McDonalds Marketing Strategies - Term Paper Example

Management Contents Contents 2 Introduction 3 Standardization versus Adaptation 3 Summary 5 Internationalization Process Theory 6 Conclusion 7 Reference List 9 Introduction McDonald’s Corporation was founded in 1964. The company had traversed from its humble beginnings to become one of the world’s largest retailers of foodservice. McDonald’s has established its presence in more than 100 countries and has more than 35000 stores worldwide. It is argued that phenomenal success of the company can be attributed to strategies adopted by the company over years (McDonalds, 2010). McDonald’s had aggressively begun its expansionary strategies in domestic market of the U.S.A. in the beginning of 1970s. McDonald’s is well-known for adapting its marketing strategies to suit needs of the particular country wherein it operates. This has hugely contributed to success of the company. McDonald’s first international venture was in Canada and then it had proceeded into the European and Asian markets. In all these places, the company has successfully positioned itself as a major player in food retail (Bonanno and Constance, 2008). The purpose of this paper is twofold. The first section will focus on marketing strategy that has been adopted by McDonald’s while venturing into foreign markets so as to comprehend whether it has used standardization or adaptation policies. The second part of the paper focuses on Internationalization process theory that had been adopted by McDonald’s in its foreign ventures. Standardization versus Adaptation It has been observed that when multinational companies venture to foreign markets, they either use globalization strategies or localization strategies to promote their products. When a company pursues globalization strategy, it promotes standardized products in all places of operation. Multinationals, following this strategy, use standardized products, prices and distribution channels and promotional campaigns. Companies tend to adopt this marketing mix because standardized products are easier to brand and label. Most importantly, it helps to reduce operational cost of the company. Internationalization marketing strategies, on the other hand, are related to customization of marketing strategies for different locations in which the company operates. The rationale behind adopting this strategy is that cultural, national and regional preferences of the target market are incorporated in the marketing strategy so as to maximize probability of product acceptance (Vignali, 2001). Taylor (1991) had pointed out that in order for a company to attain competitive advantage, both globalization and internationalization strategies must be employed. A large number of organizations have adopted “Think global, act local” strategies in the 21st century. In short, there are three different schools of thought, which argue about the path that a company should choose while planning its internationalization process (Taylor, 1991). A close analysis of McDonald’s reveals that the company has followed “Think global, act local” strategy for its expansion. In order to understand the marketing mix of McDonald’s, the framework developed by McCarthy can be used, who had founded the concept of 4ps in marketing; product, price, place and promotion. In case of service markets, it has been observed that there are few additional variables that can be added to the existing 4ps, which are process, physical and people. McDonald’s have standardized their products, which taste the same, irrespective of the country where it operates. However, product adaptation has also been applied by McDonald’s in a number of cases. For instance, in China, it has introduced chicken wings in place of Buffalo wings, as consumers prefer chicken more than buffalo. In India, the company has discontinued beef and pork from its menu. It has also adopted the practice of serving halal meat in the Muslim countries, besides incorporating practices that do not outrage religious leaders. Despite serving different products, the company implements the same quality management system that is used in its domestic market and is universally followed. Regarding place, it has been observed that McDonald’s has followed a prudent expansionary strategy (Vignali, 2001). The company has used franchise, joint venture or direct operation to establish its presence in both domestic and international markets. It has strategically added 200-300 outlets in the U.S.A. alone until 2001, despite the unfavourable economic conditions. The company increases the number of outlets in China, India, Brazil, Canada and other European countries on an annual basis, based on the sales made. Although the place strategy of McDonald’s can be considered as a global practice, sharing of knowledge and best practices across outlets of the countries renders it one of the “glocal” strategy (Santangelo and Meyer, 2011). The pricing strategy adopted by McDonald’s can definitely be considered as a localization strategy as this has facilitated