McDonald's, Subway and Burger King: Assessing Marketing, Operations and Competitive Actions - Essay Example

? McDonald’s, Subway and Burger King: Assessing marketing, operations and competitive actions BY YOU YOUR SCHOOL INFO HERE HERE McDonald’s, Subway and Burger King: Assessing marketing, operations and competitive actions 1. Introduction The fast food industry is inundated with significant competition, creating new operational challenges in attempting to develop a workable business model designed to satisfy diverse customers. There is a need for responsiveness in the fast food markets, due to changing consumer trends related to eating habits and pricing sensitivity related to the broader macro-level economies where McDonald’s, Subway and Burger King operate. These factors create the need for changes to the supply chain strategies, marketing campaigns, and general operational strategies, building new flexibilities in procurement and in advertising. All of the aforementioned factors are directly related with operations management, defined as “the management of systems and processes that create goods and/or provide services” (Stevenson, 2009: 4). Operations management considers all aspects of the organisation that contribute to the delivery of products, including inventory management, procurement, staff alignment, promotions, advertising, finance, and production. Operations managers at McDonald’s, Subway and Burger King must consider what is driving competitive forces and then adapt their business models to sustain innovations that assist in positioning the business differently with their target markets. It is a broad-spectrum area of organisational performance that encompasses costs, scheduling and planning in order to under-cut competing fast food companies. This report highlights some of the differences between McDonald’s, Subway and Burger King related to operations management and their unique abilities to satisfy diverse target customers in Europe. Some of the data provided stems from first-hand observation and literature sources describing the real-time activities of these fast food giants. The report focuses heavily on marketing function, procurement along the supply/value chain, and cost recognition related to product delivery. 2. McDonald’s McDonald’s recognises that the majority of its food offerings are relatively homogenous in its industry, largely comparable to Burger King’s menu offerings (Thomadsen, 2007). Homogeneity, under this definition, is similarity related to tangible facility architectural style, employee uniforms, menu board design and in actual food products offered. Much of this stems from the business’ long-standing brand recognition and brand loyalty that McDonald’s and Burger King have managed to establish in their long history of operations. However, it is this homogeneity that drives very different competitive actions for order winning and for qualifying with customers, especially related to McDonald’s. McDonald’s is attempting to break away from this homogeneity by appealing to a new type of consumer, one that is more contemporary and socially-driven. Fitzsimmons & Fitzsimmons (2011) describe the importance of the servicescape, the tangible ambiance of a business that strongly contributes to the satisfaction of diverse customers. The servicescape is identified by the spatial layout and functionality of McDonald’s, the signs and symbols used to distinguish a brand identity, and the overall ambient conditions of the business. According to a spokesperson for McDonald’s, the business is investing considerable financial resources into re-imaging strategies that include coffee house charm and modernism in many of the structural components of the organisation (McDonald’s Annual Report, 2008). These changes, launched in 2009, have radically changed the servicescape of McDonald’s, separating its traditionalism and homogenous architecture to a facility that is more aesthetically-pleasing for a new breed of contemporary customers. “At McDonald’s, gone are the hard, plastic seating areas in unappetising colours; more attractive places to be” (Burrows, 2010: 8). These changes are largely visible through direct observation. McDonald’s, due to the homogeneity of its products (i.e. hamburgers, French fries) relies heavily on the signs and symbols of the servicescape in order to maintain its brand reputation with key markets. These symbols include the famous Ronald McDonald clown, Birdie, and traditional McDonald’s characters that adorn a great deal of products from the Happy Meal to the actual product packaging. According to Shriberg and Kumari (2008), in order for a multi-national business like McDonald’s to be successful in multicultural environments, they must develop an awareness of cultural dimensions that are ever-present and most important to their customers. McDonald’s uses these famous characters as a means to connect with customers socially and culturally, reinforcing not only the business’ longevity, but as a cultural icon. This is radically different from other fast food companies that do not have the advantages of this long-standing cultural heritage for use in marketing and other operationally-related systems. McDonald’s is also advertising its new 3G Internet capabilities within its store in promotional signage, another change recently launched to appeal to the modern customer demographic. McDonald’s is taking a cue from Starbucks, a rival coffee competitor, with the development of its McCafe specialty drinks. According to Korn and Stynes (2010) the McCafe coffee products have given same-store sales increases of 6.5 percent