Economic Theory of Marketing Control and Business - Essay Example

Introduction International marketing is a very vital step for organisations those with a desire to spread globally. It requires a lot of cross-border planning and execution of various concepts in order to gain market share in other countries. According to the definition given by the American Marketing Association, international marketing is a multinational process of planning and executing the concepts of pricing and promotion, and distribution of ideas, goods, and services. It is common among international firms today to incorporate international marketing into their management strategies. Admittedly, successful international players have succeeded in the international arena because they have understood the importance of giving close attention to values, customs, and currency differences. In fact, the very basis of international marketing lies in using the Four Ps of marketing effectively. Onkvisit & Shaw (2009, p. 4) state that the Four Ps of marketing are product, price, place, and promotion. If it is found that the product does not suit well to the needs of the specific market in consideration, the product can be customised to meet the needs. 1. Background McDonald’s is such a company that is renowned for its international operations. It is the largest seller of hamburgers and other fast foods in the world, and its major part of revenue comes from international operations. The company celebrated its 50th anniversary in the year 2005. It has operations in 121 nations through 30000 local restaurants. The expansion strategy of the company has become epic and is termed ‘McDonaldisation’ (McDonal’s, n.d). McDonald’s was started in the year 1937 in California by two brothers named Richard and Maurice. In order to increase production, they introduced assembly line procedures. In addition, the company stressed on low price, speed of service, and cleanliness. Thus, by mid 1950s, the company’s revenue was $ 350,000. Later on, Ray Kroc signed a deal with the company and started a franchising company. In 1961, Ray Kroc bought the McDonald’s brothers’ share of the company. Presently, the number of customers in an average day is 53 million. According to the company, franchisee system is the secret behind the success of the company. It is pointed out that franchising has certain benefits. Firstly, it allows distinctive competency, then quick expansion, uniform operation-standardisation, and lastly, same food experience (Funding Universe, n.d). Admittedly, McDonald’s has adopted franchising as a way of expansion. In this franchising, the parent company sells the right to distribute its products and to use its trade name to smaller businesses around the world. McDonald’s organisational culture is the culture the parental company transmits to its franchisees. The company operates according to four values; quality, service, convenience, and value. Though the company has enforced these basic values into all its franchisees, the franchisees are allowed to incorporate local culture into their marketing and products (McDonalds. Com, 2011) Another point is that the company hires local people for its regional operations so that they become able to make the company a good image in the local community by adopting locally accepted working culture, salaries, products and communication. There are two points that deserve attention here; firstly, the company seeks to offer the same product offerings around the world, and secondly, it intends to offer the same food experience for all customers. There are various reasons that prompt the company to go global. They are to gain more brand and shareholder value, to have more sources of income and growth markets, to lessen its dependence on the home market, to leverage the existing corporate technology, supply chains, knowledge and intellectual property, and to find better acceptance in the home country by being global. Thus, as cited in Ghosh et al (n.d), presently, McDonald’s holds 19% of the global fast food market followed by Doctor’s Associates with 10%, and Yum Brands with 9%. Other important players are Wendy’s, Burger King, and Dominos. The remaining market is held by companies which are local in nature (ibid). It seems that McDonald’s has adopted two strategies since 2003 to keep up with the changing international market. The first strategy is to introduce new foods and concepts as opposed to loyalty to traditional foods. As a pat of this strategy, the Premium Chicken Sandwiches and Angus Beef Burger took birth. In addition, there was the addition of premium salads. The second major strategy was to focus on increasing sales at its existing restaurants instead of starting new ones. As a part of it, the company remodelled its many restaurants, increased working hours, and raised the options on menus. In fact, the huge size of the company gives it certain advantages. They are reduced production costs as a result of the uniform menu around the world, better opportunities of bargaining with suppliers, and higher advertising budget that gives better international exposure. Admittedly, McDonald’s makes close observation of product, price, place, and promotion when it enters a new market. For example, the company decided not to enter the Vietnam market because there is an anti-western wind in the nation that will affect its business. In addition, there is the absence of good quality beef too. That means the company will have to spend huge amounts on developing the necessary infrastructure before entering the market. On the other hand, the company has entered in Kosovo where it targets a vibrant young, educated, multilingual and dynamic population. In addition is the new legislation of Kosovo that is fully compatible with the European Union regulations. So, the foreign companies get a ‘national treatment’ in Kosovo. Secondly, the company cares to modify its products according to the demands of the local market though it prefers standardisation. To illustrate, in India, it does not distribute beef burgers as evidently, the Hindu sentiments in India does not allow beef. Similarly, in Mexico, the company provides burgers with chilli sauce. The next point of consideration is pricing. The company has adopted such a strategy that allows it to price its products according to the financial status of the area of operation. Thus, the company has adopted such a strategy that, at the same time, uses standardisation and adaptation. 