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In the year 1937, two brothers named Richaard and Murice in California started the operation of McDonald's as a drive in retaurant (Scribd, 2009). At present, McDonlads is serving fifty four million people each day among one hundred and twenty countries trhough its thiry thousands local restaurants. According to The Times 100 (2009), during the year 2008 McDonalds operated 31,667 restaurants over 120 countries which can be divided into sex segments. Those are: United States, United Kingdom, Asia Pacific, Africa, Canada, Middle East and Latin America. At Present, McDonalds is the number eight famous brand around the world (Datamonitor, 2009).
Resturant and franchisee resturants operated under the direct and indircet supervision of McDonalds company are the main source of McDonalds' revenue. (Scribd, 2009). Around eight thousands resturants of McDonalds are monitored by the company itself, franchisees operate around eighteen resturants of McDonalds (Abdullah, 2009). Apart from that, all other McDonalds resturants are being operated just by using McDonalds affiliation. The revenue of McDonalds are generated from mainly two sources: 1) from the sale of McDonalds directly controlled restaurants and 2) rent and fees from affiliates and franchisees of McDonalds.
The mission of McDonalds is "be our customers' favorite place and way to eat" (McDonalds, 2009). The vision of McDonalds is to create a net benefit for the employees of McDoanlds, for the community of McDoanlds as well as for the biodiversity and the environmnet. McDoanlds is fulfilling their vision by by maintaining a supply system that yields high quality as well as high profits (McDoanlds, 2009)
2. McDONALDS: MACRO ENVIRONMENT
According to Business Dictionary (2009), Organization's decision making and performance and strategies are sometimes affected by some external factors. Those factors are the elements of macro environment. According to Blythe (1998), Armstrong, Saunders & Wong (1996) and Hollensen (2007), macro environmental factors could include several factors like political, technological, natural, economical, regional, religious, social, natural forces.
The most common methods used for macro economic environment analysis is PEST analysis. PEST anlayis do the environmental analysis from the following points of view:
Source: Marketing Model, 2009.
2. A. Political factors
Political factor mainly refers to government policy. For example, the degree of government's intervention in an economy is a good example of political factor.
According to Oxford University Press (2009) political factors mainly deals with the following issues:
Good and Services for which Govt would give business permission.
The extend at which Government would subsidising firms.
Government's priority in terms of business support.
McDonalds are operating their business around 120 countries. Each of the country has its own government policies regarding business operation. McDonald's operations are always influence and affected by the state policies of each of the country (Abdullah, 2009).
Recently the regulation on business especially on food business has been increased all over the world. Apart from that, the introduction of GST in European country may affect the business of McDonalds (Scribd, 2009). In order to get rid from this problem, McDonalds should give more priority on their service. McDonalds need to differentiate themselves to reduce the effect of this political issue (Scribd, 2009).
The ethical concept among people varies from country to country which has a direct impact on political and legal environment. For example, the issue of Halal and Haram is common among the Muslim people and to the Muslim oriented countries like Middle East (Abdullah, 2009). McDonalds need to change their supply chain and distributor in order to cope with this.
2. B. Economical Factors
Interest rate, tax rate, economic growth, exchange rate, those are the factors related to economic environment. (Hollensen, 2007).
As the McDonalds primary target market is upper and middle upper class that are less sensitive to price while the target market may respond to the price (Scribd, 2009).
Reduction is the sales volume of McDonalds can be a good example of depression in the European Market.
Yoke (2008) recommended that McDonalds would be able to get rid from recent economic depression by taking some initiative. Those initiatives include proper monitoring of interest and unemployment rate, developing good relations with consumers. Yoke (2008) also concluded that McDonalds can use the current economic forces in order to estimate the future sales rates. Because it would help McDonalds to plan for their internal strength, for example planning about employee numbers.
As McDonald is dependent of truck for moving their raw materials from the warehouses to the outlets and offering of the Mc delivery service, the cost of fuel is also important factor for McDonald's business. Fuel price fluctuation and fuel crisis in near future need to be considered in the strategic marketing planning of McDonalds.
Bryson (2008) reports that the financial crisis of 2008 has affected the plans of McDonald's Corp. to introduce coffee bars in its 14,000 restaurants in April, 2009. The company is unable to obtain financing for the construction from its bank, Bank of America. The problem may delay the introduction of the coffee bars until the summer of 2009 at the earliest. Although the McDonalds stock price has held up relatively well amid a global recession, company officials are preparing for a more difficult economic climate (Janet, 2009)
2. C. Social factors
Social environment deals with the issues like cultural aspect, health and safety issues, trend or population growth and their age distribution, people's view about their career.
(The Decision Group, 2009). When the market is interested in convenience, they are more likely to buy fast food; if the market's secondary values suddenly shift and become interested in fitness and health, they will be less likely to buy fast food (Scribd, 2009).