improvement in market share. The price of McBurger is lower in China compared to that in the U.S.A. Similarly, costs of products in developing counties like, Nigeria and Korea, are lesser compared to those in the U.K., Denmark and Belgium. In case of promotional strategies too, McDonald’s has modified their practices to incorporate the cultural difference of nations. Though the company tries to portray a uniform image in all countries, yet it uses different communication strategies. In East Asia, the company specifically targets children by promoting toys from Disney films; and in Latin American countries, celebrity footballers are used as endorsers to communicate with customers (Eckhardt and Houston, 2002). In order to manage its human resource, McDonald’s uses best practices of the U.S. human resource, along with the norms of the host country. Local labour laws of the country are specifically considered before recruiting. McDonald’s uses the same processes for manufacturing its products everywhere. The suppliers have to meet specifications set by the company or McDonald’s sets up its own source of supply in order to maintain standards. Finally, regarding the physicals, it can be concluded that McDonald’s maintains a consistent physical structure for all its outlets. The cleanliness, service quality and ambience are similar in all countries where it operates (Vignali, 2001). Summary The strategy that is followed by McDonald’s is quite suitable. The outcome from this strategy is reflected in the company’s strong financial performance as well as huge success in every country where it operates. If McDonald’s had not modified its products according to the taste and preferences of individual countries, then it would have been impossible to capture significant market share. The research conducted by Czinkota and Ronkainen (2012) also confirms that it is important for consumer goods to adapt to the culture prevalent, whereas industrial goods do not require excessive adaptation. McDonald’s would not have been able to operate its business in Islamic countries if it did not serve according to the Islamic food regulations. Pricing of the products has also been designed diligently (Czinkota and Ronkainen, 2012). Theories of consumer behaviour show that customers are willing to pay for products only according to the extent of perceived value. This implies that customers in the developing countries would not want to pay a high value for the product as those in the developed markets (Cateora and Graham, 2004). As the perception for price is different in countries, McDonald’s had to change its pricing strategy accordingly. Otherwise, it would not have been possible for the company to capture the middle-class of emerging countries and increase its market share. In terms of promotional technique, McDonald’s would have been unsuccessful if it had not focused on the communication strategy. For instance, popularity of the restaurant in East Asia is the result of focusing upon teenagers and children, while in the Western countries, the company communicates as an essential fast food joint for all segment of population. This type of a promotional strategy has been identified in the literature as “brand locally, advertise locally” (McKee and Konell, 1993). If McDonald’s had used television as the primary mode to promote its products in China, then the effort would have been ineffective in attracting consumers as Chinese commercials come after television shows not between them. Finally, standardization has been used by McDonald’s only in sectors, which improve its brand image. For instance, in the management of human resources, best practices in the U.S.A. have been adopted and in process management, quality standard has been applied on a global scale. This has contributed to improve global image of the brand, thereby increasing the level of its sales. Owing to these factors, it can be argued that McDonald’s have implemented a correct marketing mix, which has maximized the sale prospects. Internationalization Process Theory Six approaches have been identified in the existing literature regarding the process of \internationalization, which has been adopted by multinationals; namely traditional marketing approach, “life cycle” approach of international trade, Uppsala school approach, Dunning’s eclectic paradigm and network approach. Multinationals use any of these processes of internationalization while venturing into international markets. Additionally, the mode of entry becomes very important while entering into foreign markets (Ahmed, et al., 2002). Following the internationalization pattern of McDonald’s have revealed that the company began its process of internationalization in the period of 70s, even though the American market was far from being saturated then. However, the rate of growth of McDonald’s had slowed down compared to its previous years. This had initiated the process of internationalization for the company. Also, at that point of time, there was an increasing tendency of fast food restaurants in