from 2009. The architectural changes, though costly, are offset by increasing consumer interest in McDonald’s as a more modernised, socially-relevant business that provides both quality foods and lifestyle interests in a single experience. Further, McDonald’s also relies heavily on promoting its value menu, a lower-cost menu section of products for the price sensitive buyer. Approximately 14 percent of its total chain sales come from products on the dollar menu where all products advertised are just one Pound (Walkup, 2008; Korn and Stynes, 2010). McDonald’s maintains the operational capacity to ensure higher volume purchases, thus saving costs in the supply chain, to deliver these products without significant distribution costs. At the same time, promoting the value of McDonald’s to those who are being affected by the current recession continues to provide customers with perceptions of lifestyle attractiveness that is unique against most competition. 3. Subway Subway has a radically different operational model from McDonald’s, offering sub sandwiches rather than maintaining a diverse menu variety. Consider how the food offerings are described by a Subway spokesperson: “The cornerstone of the Subway dining experience is the ability to order any sandwich, salad or wrap to your own specifications and watch while it is prepared right before your eyes” (Petrak, 2007: 10). Subway positions itself on the market different from McDonald’s, the company that uses socially-relevant marketing and pricing to differentiate, by focusing on quality and freshness as its qualifiers. Subway carries many different in-store promotional banners and signage that describe its dedication to “eating fresh” and has developed a production system that gives customers a tangible view of the freshness they can expect with each sandwich. This has been accomplished through operational strategies related to raw material positioning in the assembly area for efficiency and as a symbol of quality. Subway has also recognised the importance of understanding the cultural dimensions of consumer lifestyle described by Shriberg and Kumari (2008) that are most central to their needs. Subway has developed a Fit Fresh campaign that is clearly evident in-store that offers substitute products such as sliced apples, raisins, bottled water, and one percent milk products for the health-conscious consumer. In fact, the raw materials utilised in assembly include wholesome ingredients such as tomatoes, lettuce, onions and peppers that are traditionally found in vegetarian and other health-conscious consumer diets. The business devotes much advertising to this fitness campaign whilst also presenting physical evidence of its commitment to healthier eating through visible assembly processes. The tangible servicescape described by Fitzsimmons and Fitzsimmons (2011) is evident as being different from McDonald’s. Subway’s interior is not very modernised, following some of the traditional architectural components of most fast food companies. Through observation, the yellow and green colours in the furnishing and other in-store decor is in-line with marketing materials and also seems to be established for the rushed diner. Since most of Subway’s products are take-out, the business does not need to devote the same type of operational and financial resources to the in-store experience in order to gain customer loyalty. In many respects, it seems that Subway is concerned with procurement of fresh ingredients and product quality, primarily, in order to qualify with customers and win their orders and long-term loyalty. 4. Burger King Much like McDonald’s with its homogenous products, Burger King has however developed a different method of appealing to customers. Burger King has also rolled out a value menu, offering bite-sized foods under its affordability menu that is comparable to McDonald’s. This is an effort to appeal to the money-conscious markets. In 2009, Burger King launched its King Deal value meal that includes a small cheeseburger, small French fries, and a small drink for only ?1.99 with an upgrade option to double cheeseburger for ?2.99 (Reynolds, 2010). In terms of pricing as a means to compete, these are the only operational components that are similar to McDonald’s as a means to differentiate that is related to operations and procurement. Observation indicated that Burger King is also using humour in advertising as a means to appeal to their target market, which is primarily men aged 16-35 as their primary target. Offers a marketing spokesperson for Burger King, “Burger King is not afraid to use humour to talk to its customers. It wants to engage with people on the street and humour is a great way to gain their attention and win them over” (Seaton, 2005: 6). Humour is evident on packaging, certain marketing materials that utilise the cultural symbol of The King and witty quips on certain food product wrappings. Burger King has also extended this competitive difference in guerrilla marketing, a method by which customers are accosted on the street with certain promotional messages or merchandise to gain more foot traffic into their stores (Seaton). During observation, the facility maintained an outdoor advertising sign that read, “It’s why the Chicken Crossed the Road” as a means to appeal to passerby, non-target customers through humorous marketing materials. This is one method by which Burger King is able to position itself with its target and non-target customers that differs from all other fast food companies. Investing resources in guerrilla marketing involves operational planning related to street