McDonalds is subject to the lifestyle and demographics changes, because of it bases her advertising campaigns focusing on the lifestyle and demographics of the people with a special lifestyle (Abdullah, 2009).
In some countries (like Indian & Pakistan) fast food lovers are much defined, there is a kind of people who prefer other specialty cuisine healthy food restaurants. It is for that they have to pay attention to the social mobility for not losing a possible market.
McDonalds is Working within many social groups and its increasing employments. For example, in United Kingdom lots of international students are working with McDonalds. McDonald helps them to adjust their working time with their class time at university.
McDonalds is involving itself with several social activities. Recently McDonalds in UK has taken initiative to launch a program of Football Open Days which will take place in September 2009 in Great Britain. The program is designed to encourage children to engage and be interested in football sport (marketing, 2009).
2. D. Technological factors
Technological advances in recent years have been rapid and have affected almost all ares of life (CIPD, 2009). All of the companies are recently more concerned about technological changes as the rate of technological changes will continue to increase in near futuer (CIPD, 2009)
In order to keeping up with technology few years ago McDonald's installed EFTPOS machines in their stores, this additional service provided by McDonald's increases the value of the experience to the consumer (Datamonitor, 2009). Moreover McDonalds has installed latest and expensive technology, having long lives to keep up with the fast technology change (Business Teacher, 2009).
McDonalds spend much on research and development activities to improve its process in order to deliver better value to its customers (Scribd, 2009).
McDonalds maintains quality standards through assurance labs around the world. A quality assurance board, including the McDonald's technical, safety and supply chain specialists, provide guidance on all aspects of food quality and safety (Datamonitor, 2007).
2. E. Legal Factors
There are mainly two main areas of the law that must be considered by any business: environment law and consumer protection (The Times 100, 2009)
In last few years McDonalds is facing some legal issues, for example, illegal working hours to employees in some countries like United Kingdom (Scribd, 2009). They are allowing international students to works more then 20 hours though they are allowed work only for 20 hours. Apart from that¸ there are also complain against McDonalds for unsatisfactory safety condition, sewage flooding at kitchen and selling of food which were dropped on floor, which is like breaking health and safety rule (Scribd, 2009).
Growing health consciousness could reduce McDonald's revenues. In 2005, the operating income of UK operations was adversely affected by growing concern about the nutritional value of fast foods such as hamburgers. Of late, there have been strong protests by nutritional activists against fast food served in McDonald's (The Times 100, 2009). The complaints filed against McDonald's include claims for violation of state consumer fraud acts, unfair competition or deceptive trade practices acts, strict liability, failure to warn, negligence, breach of express and implied warranties, fraud and fraudulent concealment, negligent misrepresentation and concealment, unjust enrichment, and false advertising. If the claim goes against the McDonald's, it will have to pay unspecified compensatory and punitive damages (Datamonitor, 2009).
As a part of corporate social responsibility, McDonalds is consistently trying to increase the environmental awareness among their customer and supplier (McDonalds, 2009). This policy is helping them to improve their relations with the local community in all over the world (Scribd, 2009)
The company also faces charges relating to deceptive advertising, inadequate disclosure of ingredients and nutritional information. Growing health consciousness could force a slowdown in the revenue growth of McDonald's (Scribd, 2009).
2. F. Natural Factors
The following natural factors play a vital role in the decision of McDonalds:
2. F. I. Shortages of raw materials
Many resources that once may have seemed to have an infinite supply are now seen as precious and greater efforts are being made to find alternatives or cut down usage (Management Audit, 2007). McDonald's use recycled paper to wrap their hamburgers, therefore reducing the amount of forestland that is cut down (Management Audit, 2007).
2. F. II. Energy costs
As non renewable resources like oil and coal dwindle, prices of McDonalds products are likely to increase as things like transportation costs rise (Scribd, 2007). Some fast-food outlets may have to look for alternatives to how they cook their product; however, there should not be much effect on the service elements of the market (Scribd, 2007).
2. F. III. Increased pollution
Pollution has a major effect on how consumers view an organization. These days an 'environmentally aware' company is likely to be more popular than one that is not. Increased pollution has already had effects on the fast-food market (The Times 100, 2009). In 1991 McDonald's changed its packaging from polystyrene boxes to paper in response to consumer demands for a more 'environmentally friendly' packaging. This makes up an important part of the 'service' element of the fast-food market; consumers receive the peace of mind that the product they are eating has had minimal effect on the environment. Moreover, the location at which it opens its outlet, it takes the responsibility of taking care of the surrounding (The Times 100, 2009).
