International Marketing of Mcdonalds - Essay Example

?International Marketing – the case of Mcdonald’s Table of Contents Introduction 2. Company Background 3. Standardization and Adaptation 2 4. Product Positioning 2 5. Branding 3 6. Marketing Mix 4 7. Analysis 7 8. Internationalization Process Theory 8 9. COO Effect 9 References 12 1. Introduction Internationalization and globalization have changed the business environment thereby compelling companies to evaluate their strategies. Companies that operate in international business environment are likely to achieve success if they are able to combine standardization with adaptation. Differences in culture, behaviour and customer needs across nations have posed new challenges while also providing new opportunities in international marketing. These have altered the segmenting, targeting of the market and product positioning. Thus international marketing strategy is a comprehensive effort which entails deployment of the marketing mix to create a sustainable advantage in the international market place (Wong and Merrilees, 2007). The right marketing mix and the marketing decision can change the brand perception and enhance the firm’s reputation leading to strong brand performance. The power of global brands can be used as a means of international entry but such brands also have to adapt to cultural and other environmental conditions. 2. Company Background McDonald's is one of the most respected and recognized brands in the world. Its success is ascertained from the fact that the organization has over 33,000 franchisees across the world, operating in 119 countries and serving over 47 million people each day (Han, 2008). McDonald's has achieved success purely because of its ‘think global, act local’ strategy that it has adopted in all its markets. Initially however, McDonald's had an ethnocentric approach to international marketing as it tried to replicate the home country elements overseas. However, through experience and knowledge it adopted the polycentric approach and focused on the demands of the host country. 3. Standardization and Adaptation Gilani and Razeghi (2010) do not consider it necessary to adapt to the elements of the marketing mix to suit to local tastes as markets have become globalized. However, globalization has not homogenised cultures. Standardization which pertains to identical product lines at identical prices, distributed through identical distribution lines with identical promotional programs (Zou, Andrus, Norvell, 1997), is not feasible in the changed business environment as this demonstrates a product-centred approach whereas organizations need to have a customer-centric approach. McDonald's, in order to fit in to the new market demands, adjusted the entire marketing strategy including how they distribute and promote their brand. The company re-designed its marketing mix based on the product positioning, branding and design. 4. Product Positioning Product positioning is the product’s positioning and image that lends it a distinct value and place in the target segment’s mind (Liu and Chen, 2000). Since buyers differ in their attitudes, lifestyle and behaviour, these differences help in market segmentation. Within each segment product positioning strategy has to differ. McDonald's initially positioned itself as the market leader with low-priced quality food (Need Coffee, 2005). McDonald’s continuously strives to serve the customers better as its vision is to be the ‘world’s best quick service restaurant experience and ensure that every customer in every restaurant smiles (Andidas, 2003). However, as it entered the Asian markets, particularly China, it had to reposition itself. Burgers in China are perceived by the elders as providing nutritional value while the youth seeks taste (Anderson and He, 1998). Even though they do not relish pizzas or fast food, but the Chinese consumers would like to be seen at fast food outlets. McDonald's strategy was to provide the ambience, music and the environment that attracted the Chinese consumers. However, when they were positioned as cheap food served fast, they modified their advertising strategy (Need, 2005). As they realized that teenagers segment could be exploited, they introduced internet access in some restaurants (The Times 100, 2011). 5. Branding McDonald's is one of the most valuable brands and holds a leading share in the globally branded, quick service, informal dining out segment (Need, 2005). To increase the market share, McDonald's realized that opportunities for growth could be met by introducing new restaurant concepts under brands other than McDonald's. They adopted this strategy for the US market but since competition was not cut-throat overseas, they adopted the strategy of “brand globally, act locally”. Their familiar logo is the Golden Arches which has a distinctive colour, design and image and lends the brand a recognizable face (The Times 100, 2011). They consistently use the same logo across nations in all their advertisements and promotions. Brand names, product characteristics, labelling, and packaging are the easiest of the marketing mix variables that can be standardized, according to Zou, Andrus and Norvell (1997). This gave them a uniform global image and economies of scale apart from making them one of the most recognized and valuable brands globally. However, McDonald's realizes that multi-branding has also become necessary and hence operates other restaurant chains under partner brands such as Boston Market and Chipotle Mexican Grille. 6. Marketing Mix 6.1 Product Initially McDonald's created a standardized set of menu for different nations such as Singapore, Spain and South Africa but they eventually realized that they have to adapt to local tastes even though standardization leads to substantial cost savings (Vignali, 2001). The menu was standardized comprising of burger, a drink, salad, dessert and French fries, but adapted to local tastes. Since consumer demands change, McDonald's conducts market research to monitor consumer preferences (The Times 100, 2011). The company also considers recommendations for menu from the franchisees as they know the local tastes best. For instance they offer ‘Halal’ food in Muslim countries while they serve Maharaja McBurgers in India and “prosperity Burger” in South-East Asian countries at the time of Chinese New Year (Need, 2005). They serve beer in Germany while chilled yoghurt is served in Turkey and espresso in Italy (Vignali, 2001). Sensitivity to religion is also important in designing the product mix. Their product strategy indicates that they are interested in becoming a part of the local culture and hence find ways to appeal to