Its Time for a Product Recall - Case Study Example

Date: December 31, 2013 To: Don Thompson, CEO From: RE: McDonald's. Memo ______________________________________________________________________________ Executive Summary: McDonalds a food company with several outlets globally and recently have been faced with the decreased sales for the last few years with its competitors gaining more competitive advantage. This memo shows analysis of the company recommendation and implementations of the favorableoption. According to SWOT analysis of the company the company was criticized by using poor quality products than competitors, in PESTEL there were high competition, according to five porters model it was evident that the major people affecting the performance of the organization were the buyers and competitors and according to financial analysis the company was financially stable and could be able to fund expansion programs. From above analysis there are three option possible for McDonalds to have competitive advantage which were expand market share and product menus, focus on product differentiation and last option is hire new personnel and train existing on market characteristic. Expanding customer markets and product menus was viable option given the company has a good trade name and potential financial capacity. The option is to be implemented and a good management put in place by incorporating technology to be able to monitor customer satisfaction. Following show a table of analysis Analysis Implications Options SWOT This analysis shows our company has been criticized on unhealthy products but has a good brand value covering large market share This suggests that our company can expand the market share by having new product menus and entering new markets PESTEL The company has strong competition threats by competitors who have won some market segment I recommend the company do focus on customer by product differentiation of existing products Porter Five Forces Model This analysis shows that competitors and buyers are major forces affecting the company The company can hire new employees and train them on the market characteristics in order to increase innovativeness of products Financial Analysis This analysis shows our company has good financial capability in meeting new investment and pay expenses and shareholders The company can move into new market and produce new products to make more sales. Problem Statement McDonalds is a food production company facing a lot of competitions resulting to declining performance for the past 3 years. What should the company do to improve its performance and able to be competitive advantage? SWOT Analysis Strengths Weaknesses Largest food market share in world over 8% 40 billion brand value which is well established Local and culture adapted food menus due to innovation and diversification Best brands partnership and management adoptability to changing market More than half Independent owned franchise Improved child targeting and marketing Negative image on public Unhealthy food menu Mac job and high employee turnover There low product differentiation Opportunities Threats Increase healthy food demand in most families After sale services and home delivery for products Full change and adaption of management practices. New un tapped market segment and changing customer demand increased applications of franchising is a long run asset Saturated fast food markets New trend on preference of natural and healthy foods New developing competitors with chain store in each market Change and unstable currency rates Many lawsuits against the company Campaign against by some independent companies STRATEGIC IMPLICATION Conclusion: This analysis shows our company has been criticized on unhealthy products but has a good brand value covering large market share. Possible New Strategy: This suggests that our company can expand the market share by having new product menus and entering new markets. Rationale: Our company should enter in new markets in by having new products and market in order to improve the market and order to improve the and have more sales and have competitive advantage PESTEL analysis Political factors For any organization state policies enforced by government affect the operations of the business like wise to McDonalds. In Europe some groups have protested on effects on health caused by consuming their fast food in which they blame diseases such as obesity are caused by elements such as cholesterol in fast food. Each franchise and branches are affected by factors such as tax, employment acts, and other trade regulations. All these affect the growth and cost involved in runningthe business. Some restrictions influence the operations of the business and go so deep and also may restrain contents of food and how they are prepared (Yuece 2012). Economic factors As McDonalds are present globally and are affected by economic conditions such as inflations and dollar exchange rates. For the company to be successful it has to adapt to issues present in economic environment this include simple demand and supply of materials necessary to produce food. Some of other issues that affect economic condition of McDonalds include living costs, cost of wages and inflation levels. The company being present in many countries has to take into consideration the economic conditions. Socio-cultural factors McDonalds has several international market entry strategies which have to be considered to succeed in international markets. The company main aim is to show a positive environment depending on customers’ social and cultural backgrounds. McDonalds have understood the customer characteristics and incorporated them and produced goods that fit and match their characteristics e.g. producing Halal menu in Arabic countries and Kosher menu in Israel. Technology factors The company has taken advantage of technology in marketing and using them in production of foods in the company. These include incorporating the supply chain and management systems that have assisted McDonalds to go global and assist in proper management. The company has included microwaves and robots in food production giving them a competitive advantage. On advertisement it has used means such as Facebook and television to reach its potential customers. This has been possible by use of internet at low cost and high impact. Environmental factors For success of company social responsibility is a prime objective and McDonalds have not been an exception on this. Social responsibility entails damages done on the environment and McDonalds have been charged with various claims in which they are suspected of using non environmental friendly goods such as glasses, lot of methane and Styrofoam coffers which has effect on its image on maintaining a green country but it has established many corporate social responsibility such as changing packaging and caring of animals. Legal factors These include being a good citizen in meeting all required obligations e.g. tax, employment and quality standards as per government