3. McDONALDS: MARKETING MIX
As mentioned by Kotler, Armstrong, Saunders & Wong (1996), marketing mix is the set of controllable tactical marketing tools that the firm blends to produce the response it wants in the target market. The marketing mix consists of everything the firm can do to influence the demand for its product. The many possibilities gather into four groups of variables known as the four P's: product, price, place and promotion (Hollensen, 2007).
Source: The Times 100, 2009.
3. A. Products
Product doesn't means only the good offered by the company to the customer, it also includes the services associated with the sell or distribution of that product (Wong, 1996).
"Offer quality food quickly to customer at a good value" is the core marketing strategy of McDonalds. It represent that McDonalds not only focus on the quality of the product, but also focus on the service of the product (Coffee, 2009).
The core and competitive items of McDonalds are Hamburger, Big Mac, Big N' Tasty, Filet-O-Fish, Chicken McNuggets, Cheeseburger, Quarter Ponder with Cheese, Mc Double, Chicken Selects Premium Breast Strips (McDonalds, 2009).
According to Coffee, N (2005), the perceived secret of McDonald's success is the willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich were all examples of how the company tried to appeal to a wider range of consumers.
McDonald's product includes vegetarian and non-vegetarian items. In some countries like Indian and Pakistan McDonalds do care for customer's sentiments towards religion and culture (Abdullah, 2009). But in some other countries like United Kingdom there is lacking of care on customer sentiment. For example, In United Kingdom, Subway, KFC already started some Halal shop for Muslim customers, but till now McDonalds didn't take any steps like that.
3. B. Price
Price is what customer pay to get the products (Saunders, 1996). Customers draw their own mental picture of what a product is worth. A product is more than a physical item; it also has psychological connotations for the customer (The Times 100, 2009).
McDonalds create theirs products by respecting and evaluating people's choice (McDonalds, 2009). For example, there is variety of people all over the world who prefers variety of products, some may prefer hamburgers, some may prefer some healthy foods, and again some people are vegetarian. McDonalds do have products for all type of customer (McDonalds, 2009).
McDonald's has a unique pricing strategy that falls solely on their many product lines. Their Value Meals fall into the category of Product Line Pricing (Pappalardo, 2008). McDonald's set an appropriate price for their product by looking at its competitors in each country. McDonald's is attempting to localize marketing communications due to the realization that it couldn't possibly appeal to all countries at the same time (Coffee, 2007).
During the recession McDonalds started ‘Dollar Menu' in USA. The Dollar Menu was created because McDonald's recognized that the economy was in a decline and that their competition was getting fiercer. The Dollar Menu satisfies the current decreasing economy and has increased the pressure towards competitors. The introduction to the Dollar Menu is by far the most economical product line that McDonald has ever offered (Pappalardo, 2008)
3. C. Place
Place in the marketing mix, is not just about the physical location or distribution points for products. It encompasses the management of a range of processes involved in bringing products to the end consumer (The Times 100, 2009).
McDonald's focuses on store placement and are always looking for the best locations. This strategy created some weakness in the last 10 years because it seemed that too many stores were put in some areas, cannibalizing sales from the other McDonald's (Armstrong, D., et. al., 2004 & Nelson, J., 2003.). The company has also made convenience a focus, not only through how fast it serves customers, but also in the location of its outlets. Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs. In addition, McDonald's is tucking restaurants into schools, stores, and more (Armstrong, D., et. al., 2004 & Nelson, J., 2003).
3. D. Promotion
The promotions aspect of the marketing mix covers all types of marketing communications. The promotion methods of McDonalds include advertising, sometimes known as ‘above the line' activity. Advertising of McDonalds is conducted on TV, radio, cinema, online, poster sites and in the press like newspapers, magazines (The Times 100, 2009). Other promotional methods of McDonalds include sales promotions, point of sale display, merchandising, direct mail, telemarketing, exhibitions, seminars, loyalty schemes, door drops, demonstrations, etc (The Times 100, 2009).
McDonald's, over the years, has also ran many promotions to increase traffic or product sales. For instance, the most recent roll out has been the 2004 Chicken Selects premium Breast Strips (Coffee, 2007). Many other promotions with food, toys, collectibles, videos, and other prizes have been used by McDonald's restaurants over the past 50-plus years. These promotions, some better than others, have helped to keep McDonald's growing and gaining in the fast food world.
Recently McDonalds is planning to remodel its stores using bold colours. The periodical described the new packaging of the company as crisp imagery and sharp marketing copy. It adds that the full-colour photographs of ingredients remind customers that it offers real food (Amy, 2009)
While promotion the image of McDonalds, the company mainly use newspapers and magazine. For example, in United Kingdom, they commonly use newspaper and magazine like London Lite, London Paper, Metro, The Sun, The City A M., etc (Coffee, 2007). In Asia, McDonald is trying to promote their product mainly on children in order to get optimum result from their advertising.