the local tastes. They constantly introduce new products and serve it only for a limited period as they value the ever-changing consumer preferences. They also offer limited menu items so that the service is prompt, as they value their customers’ time. 6.2 Place McDonald's ensures strategic locations that also offer convenience to the consumers. The outlets are so located that the consumer would be just a few minutes away from wherever he/she is. That they can be found right around the corner, suggests that they have done extensive market research, planning and execution (Matthews, 2006). Moreover, McDonald's has reached out to a larger gathering as it has opened outlets in retail stores, in malls and counters at schools also (Need, 2005). In emerging countries such as China and India, they focus on opening as many stores as possible every year before competition sets in. This strategy demonstrates a ‘glocal’ focus as they also share ideas, human resources and best practices across borders (Vignali, 2001). However, this strategy has a weakness because too many stores at one location affected their own outlets. However, compared to competition, very few outlets of McDonald’s go out of business, indicating their location strategy is successful. 6.3 Price The pricing strategy at McDonald's supports the message that they provide value for money (Need, 2005). They do not price their products very low as this can dilute the brand and lead to loss of integrity (The Times 100, 2011). They also ensure that their pricing strategies commensurate with the local business environment. The idea is not just to have a different pricing strategy for different markets but to have the right pricing for the specific market (Vignali, 2001). Pricing is based on the pricing objective, on the demand in the region and the expected costs in that region in addition to considering competition prices. The perceived value by consumers helps arrive at the pricing. For instance, the consumers in Lagos would give more value to McDonald's products than the consumers in Chicago, and hence the consumers in Lagos would be willing to pay a relatively higher price than in Chicago. As the US consumers do not spend too much time on eating, they do not expect to spend too much money either (Lee and Ulgado, 1997). In the emerging markets such as India they took into account the prices of the local competitors (Need, 2005). Since their target market consists of families, they have kept their offerings affordable even for large families as in India. The Chinese consumers are also price conscious but since they like ‘to be seen at such places’, they do not mind paying for quality, convenience and ambience (Ojiako, Maguire and Guo, 2009). This is the reason that McDonald's did not focus on cost leadership in China. Another pricing strategy that McDonald’s has adopted is the concept of “loss leaders” (Matthews, 2006). Thru sale of certain items on the Value Menu as ‘loss leaders’ they are able to sell other products that are profitable. For instance, the McNuggets may sell at $.99 which is hardly profitable but the customer would essentially buy French fries and soft drinks to accompany the nuggets, and this is where their profit lies. 6.4 Promotion They devise their promotion based on the local segment. For instance, where price is not the criterion and consumers come in for a quick bite during the lunch break, McDonald's has been using the catch phrase, “have you had your break today” (Need, 2005). The use of celebrity endorsement for such advertising helps them get a wider audience. McDonald's cannot standardize the promotion mix because of the language differences, cultural barriers, government controls, media availability and agency availability. While in East Asia they reach out consumers through television, in China newspapers and daily magazines are preferred. China being a collectivist society prefers personal attention and hence they have public relations staff at their outlets in China. Another form of promotion is through sport sponsorship which is a part of their image building process. They have a global alliance with Walt Disney and they have procured exclusive marketing rights from films to food (Vignali, 2001). The use of the global catch phrase "i'm lovin' it," helps them connect the global customers in highly cultural and relevant ways (Maddox, 2003). They keep changing their slogans regularly but the same slogan is used globally. Their Happy Meals concept also has a standardized approach with a local touch as they offer toys to children. The company also advertises its product through television serials when the products are consumed during the show, such as in “Friends”. This strategy is meant to reach the message to those who avoid commercials. 7. Analysis McDonald's thus demonstrates that it adopted a polycentric approach to designing its market mix to suit the local tastes, consumer preferences and demands. They have been able to combine the elements of globalization and internationalization. Globalization has not led to homogenization of cultures and tastes. While standardization can lower the costs, it is not a customer-centric approach. Overall, the claim by several authors such as Melewar and Vemmervik (2004) and Herbig (1998) (cited by Heerden and Barter 2008), that international marketing can be standardized as the differences across markets and cultures are lessening, is not true in the case of McDonald's. McDonald's has to alter all the elements of the marketing mix and adapt to local tastes and preferences. In the product mix they have a standardized menu but the fillings and drinks differ. They constantly improvise on their product offerings so that customers always have something new to look forward to. In the promotional mix, to some extent brand promotion, logo and brand image has been standardized but the preferred media and advertisements differ across cultures. Their careful selection of characters in their promotion, not only promotes goodwill of the company but the names and appearance have some sort of association with the food offering, which makes association in the mind of the consumer, faster. The international marketing strategy adopted by McDonald's amply proves that the strategy that works in one nation can fail miserably in another. Thus, McDonald's succeeded based on the philosophy of “think global, act local”. 