team promotional development, training, and costs of advertising. Burger King also differentiates in marketing under its Have it Your Way tagline, a reinforcement that customers can customize their product experience at the chain. This literature is ever-present within the organisation, requiring operational consideration in cost of packaging, advertising, and also in labour expenditures and production planning to ensure that these promises can be met timely and efficiently when specialty orders are received from customers. Burger King also advertises, in-store, its web presence as a means to gain attention from those customers who utilise social networking services. Sultan and Rohm (2008) identify Burger King as a leader in using mobile marketing for electronic coupon receipts with considerable operational expenditures on this type of e-marketing effort. Burger King promotes, in-store, to visit them at particular websites, thus adding more visibility to their advertising strategies. According to Liodice (2010), nearly half a billion consumers have responded to Burger King’s Internet marketing giving the business very high click-through rates and sales increases through this effort. Burger King’s servicescape is very traditional, similar to its long-standing architecture and furnishings, thus less is devoted to this operational component. This allows the business to devote more of its operational finances to advertising as the target customer differs from that of the more mass-focused customer demographics of McDonald’s to gain the loyalty of the 16-35 year old buyer. 5. Analysis of findings McDonald’s advertising, cultural symbolism, and diversity of new, modern menu options continues to be the operational strategies that lead to higher sales volumes. These investments provide considerable sales increases year-to-year, offsetting the costs of architectural redesign and modernisation. Recent investments in the information technology infrastructure needed to sustain lifestyle-based Internet access in-store requires labour investments, contracting costs, outsourcing, and other elements related to operational strategy. However, these important culturally-relevant changes are necessary in order for McDonald’s to position itself amongst a highly competitive industry where offerings are often homogenous. McDonald’s, as well as Burger King, must consider cost of goods sold, total assets, return on investment, and sales versus operating profit as part of determining whether their heavy marketing is worth the effort. This is part of management cost accounting that is invariably linked with operational planning and strategy development (Jinkens and Yallapragada, 2010). The value menu concept was designed, as previously identified, to appeal to the price-conscious buyer markets for both McDonald’s and Burger King. This was also a reaction to very quickly-rising commodity costs related to food that is being experienced along the entire fast food industry supply chain structures in Europe. Food cost inflation continues to add more price to many products, especially beef which must be passed back to consumers. This can greatly impact the loyalty of the price-conscious consumers. McDonald’s, however, has an operational edge over Burger King as it relates to supply chain strategy and the presence of its long-standing value menu. McDonald’s is very proactive in establishing long-term commodity contracts in its purchasing strategy with a variety of international vendors, which assists in offsetting margin problems on certain products being offered (Walkup, 2008). This allows McDonald’s to exert some pricing control and negotiation, thus locking its procurement costs along the supply chain that allows it to continue to offer its value menu and not raise prices significantly on higher-margin products (i.e. Big Mac, French Fries, soft drinks and specialty drink products). By sustaining price leadership over other competition, McDonald’s maintains its cost advantages in a way that is not achievable by Burger King or Subway. Subway has a different methodology for its supply chain strategy that, too, gives this business a cost leadership advantage. Because Subway requires Fit Fresh products that have very limited life cycles before needing disposal, Subway must ensure regular deliveries of raw materials used in sandwich assembly. The business relies on a partnership with the European Independent Purchasing Company (EIPC). This organisation maintains a negotiation role in the supply chain to find the lowest prices associated with packaging, service equipment, and food raw materials (Tulip, 2009). The EIPC manages to create efficient distribution networks, providing competitive vendor options for Subway to ensure that it does not have to change its fresh and quality focus. McDonald’s and Burger King may have an edge in creating larger stocks of frozen products in its inventory system, however Subway outsources some of its procurement bargaining function to ensure that cost is recognised to maintain its competitive advantages that appeal to its target customers. Since lettuce, onions and similar products have very rapid perishability, this partnership strategy for procurement is one of the fundamental methods that Subway is able to maintain its positioning strategy for freshness. Where the companies most differ, and where they each maintain a differentiation position with radically different target demographics, is in how they choose to relate marketing materials to lifestyle or attitude of target buyers. Burger King is more aggressive and invests more financial resources into