4. McDonalds: SWOT analysis
SWOT analysis created by Albert Humphrey in order to analyze a business institution or performance and future prospect of a product on the basis of Strength, Weaknesses, Opportunities and threats (Armstrong. 2006).
4. A. McDonalds: Strength
4. A. I. Global brand
McDonald's has a well-established global brand that appeals to all age groups and customer segments (Brennan, 2007). In 2008, McDonald's figured at the eighth place in the top 100 global brands ranking of Business Week magazine and Interbrand, a branding consultancy. It valued McDonald's brand at $31,049 million in 2008 (Datamonitor, 2009).
4. A. II. Strong operational capabilities
McDonald's has strong operational capabilities which allow it to provide high quality products and customer service across its restaurants (Abdullah, 2009).
4. A. III. Successful items
Some of its products such as Big Mac, and Chicken McNuggets and have become brands in their own right (Abdullah, 2009)
4. A. IV. Quality Products
McDonalds is the symbol of quality with respect to its offering (Scribd, 2009).
4. A. V. Diversified geographic presence
In FY2008, the company operated more than 31,900 fast food restaurants in over 100 countries in the following geographic segments: the US; Europe; Asia Pacific, Middle East and Africa (APMEA); Latin America; and Canada (Datamonitor, 2009).
4. B. McDonalds: Weaknesses
4. B. I. Weak revenue growth
McDonald's revenue growth was below the industry average during the five year period 2002-2006 (Scribd, 2009). Relatively low revenue growth suggests that the company was not able to expand customer traffic as fast as some of its competitors (Scribd, 2009).
4. B. II. Customer service problems
Some of the more frequent complaints regarding customer service at McDonalds included wrong item included in order, product missing, incorrectly prepared product, condiments missing, inadequate portion, short changed or overcharged, and missing napkins, straws or utensils. Delay in service is the third-largest cause of customer complaints (Scribd, 2009).
4. B. III. Lower revenue per employee
The company's net income per employee of $7,621 is also lower than the industry average of $8,299. Lower revenue per employee is indicative of over staffing or low productivity, which could adversely affect the company's margins (Scribd, 2009).
4. C. McDonalds: Opportunities
4. C. I. Growth of franchisee operated restaurants
In future, McDonald's is planning to significantly increase its count of franchisee operated restaurants (Datamonitor, 2009)
4. C.II. New restaurant openings
McDonald's will spend more than $2,000 million in FY2009 to open about 1,000 new restaurants and to reinvested in existing restaurants(Datamonitor, 2009). New restaurant openings would enable the company to strengthen its extensive geographic reach as well as boost its top line (Datamonitor, 2009).
4. C. III. Growing beverages market
At year-end FY2008, over 7,000 restaurants were offering the new specialty coffees, and it expects to complete the roll-out in FY2009 (Datamonitor, 2009). The expected growth in beverages category will offer the company opportunities for expanding its revenue base (Datamonitor, 2009).
4. C. IV. New products
McDonalds plans to launch new salads in the US and Europe; premium chicken in Europe and Latin America and rice burgers in various Asian markets. Introduction of customized products, which suit local preferences, would draw new customers in developing markets (Abdullah, 2009).
4. D. McDonalds: Threats
4. D. I. Intense competition
McDonald's restaurants face intense competition from international, national, regional and local retailers of food products (Scribd, 2009). The company's competition includes restaurants, quick service eating establishments, pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens and supermarkets, Burger King, KFC, PFC etc. (Abdullah, 2009).
4. D. II. Growing health consciousness
Growing health consciousness could reduce McDonald's revenues. In recent years, there have been strong protests by nutritional activists against fast food served in McDonald's (Datamonitor, 2009). The company also faces charges relating to deceptive advertising, inadequate disclosure of ingredients and nutritional information. Growing health consciousness could force a slowdown in the revenue growth of McDonald's (Datamonitor, 2009)
4. D. III. Spread of bird flu
Sporadic outbreak of diseases such as bird flu and mad cow disease exerts a downward pressure on the consumption of poultry products all over the world (Datamonitor, 2009).
4. D. IV. Global economic downturn
As a retailer dependent upon consumer discretionary spending, McDonald's may face an extremely challenging FY2010 (Scribd, 2009). All major western including the US, the UK, Germany, France, Italy, Spain, Japan and Australia are in the grip of recession and are forecast to remain so through 2010. Even the key emerging market economies are currently experiencing downturns, including China, Middle East and Brazil (Scribd, 2009).
McDonalds could improve their marketing by trying to aim more towards teen, as most of their advertising is aimed at little children, students or adult. The sale of McDonalds product could be increasing by introducing types of pricing that they have not yet used to attract their customers. Apart from that, McDonalds should also consider axing their least popular products such as ‘Filet-o-Fish' or some of the breakfast items. So far, McDonalds are fairly successful in the placement, price and promotion of their restaurants.
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