8. Internationalization Process Theory The drivers of internationalization could be proactive and reactive motivations or the push and pull factors (Evans et al, 2008). Push or the reactive drivers pertain to negative factors in the domestic market while the pull factors denote the attractiveness of the domestic market. One of the internationalization processes is the Uppsala model. The traditional assumption of the Uppsala model is that firms would seek to venture overseas when they encounter saturation in the domestic markets. As far as McDonald's is concerned, the traditional assumption of Uppsala model is applicable. Born Global are those firms that start international activities in the first year of operations, or very soon after their establishment, and their major sales come from the foreign markets (Andersson, 2011). The Uppsala model developed by Johanson and Vahlne (1977) is the process of internationalization through increasing experiential knowledge (cited in Andersson, 2011). Firms first venture into markets that are psychically similar or close and then successively enter markets that are psychically distant due to low risk involvement. However, firms may not always follow the concept of psychic distance and simply expand based on opportunity recognition. As it gathers knowledge and experience, the firm conducts a market opportunity assessment. This can be a reactive or proactive approach. Country attractiveness is assessed along with the internal strengths and weaknesses. Foreign market entry strategies depend upon the risk propensity and the investments envisaged by the firm. The risks are the lowest in exports and highest in expanding through wholly-owned subsidiaries. McDonald's ventured overseas only after a decade of its existence in its home country, thereby suggesting that it expanded through experiential knowledge. McDonald's is not Born Global but expanded through experience and gradually became a global company. To internationalize, firms have definite objectives – either they are market seeking, resources seeking or efficiency seeking. McDonald's objective in going global was market seeking and this strategy has enabled the company to exploit their firm specific capabilities overseas (Pak, 2002). They merely replicated their standardized services from one location to another. McDonald's replicated the business model of the US and could expand overseas with minimum investments. However, in their bid to expand fast, they became careless in managing the franchisees as they stopped assessing franchisees based on the national standards which led to erosion of quality and thereby resulted in losing their competitive advantage (Roch and Boivin, 2006). Their fast-paced internationalization resulted in slow service, inconsistent quality and the staff lacking in courtesy all of which led to misalignment with the corporate identity. In the mature and developed markets, McDonald's started with company-owned restaurants while in developing economies they served as franchisors (Kulkarni and Lasssar, 2009). This was due to the capital-intensive nature of the restaurant business and besides, this allowed them to have control over the operations so that the brand image is not diluted. While franchising was the preferred mode of internationalization in the emerging economies, monitoring and control in these economies was a challenge due to the cultural and geographical distance (Welsh, Alon & Falbe, 2006). 9. COO Effect Firms intending to internationalize must strive to evaluate how consumers accept or reject international operations. The country-of-origin (COO) effect and consumer responsiveness should be used to evaluate consumer acceptance/rejection. McDonald's enjoyed a strong brand name in its home country. The COO construct is based on the assumption that the brand and country images are more important than the perceived attributes of product associated with a country (Lampert and Jaffe, 1998). However, when a brand is well established in its domestic market, consumers are familiar with its attributes. In international marketing product image is affected by COO before the brand image makes an impact on the consumers. COO can either be an asset or a liability and is both product-specific and country-specific. For instance wines, perfumes and fashion from France carry a positive COO effect. However, the product from a given country may carry different images in different countries. In emerging economies when multinationals compete for consumers, the COO makes a difference as the products may be similar in attributes (Chen and Pereira, 1999). The American influence stretched beyond political and economic significance as consumers in other countries started desiring products and services that embodied US values and lifestyle (Craig, Douglas and Bennett, 2009). However, the acceptance of American cultural products such as McDonald's was more prevalent in countries that had similar value system as the US. When the country has a cultural pre-disposition to similar values, chances of acceptance of American cultural products are higher. However, McDonald's, because of its roots in the US has been accused of being an exploiter of skilled labour, causing obesity in children, of carrying symbol of cultural imperialism, symbol of America and symbol of corporate greed (Tschoegl, 2007). As McDonald's realized that globalization had not lead to a homogenous culture, it altered its international marketing strategy to suit the local cultures. Whenever it over-stepped its boundaries and hurt the local sentiments, it was accused of Americanizing the local culture. For instance, McDonald's always strived to strategically locate its stores for the convenience of customers. Thus, in Israel when it located its restaurant next to the memorial at the Golani Junction, it became a controversial issue (Azaryahu, 1999). McDonald's was accused of disregarding long-standing traditions and conventions and this was considered as ‘Americanization”. This demonstrates that the COO effect has a negative impact when a firm does not take into count the local culture and traditions. However, when it first ventured overseas, the concept of fast food and the concept of eating out were appreciated and accepted by most nations, when the COO was an asset. As competition intensified and as exploitation in different areas begun to emerge, such as serving beef in India or causing obesity among children, the COO had a negative impact. Thus, it is not merely the similar value system that matters. How the company conducts itself in a foreign environment is equally important. Consumer perception thus depends upon the brand image and the product quality. References Anderson, P.A., and He, X. 1998. Price influence and age segments of Beijing consumers. Journal of Consumer Marketing, 15 (2), 152-169 Andersson, S., 2011. International entrepreneurship, born globals and the theory of effectuation. 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