gross Domestic Product at constant (1990) market prices (in millions) $406,619 $549,302 $582,549 $612,016 $650,347 $692,167 $729,432

GDP Per Capita at constant market prices $74,524 $97,609 $102,121 $106,349 $111,907 $116,940 $120,341

35

Appendix E

Full version of Market Research Questionnaire conducted in 1994 and 1995

Have you ever learned martial arts before?

If yes, where and what type?

If no, why not?

Would you consider taking martial art lessons?

If yes, what would be your purpose?

If no, why do you reject it?

Have you ever been to any martial arts schools in Hong Kong?

If yes, when and which one?

Do you know any people that practise martial arts, recreationally or

competitively?

If yes, who are they and how do they behave?

What do you think practising martial arts can give you?

Under what circumstances would you consider learning martial arts?

Do you feel anything negative about learning how to fight?

Would you let your children (if applicable) to participate in it as a sport?

If yes, why?

If no, why not?

What are your factors for choosing a martial arts school for yourself / your

children?

Note:

I. The questionnaire may be conducted intermittently with other topics.

II. When necessary, the subject was discarded if interviewee(s) showed disinterest.

III. The questionnaire was done casually for purpose of information-gathering; not

as a formal market research.

36

Appendix F

Market Segmentation: Variables and Breakdowns. Shaded Boxes = Market Targets

Variables Types of Breakdowns

Demographics

Age 5-15 16-24 25-40 40-60 Over 60

Gender Male Female

Personal Income None Low Middle Mid-High High

Household Income Low Middle Middle-high High

Occupation Primary students Secondary students

College students Operational workers Supervisory

Managers Executives Professional

Entrepreneurs * Unable to provide employment proof

Education Primary level Secondary level

College/University Postgraduate Never attend

Race/Nationality Chinese Non-Chinese

Psychographics

Social Class Lower class Upper-middle class Middle class

Lower uppers Uppers uppers

Immigration status Local citizens Tourists Expatriates

Family background Decent Normal Indecent

Lifestyle Very athletic Sporty Normal Lazy

Personality Ambitious Energetic Forward-looking Optimistic

Pessimistic Dependent Passive

Behavioural

Attitude Enthusiastic Positive Neutral

Negative Hostile

Occasions Physical fitness regularly needed

Physical fitness occasionally needed

Physical fitness rarely needed

Benefits being seek Purely physical Largely mental

Physical and mental together

Note: * 'Unable to provide employment proof' refers to those triads' members.

37

Appendix G

Combat Karate International, Inc.

Recommended Weekly Time Table : Hong Kong Operations

Hours Mon. Tues. Wed. Thurs. Fri. Sat. Sun.

10:00 AM J M J M J T

11:00 AM J V J V J O M

12 NOON R O R O R M V

1:00 PM Lunch Break Lunch Break Lunch Break Lunch Break Lunch Break Lunch Break Lunch Break

2:00 PM R O R O V R M

3:00 PM T J T J R R V

4:00 PM T R T R M V V

5:15 PM R J R J T O T

6:30 PM M R M R O J O

7:45 PM R R R R R J T

9:00 PM V O V O R R

Abbreviations:

Regular (R)

Occupational (O)

Junior (J)

Practical (T)

Mini-Group (M)

Private (V)

38

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