policies. Theseviolations vary with countries e.g. minimum wages and working hours. McDonalds have adhered to these laws even in countries with less requirements and obligations. STRATEGIC IMPLICATION Conclusion: The company has strong competition threats by competitors who have won some market segment Possible New Strategy: I recommend the company do focus on customer by product differentiation of existing products Rationale: The company should differentiate product to meet all customer needs and stand out among its competitors Porter five forces model Threat of entry New entrant’s impact on market share in which in food industry there are moderate new entry due to low switching cost, moderate high capital cost to set up in the market and a moderate high cost to develop a brand on this market. This however with low switching cost enable customer switch between companies, moderate capital cost enabled medium companies enter in market and strong brand has made McDonalds stay on top. Industry rivalry This industry has companies of different sizes and offer different products in which each market its products vigorously. With low switching costs the customers can move away or towards the company to the competitors. Threat of substitutes There are many substitute available in markets from local industries, with low switching cost between brands is a threat to McDonalds products and in food market there are high performance to cost ratio in which the competitors are also willing and able to take into consideration. Supplier bargaining power In the food industry there many suppliers has being global it’s hard to form alliances and suppliers for general supplies are available. McDonalds suppliers are not vertically integrated hence no control distribution network. With many suppliers in market it poses no problem to the company. Buyer bargaining power Due to easy changing between brands customers and market saturation of related companies both local and international make customers have more power as they can easily demand want they want. McDonalds must ensure that they find a way to increase customer royalty. STRATEGIC IMPLICATION Conclusion: This analysis shows that competitors and buyers are major forces affecting the company Possible New Strategy: The company can hire new employees and train them on the market in order to increase innovativeness of products. Rationale: New workers will allow the company toventure in market segments and able to meet global and diversified customer needs and wants. Financial analysis Figure below shows financial analysis of the company( Medill Reports Chicago,2012) item 2012 2013 Margin percentage of sale 38.75 38.10 Asset turnover 0.81 0.78 Return on equity 36.82 35.09 Current ratio 145% 159% equity 0.89 0.88 STRATEGIC IMPLICATION Conclusion: This analysis shows our companies has good financial capability in meeting new investment and pay expenses and shareholders returns. Possible New Strategy: The company can move into new market and produce new products to make more sales. Rationale: Our company with good financial position its viable to venture in new market without straining its finances Summary of financial income and projected future income extracted from McDonald’s Investors (2013). Option #1: hiring and training employees on the market characteristics in order to increase innovativeness of products Pros Cons New experts introduce new ideas on market segmentation Employees are resistance to change Equip employees on skills e.g. communication Previous strategies become obsolete Outsource experienced employees on different issues experienced employees reduced culture of organization Option #2: expansion of market share by new menus and new markets Pros Cons increased competition in market expensive Expand in untapped markets Decreased product image Distributed risks Reduced customer contact Option #3: product differentiation of existing products Pros Cons Variety of products costly creativity and meet lost customer changing consumer tastes Hinder market entry Time consuming Recommendation We recommend that McDonalds follow option #2 to be able to have competitive advantage in the market increase growth. We recommend this option has as it achieves two objectives at the same time. It increases sales to existing customers and gaining more markets not fully exploited. This project would also compliment the plan of “plan to win” discussed in the article. New menus such as healthy and natural meals and fast food and full meals would make customers prefer McDonalds. This will be also effective backing on the known brand name of the company (Interbrand2013). Its best option as the first option is expensive and change of employees will result to more harm than advantage as employees are resistance to change. McDonalds aim is to improve its market share hence use of first method will take time before the objective is achieved. The third method focuses on existing product in which customers already know and either improving it or having more options will bring no difference but introducing new menus would change the perception of the customer as they will wishing to taste new product (Hill 1997) Assumptions for success Enough resources to meet expenses and do marketing. Market study of favorable markets and menus Adoption of new strategies by the management and employees Ability to understand markets and customers and producing goods to meet their needs This project will be faced by issues such as follow up strategies by rival competitors. By the fact that customers’ needs change each day, it will make it hard to make a clear judgment. Implementation In implementing this require the management to have a market analysis team in which analyze the market and take survey on customer needs. These markets must have potential and not highly crowded e.g. in 3rd word countries.This involves targeting all the markets word wide. With good financial position the company has it can be able to meet this expansion as it is costly but comparing the advantages it will derive its worth investing in. New markets increase changes of success as they have untapped potential. This will affect the management style and should be managed well. The management should incorporate technology this include customers can order online and also comment on poor or good feedback for company to gauge level of satisfaction before it’s too late. References  Hill, T., & Westbrook, R. (1997). SWOT analysis: it’s time for a product recall. Long Range Planning, 30(1), 46-52. “McDonald’s shifting expansion plan to Asia: Analysts mixed in outlooks,” Medill Reports Chicago, June 6, 2012, http://bit.ly/MoQmwJ. McDonald’s Investors (2013).Company profile. Available at: http://www.aboutmcdonalds.com/mcd/investors/company_profile.htm Interbrand (2013). Best Global Brands 2012. Available at: http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx Yuece, Ilhan. SWOT Analysis of McDonald's and Derivation of Appropriate Strategies. 1. Auflage ed. München: GRIN Verlag GmbH, 2012. Print. Read More