2. The theoretical framework of international marketing There is a lot of literature available to guide an organisation’s exposure to international market. The first theory that deserves attention while considering international marketing is the economic theory. According to the theory, it is necessary for firms to pursue positive net value projects every time and everywhere. This also means developing new technologies, renewing ones product portfolio, and incorporating better strategies. According to the theory, firms will focus primarily on such markets that offer the highest profit opportunities. Thus, the primary focus of attention will be markets which are similar, or the countries that are culturally similar. In addition, geographical proximity too is considered as a vital feature. This is so because the firm can reasonably expect customers who behave in the same way as their existing customers who know and like the company’s products. By entering such markets, the company reduces the need to modify its products and to change its marketing strategy (Mehren, 1949, pp.1250-1251). The second major theory is the internationalisation theory that points out that firms can reduce the uncertainty associated with entering the international market if they do so gradually in various phases. As the first mode of entry, the firm can do some activities like exports, thus gradually improving its market share in the market. If they find success and opportunity, they enter the market, and if not, they can avoid the place. Thus, the internationalisation theory opines that in international expansion, organisations should commit resources gradually (Internationalisation theories’, n.d). Admittedly the theory is more focused on risk aversion, and suggests that international expansion is to be sought only when the home market is fully exploited (ibid). Also, the theory suggests that firms should see such markets which are similar to their home markets or which are in close proximity so that they can expect similarities in the nature of customers. However, unlike the economic theory that suggests continuous expansion across all markets, internationalisation theory proposes total exhaustion of a market before entering a new market. Anyway, according to both the theories, it is necessary for a firm to rank the potential markets in the order of its expectations of net present value, and enter those markets where the net present value of expected profit is above the incremental cost of entry. In case of those markets where expected profit is less, the firm should delay its entry until economic conditions improve. According to Caplin and Leahy’s model of search with information externalities, if a firm has no experience in a market, it is likely to face a lot of uncertainty in the market. So, according to them, it is not wise for a firm to enter a market without knowing how the population would respond to its product offerings. Caplin & Leahy (1998) opine that it is rather too unwise to spend considerable resources in a market without adequate knowledge about the market. Another important concept is that of marketing mix. The company can either adopt a standardised marketing mix around the globe or it can adopt varying mixes for various markets. Admittedly, there are merits and demerits in both standardisation and adoption which is the first component of mix. The benefit of standardisation is that the company can gain by minimising production costs as people in all the markets are treated in the same way with the same products. In addition, there is benefit in the fact that the company gets more money to spend on promotion and advertisement as the number of products publicised is quite less and as a single advertisement can cover its all areas (The Times 100, n.d). However, in certain circumstances, companies will be forced to adapt their products according to the local needs. This helps better address various demographic groups. In addition, the proponents of this concept argue that customers in various markets vary greatly in their financial capacity, and likes and dislikes. So, standardising the mix restrains the expansion to various markets. According to Doole and Lowe (1997), ethical image has a huge impact on the success of international marketing. The scholars are of the opinion that ethical image and corporate social responsibility are two factors that are gaining more and more importance in ensuring a loyal and stable array of consumers (ibid). 2. Analysis of the McDonald’s Marketing Admittedly, McDonald’s makes use of the four Ps of marketing in its operations. The Four Ps are product, price, promotion and place. In the case of its products, the company has adopted such a strategy that combines both standardisation and adoption. While it shows the tendency to be standardised in all possible markets and to the maximum possible extent, it also accepts adoption in its regional operations. Its products vary depending on the culture of a place. For example, in India, the company’s most popular beef burger is replaced by chicken burger. In addition, in Mexico, the hamburger is accompanied by chilli sauce. Also, the company tends to price its products according to the paying capacity of people in each market. Though the company does not price its products too low as it thinks very low price indicates reduced quality, it prices its products taking into account the financial condition of each market (Marketing at MacDonald’s, n.d). A look into McDonald’s reveals that there is a combination of both economic and internationalisation theories. For example, as the economic theory suggests, it aggressively looks for newer and newer markets every year. For example, the number of markets that was 2 in the year 1968 increased to 20 by the year 1978. By the year 1999, the number of markets was 86. This shows that following the economic theory, the company is looking for newer and newer markets. Now, it is necessary to look into the pattern in the