McDonald's Macroenvironment

h

McDonald's Microeconomic and Macrooeconomic Forecast

Economics 561

University of Phoenix

August 15, 2011

Determine the market structure in which the selected good or service

competes.

A market structure refers to the particular environment a firm operates in. There four types of market structures are perfect competition, oligopoly, monopoly, and monopsony. According from the text, oligopoly is "a market dominated by a few large producers of a homogeneous or differentiated product (McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009, Chapter 11). MacDonald's operates in the monopolistic market structure. Monopolistic competition "is characterized by (1) a relatively large number of sellers, (2) differentiated products (often promoted by heavy advertising), and (3) easy entry to, and exit from, the industry". (McConnell, Brue, & Flynn, 2009, page 223). Each firm has comparatively small percentage of the total market, collusion by a group of firms to restrict output is unlikely, and with numerous firms in an industry, there is no feeling of interdependence among them. In monopolistically competitive markets, firms are free to enter when profits exists. When this happens, the firm's market share will decline (the demand curve that the firm faces shift to the left), and the firm will earn zero economic prices.

Discuss the implications of the market structure on pricing.

Price symbolizes the value of a product and guarantees competition among marketers in an open market economy. There are five product pricing strategies that a firm can use: product line pricing, optional product pricing, captive product pricing, by product pricing, and finally product bundle pricing (Kotler, Brue, 2009). Most marketers/producers will use a mix of at least of two of the name five strategies above. They look for the mix that will maximize their profit since they have different degrees of competition. MacDonald's mixes the product line mix and product bundle pricing. Consumers are aggressively encouraged to buy more - to save more when they have BOGOF - buy one get and get one free. They also encourage their customers to buy a burger and get a drink free.

Most firms use price competition in cases in which the demand for a product is price elastic. The reason for this is the consumer is more responsive to changes in price. Firms are more likely to use non price competition in cases which the demand for a product is price inelastic. Though demand for the goods and services sold by these firms is typically very price elastic however, each firm is so small compared to the market that any changes in the price of its product may not have a significant impact. Instead these firms like Starbucks, Tim Hortons, Second Cup, Burger King, Wendy's and MacDonald's will use non price competition in an effort to differentiate them from the competition. They try to differentiate themselves in many ways by offering specials and advertising but not decreasing prices because price wars will lead them to going out of business.

Suggest non price strategies to preserve or enhance sales.

Non price strategies are used between companies who want to differentiate their products through non price means like style, quality, promotion, location, etc. Non price competition occurs were an abundant amount of competitors exists like in the fast food industry. They can build customer loyalty by establishing the uniqueness of products and obtaining patents. Non price competition is usually among companies that have same products like tobacco, alcohol (beer), fast foods, coffee, etc. Customers must distinctly be able to see the difference and desire them. Companies must advertise to create awareness of the differences and emphasize the unique qualities of their products. Most marketing employs communication strategies, which include reach, frequency, and gross rating points. To achieve their objectives, MacDonald's often uses a combination of any two them for instance, reach and fervency. Marketing communication methods, such as advertising and promotions, are to develop the colors, designs and images, that which provide the brand its familiar image. At McDonald's, it is represented by its familiar logo: the Golden Arches. It is clear that MacDonald's markets to attract the young and the young at heart. The colors of their interior décor and logo are bright and attractive. Their children's meal includes toys that are often have a play area, painted in their unique colors of red, white, and yellow. In fact, even the clown is decked out in these three colors.

Suggest steps to remain in or move into an optimal competitive position.

McDonald's faces competition from other businesses in its markets. Furthermore, economic, legal, and technological changes, social factors, the retail environment affect McDonald's success in the market. McDonald's continually works to build its brand by listening to its customers, and it also determines the various stages of its marketing process. Branding creates a personality for an organization, product, or service. It represents how consumers regard the organization and works when an organization behaves and presents itself in a consistent or unchanging way. They need to continue to do this and get better at it. After all, McDonald's is one of the best known brands in the world today. The team suggests that MacDonald's continues to remain customer centric and regularly update their advertising to remain current and competitive.

Determine the market structure in which the selected good or service

competes.

A market structure refers to the particular environment a firm operates in. There four types of market structures are perfect competition, oligopoly, monopoly, and monopsony. According from the text, oligopoly is "a market dominated by a few large producers of a homogeneous or differentiated product (McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009, Chapter 11). MacDonald's operates in the monopolistic market structure. Monopolistic competition "is characterized by (1) a relatively large number of sellers, (2) differentiated products (often promoted by heavy advertising),