the U.S.A. to open franchises throughout the country. This had heightened competition in the domestic market, which is why McDonald’s must diligently weigh options of venturing outside (DeBres, 2005). Initially, McDonald’s chose only those countries for expansion, which were culturally closer to that of the U.S.A. Geographical proximity was another factor that was considered by McDonald’s very closely. The choice of countries during initial years bears testimony to these two factors. Virgin Islands, Panama and El Salvador were geographically closer to the U.S.A. and Germany, Holland and Sweden had a socio-economic culture akin to the U.S.A (Bao and Yu, 2005). Regarding the mode of entry, it has been observed that McDonald’s had maintained a fairly similar pattern while venturing into the other markets. McDonald’s generally issues a contract of “area development” with local businessman of the area, giving the right to spread the brand into the country. Though the owner of the franchise is responsible for risks related to the investment, yet he/she does not have the freedom to undertake future expansion of the franchise. The profits earned from the franchise are divided between the mother corporation and the area leader. No area leader can open franchise without the approval from McDonald’s Corporation. All the decision regarding future expansion is only taken by the mother corporation for that area. Once the company has gained dominance over the area, it starts a process of negotiation with market leader therein so as to acquire all property of the facility in the chosen area. The company either owns all its facilities by itself or owns them as a franchise (Santangelo and Meyer, 2011). Based on this expansion pattern of McDonald’s, it can be argued that the company has followed franchising as a primary method to expand into other countries. McDonald’s has used franchising with the local businessmen and helped them in imbibing the American brand culture in local terms by maintaining quality of products and service to local people. For McDonald’s, successful domestic operation coupled with wide networks of market attractiveness has boosted the process of expansion. This is perhaps why the company had opened more than 1000 restaurants in Japan alone and wants to increase the number of outlets in China by 300 in this financial year. Conclusion The case of McDonalds’s can be presented as one of the most successful ones of globalization in contemporary times. Strategies that the company has adopted have directed researchers and academicians to interpret marketing strategies in new light. This is because McDonalds’s has not followed any one philosophy for expansion. It has rather mixed best practices from different strategies. In short, McDonald’s had maintained a standardized production process, while altering product specifications according to taste and preference of the local consumers. Another major reason for the company’s success is diligent use of franchising as mode of entry into foreign markets whereby it had managed to reduce risks associated with investments as well as maintain effective control on the franchisee. Reference List Ahmed, Z., Mohammed, O., Tan, B. and Johnson, J., 2002. International risk perception and mode of entry: A case of Malaysian multinational firms. Journal of Business Research, 55, 805-813. Bao, D. and Yu, G., 2005. MNCs marketings distribution and localization and Business Time. [online] Available at [Accessed 15 April 2014]. Bonanno, A. and Constance, D. H., 2008. Stories of globalization: Transnational corporations, resistance, and the state. Pennsylvania: Penn State University Press. Cateora, P. and Graham, J., 2004. International marketing. New York: McGraw-Hill. Czinkota, M. and Ronkainen, I., 2012. International marketing. Connecticut: Cengage Learning. DeBres, K., 2005. Burgers for Britain: A Cultural Geography of McDonalds UK. Journal of Cultural Geography, 22(2), pp. 115-139. Eckhardt, G. M. and Houston, M. J., 2002. Cultural Paradoxes Reflected in Brand Meaning: McDonalds in Shanghai, China. Journal of International Marketing, 10(2), pp. 68-82. McDonalds, 2010. Annual report. [pdf] McDonalds. Available at: < https://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/C-%5Cfakepath%5Cinvestors-2010-annual-report.pdf > [Accessed 26 June 2014]. McKee, D. O. and Konell, S., 1993. Product Adaptability: Assessment and Strategy. Journal of product and Brand Management, 2(2), pp. 33-47. Santangelo, G. D. and Meyer, K. E., 2011. Extending the internationalization process model: Increases and decreases of MNE commitment in emerging economies. Journal of International Business Studies, 42(7), pp. 894-909. Taylor, W., 1991. The Logic of global business: An interview with ABB’s Percy Barnevik. [online] Available at: < http://hbr.org/1991/03/the-logic-of-global-business-an-interview-with-abbs-percy-barnevik/ar/1 > [Accessed 26 June 2014]. Vignali, C., 2001. McDonald’s: “think global, act local” the marketing mix. British Food Journal, 103(2), pp. 97-111. Read More