number of outlets it starts in each of its markets. A look into the pattern shows that the company goes on increasing the number of outlets in its existing markets too. For example, in the year 1971, it entered three new markets and added 14 more outlets. At the same time, it added 27 more outlets in its existing markets. Similarly, in the year 1999, it added 1537 outlets in the newly entered markets and added nearly 1200 outlets in its existing markets. This clearly indicates that the company, along with entering newer and newer markets, tends to increase its profits in the existing markets too. It becomes evident from the data that the company first enters those markets which are geographically closer, linguistically viable and economically suitable. Admittedly, the nations it entered, in the order of entry, were Canada, Australia, Germany, France, Sweden, and Britain and so on (McDonald’s). This care is also evident from the fact that the company decided not to enter Vietnam as there is an anti-West tendency in the nation. In addition, there is the absence of raw materials like good quality beef that makes initial investment much higher. So, the company decided to wait until situation improves. However, it aggressively entered Kosovo where it found a multilingual population and a vibrant young generation. As Lafontaine and Leibsohn (2004, p. 32) points out, Kosovo has such a legislation that treats foreign businesses reasonably. Now, it is necessary to analyse the company operation in the light of SWOT analysis. According to SWOT, the first thing to be analysed is the company’s strengths. Admittedly, the first strength of the company is its huge size and global presence through nearly 121 nations and 30000 outlets. So, it enjoys reduced production costs and more effective advertising too. Also, it has got a strong brand image, and has such expertise to conduct thorough market research to identify the right marketing mix for each market. Now the weaknesses of the company are as follows. Firstly, it is highly likely that the customers will get bored with McDonald’s products as it has been around for quite some time now. In addition, it is not an easy task now for the company to introduce such new products that are standardised for the various markets it operates. Therefore, it becomes a tough task for the company to keep on inventing such things that are accepted globally. In addition, in order to retain its brand image, the company has to retain its strategy of standardisation. This standardisation hinders the company’s ability to get into the local markets to a great extent. The next point is the opportunities in front of the company at present. Admittedly, there is a rise the world over in the number of people depending on food that is served in a fast and friendly way. That means the company does not need to worry about losing markets. Lastly, the threats to the company mainly come from new competitors who enter the market. In addition, the lifestyles of people will be changing from time to time, and the company will be forced to come up with newer and newer products according to the changes. However, the most important challenge for the company at present is the poor ethical image it creates in markets around the world. Admittedly, the company is presenting a poor ethical image by facing serious allegations about obesity heart disease, asthma, and allegedly, mad cow disease. In fact, this situation will have a serious impact on the brand. As Gibison (n.d, pp. 2-3) opines, its effort to bring in ‘McDonaldisation’ is not going well with all the intellectuals as some claim that it undermines and annihilates indigenous cuisines and promotes a global culture. Another vital issue comes out in the form of issues with is workers. Admittedly, the company faces allegations that it does not pay minimum wages to workers. With all these allegations, the company is likely to face a hard time ahead if it is not taking necessary steps at the earliest (Mallenbaker.net, n.d). 4. Conclusions and Recommendations The first point of improvement for the company will be to reduce allegations of creating a homogenous culture around the world that takes place as a result of the standardised menu it uses for all markets. It should start regional production centres where the ingredients are collected locally and the menu is prepared more according to the local needs instead making customers eat what the company prefers. This should be so at least for the Asian nations where lifestyle and cuisine are entirely different. This will also help in reducing the anti-West attitude in certain nations like Vietnam too. Secondly, the company should work to counter the allegations of health risks associated with is foods. It should unleash massive advertising campaigns that address such allegations and if there are issues with its food items, the problems should be resolved. As the saying goes ‘you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time’. That means, the more the delay, the more difficult it will be for the company to improve its public image. Thirdly, it should improve its relations with its workers. Evidently, a company that shows inhuman attitude towards its employees is likely to face public wrath despite the taste and convenience of its products. So, the company should resolve workers disputes and make the image of an employee-friendly company. As it becomes evident from the SWOT analysis, the threat that faces the company at present is the possibility of new competitors and products. In order to counter the same, what the company has to do is to go ahead with renewing its menu with newer and newer items which are based on local attitudes and tastes; not reduced production cost. This will help reduce the risk of a possible eviction from the markets. References Businessballs.com n.d, ‘Swot analysis: Swot analysis method and examples, with free Swot template’, Viewed 30 November 2011, Caplin, A & Leahy, J 1998, ‘Miracle on the sixth avenue: Information externalities and search’, The Economic Journal, vol.108, pp. 60-74. Doole, I & Lowe, R 1997, International Marketing Strategy: Contemporary Reading, Thomson Learning, UK. 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