advertising to give the business and its organisational culture more visibility with very specific target customers (the 16-35 year old male customer). Since Burger King understands specifically who the business must appeal to in order to maintain sales volumes, these investments are critical under operational strategy. McDonald’s, however, invests similar costs to advertising, but to appeal to a much broader segment of the industry market. As it relates to advertising, it is so much more than just the food products itself that continues to build effective competitive strategies operationally. “Marketing, operations, and finance must interface on product and process design, forecasting and quality decision” (Stevenson, 2009: 16). It is impossible for them to function independently in operations management (Stevenson). In order for McDonald’s to maintain its new lifestyle-focused attitude, for Burger King to remain culturally relevant to its target consumers, and Subway to stay Fit Fresh, costs and alignment of procurement needs are necessary to be inter-coordinated to deliver products that will appeal to their buyer segments. The qualifiers that continue to win orders from customers are these three philosophies and the demands on operational strategists with each business include concentration on purchasing and process design in order to maintain their brand reputations. McDonald’s seems to stand for flexibility, Burger King for traditionalism, and Subway for fitness; three concepts that are unique and give the business very different market positions. (See Appendix A for Positioning Map to identify their current market positions against a wide variety of competitors). 6. Conclusion Whether it is through viral marketing as found within Burger King’s operational marketing strategy, quality guarantees with Subway, or through modernisation found at McDonald’s, all three fast food companies have found their niche in the European marketplace. Diversification of menu options is one competitive strategy at McDonald’s that gives it a competitive edge, however it requires considerable planning, production design, and cost investments operationally to achieve a connection with the contemporary consumer markets; and those which are diverse. This is something not achievable with Burger King or Subway due, largely, to their differentiation strategies that greatly impact systems and procurement. Pricing was described as being competitive strategies with McDonald’s and Burger King, however the value pricing described continues to add to the homogenous nature of these businesses that offer similar products. Thus, pricing is not a sustainable strategy related to operations management if they hope to achieve higher market share. This is why both businesses invest, though differently, heavily in advertising as they attempt to project very unique images to their customers. All three businesses have their own brand identity and continue to develop the servicescapes, advertising, production systems, and services provision needed to sustain these promises. Observation and research has indicated considerable demands on operations management at all three organisations that impact total business strategy differently at each restaurant. 7. References Burrows, D. (2010) Burger King: Turning around a Burger King past its prime, Marketing Week, London. 9 September, 8. Fitzsimmons, J.A. and Fitzsimmons, M. (2011) Service Management: Operations, Strategy and Information Technology, 7th ed. McGraw Hill Irwin. Jinkens, R. and Yallpragada, R. (2010). Cost accounting in auto manufacturing companies in Germany and the United States, The International Business & Economics Research Journal 9(3), 121-127. Korn, M. and Stynes, T. (2010) McDonald’s sales up, Wall Street Journal 9 November, B5. Liodice, B. (2010) Ten big marketing risks that paid off for brands, Advertising Age 81(20), 34. McDonald’s Annual Report. (2008) McDonald’s 2008 Annual Report. [internet] Available at: http://www1.mcdonalds.com/annualreport/pdfs/full2008annualreport.pdf Petrak, L. (2007) Subway: Freshening up the supply chain, National Provisioner, Supply Farm to Plate, 9-12. Reynolds, J. (2010) Burger King to launch first value menu, Marketing, London. 27 October, 1. Seaton, J. (2005) Burger King guns for rivals in guerilla push, Media, 9 September, 6. Shriberg, A. and Kumari, R. (2008) Why culture matters: leveraging cultural differences to create a business advantage, The Business Review 10(1), 19-25. Stevenson, W. (2007) Operations Management, 10th ed. London: McGraw-Hill Irwin. Sultan, F. and Rohm, A. (2008) How to market to generation mobile, Sloan Management Review 49(4). Thomadsen, R. (2007) Product positioning and competition: the role of location in the fast food industry, Marketing Science 26(6), 792-804. Tulip, S. (2009) Purchasing is a substantial ingredient, Supply Chain Europe, 18(1), 14-15. Walkup, C. (2008) McD vows to stick with Dollar Menu despite rampant commodity inflation, Nation’s Restaurant News 42(22), 4-41. Walkup, C. (2007) Rising costs pressure value menu strategies, Nation’s Restaurant News, 41(47), 1-6. 8. Bibliography Helgesen, O. and Voldsund, T. (2009) Financial decision support for marketers in the Norwegian fishing and furniture industries, British Food Journal, 111(7), 622. Kotler, Phillip, and Gary Armstrong (2006) Principles of Marketing, Prentice Hall. Appendix A: Perceptual (Positioning) Map of Major Fast Food Retailers As identified by the map, the market position of these organisations is substantially different based on offerings and differentiation strategies in operations. Read More