Marketing Strategy Of Mcdonald's Corporation

McDonald's Corporation is in the fast food industry and

operates more than 24,000 restaurants in 111 countries worldwide. In the United States, it has 12,450 US outlets, most of them in stand-alone locations that generate a 42% share of the nation's fast-food hamburger business. Corporate communications states that a new McDonald's restaurant opens every 8 hours (McDonald's 1999).

Marketing Strategy

Although traditionally quiet about its marketing strategy, the British web site, Biz Ed managed to get the company to address several critical issues. One of the issues concerned their marketing strategy. After stating that the first step in developing a marketing strategy is understanding the customers, enabling reaction to their changing needs and the changing dynamics of the market.

To this end the company conducts "several stages of in-depth customer research and audits of the McDonald's brand. The research involving both quantitative and qualitative research methods. This research tells us a lot about how McDonald's is perceived and about trends that are taking place in the market" (Biz Ed Online, 1999).

The company also conducts research into the local areas of the restaurants, into the general market environment, and into specific areas of our business, "children for example. We also have to have a thorough understanding of our competition" (Biz Ed Online, 1999).

The company considers its competition to be in three broad and basic areas:

* Total Eating Out Market that include all restaurants, hotels, pubs, and any other outlet where people eat.

* Quick Service Restaurant that includes all the obvious competition and also fish and chip shops, and sandwich shops - any outlet where food is served quickly

* Burger House Sector that comprises restaurants serving hamburgers including Burger King, Wimpy, Wendy's and all independent burger bars.

McDonald's studies its competition thoroughly, and does all of its research in the four Ps of the marketing mix: Price, Promotion, Place, Product.

According to the spokesman, the company sees the 4 Ps in this fashion. "Competitive Pricing [keeps us] in touch with the pricing of our competitors and allows us to price our products correctly, balancing quality with value.... Competitive Promotion [is vital because] before we communicate with our customers we must be aware of what our competitors are communicating so that we can create a beneficial difference between us and them" (Biz Ed Online, 1999..

The Product Line

McDonald's prepares and sells several fast food items in the form of sandwiches made from beef, chicken, fish, eggs and sausage; French fries; salads; soft drinks and shakes; and desserts.

The beef sandwiches, which are all typically marked up 350 percent are: basic hamburger (1/8 lb. beef, catsup, pickle); cheeseburger (same as basic but with cheese added); Quarter Pounder (basic but with 1/4 pound of beef); Big Mac (2 beef patties, two buns, cheese, lettuce, tomato, pickle and sauce.

In America, McDonald's has approximately 42 percent of the fast food market. Its' major competitors are shown in Table 1 below.

Table 1: McDonald's and its Competition

Company Market Share (1998) Market Share (1997) # Stores # Countries

McDonald's 42 44 24,000 111

Tricon* 29 24 29,200 100

Burger King 20 18 10,000 55

Wendy's 13 12 5,200 17

(Source: Hoover's Business Reports)

* TRICON Global Restaurants is KFC, Pizza Hut, and Taco Bell and is a former PepsiCo subsidiary.

Major Products

The company's American stores sell a concentrated line of foodstuffs, each of which operates with a different cost ratio.

The table below shows the percentage of gross revenues each product adds to the bottom line, and the typical markup and margin.(NB: This is based on one chain of 65 McDonald's and should not be considered typical for the entire chain.)

Item % Gross Markup Margin

Arch Deluxe 1.7 31 10

Big Mac 4 42 20

Biscuit sandwiches 9 39 22

Chicken McNuggets 4 62 31

Egg McMuffin 11 61 31

Fish Filet Deluxe 4 70 29

French fries 18 120 51

Happy Meals (for children) 19 130 30

Hotcakes and sausage 2 60 20

Milk shakes 6 90 35

Quarter Pounder 3 80 35

Sausage McMuffin with Egg 2 90 35

Soft drinks and other beverages 18 500 235

(NB: Percentage of gross exceeds 100 percent because some items are part of combo packages, Source: 1998 Annual Report)

Competitive Priorities

There are three main competitive priorities that have been identified for McDonald's based on research gathered for this report.

The three are:

* Stop diminishing market share

* Improve menus to be more competitive

* Improve customer focus

The urgent need for this competitive focus was pointed out in an article examining overcrowding in the Franchise Industry.

That article suggested that although McDonald's is still the "king-of-the hill for fast food chains...the golden arches have been tarnished by competition - enough to prod the burger giant into price-cutting" (Halverson, 1997, 8)

The corporate headquarters, both in America and world wide, is responsible to