International Marketing - Standardization or Adaptation of McDonalds Marketing Mix - Assignment Example

?International Marketing MOD0001194 Assignment Table of Contents Table of Contents 2 Introduction 3 0 Standardization or adaptation of McDonald’s marketing mix 3 2.0 Theory that governed McDonald’s globalization 8 2.1 Eclectic theory 8 2.2 I.O. (Industrial Organisation) theory 9 2.3 Innovation-related internationalization 10 2.4 Cluster theory 11 2.5 Born global 11 2.6 Internationalisation Process Theory (IPT) 12 3.0 McDonald’s Country of Origin Effect 14 Conclusion 15 Bibliography 17 International Marketing MOD0001194 Assignment TO: The Board of Directors of McDonald’s Corporation FROM: Global Solutions plc DATE: December 2012 RE: International Marketing Report Introduction This report presents the findings of a thorough assessment conducted on the McDonald’s global brand. The purpose of the inquiry was to determine the manner by which McDonald’s had undertaken the globalization of its business, the implications to marketing theory of the strategies and actions taken by the Company, and the relative success or failure of these strategies in attaining the goals of McDonald’s. Three aspects of McDonald’s global marketing management are discussed – the degree of standardization or adaptation of marketing mix, the globalization model employed, and the country of origin effect, of McDonald’s international operations. 1.0 Standardization or adaptation of McDonald’s marketing mix Critically analyse the extent that your chosen global brand’s marketing mix is standardised and/or adapted across international markets. Conclude by providing a 2-3 paragraph summary that discusses whether you consider this to be an appropriate strategy(s). Remember to support your answer. Product – McDonald’s continuously innovates its products in line with the changing tastes and preferences of its local market. An example is McDonald’s Indian market, where the customers are predominantly vegetarian. As a result of adaptation, the company removed some of its popular international offerings – ham, beef, and mutton burgers – from its menu, and instead offered a predominantly vegetarian menu. It does, however, offer Chicken Maharaja Mac, a recent concoction based on consumer taste. In Spain it has McMuffin con Huevo, and in Hawaii it has Kahuna Burger (Nation’s Restaurant News, 2005). Illustrated below is one of the localized products of McDonald’s, and a curiosity among Western customers used to the Big Mac. Below is shown the vegetarian burger specially developed for the Indian market, with the ingredients and taste custom designed to suit this growing market. Source: Bhartiya, et al., 2008, p. 22 Place – McDonald’s policy on place, specifically referring to distribution channels, is to have its product available to the customer at the right place, at the right time, and in the right quantity and quality. In the USA, nearly half of all customers are within a 3 minute drive to an outlet of McDonald’s. In the outlets, customers are offered McDonald’s ‘value propositions’ – hygienic environment, pleasant ambience, specially programmed music, polite and prompt service. Certain areas are dedicated to children where an indoor playground is usually situated. More recently, internet wifi service has been provided. As far as place is concerned, McDonald’s maintains the same quality standard worldwide. Price – McDonald’s strategy of affording value pricing and bundling strategies are largely standardized, such as the happy meal, combo meal, and family meal, for which it offers discounted pricing. However, as to the price vis-a-vis meal portions, these are strategically adjusted to target the middle and lower income consumers. Promotion – McDonald’s promotional thrust is a combination of standardization and adaptation. Standardization is evident in the style, the message, and the use of the same mascots, particularly Ronald McDonald who has represented the company throughout the world since 1963. A market study determined that Ronald McDonald has the second highest name recall among children, next only to Santa Claus. This standardizes the brand worldwide. In all McDonald’s stores worldwide, the main advertising objectives are the same – to make people aware of an item, feel positive about it (and the store in general), and to remember it. Adaptation is rendering the message in the local language, in a manner that appeals to the young in a manner consistent with the values of that culture. To illustrate, the slogan “I’m lovin’ it” is the central focus of the international branding campaign launched in 2003. The company couples this with local campaigns, such as ‘Aap ke zamane mein, baap ke zamane ke daam’ in India, ‘Love ko ‘to’ in the Philippines. Also, while India is the only country where a vegetarian menu is offered, France is the only place where McCafes (fashioned after the iconic French coffee house) exist. People – The fifth ‘P’ of McDonald’s highlights the importance the company places on its staff and crew, who comprise the most important element in creating the McDonald’s experience. The company understands the importance of keeping employees happy in order that they can render the kind of service that keeps customers happy. In order to achieve this, the company continuously undertakes Internal Marketing. This involves the hiring, training, and motivation of employees in such a way that they feel good about their work and about how they deal with customers. Internal marketing is vital, and the company prioritizes it before it proceeds to external marketing. With regard to its people, McDonald’s follows the same standard worldwide, to ensure that when customers enter into a McDonald’s store anywhere in the world they are greeted and attended to with the same friendliness and attention to quality service as McDonald’s stores they are familiar with at home. Training of McDonald’s managers, middle managers, and owner/operators from all over the world is conducted at the company’s Hamburger University (which is McDonald’s Centre of Training Excellence). The Centre teaches 5,000 students yearly, and has graduated more than 80,000 since it opened in 1981. In the creation of the product, McDonald’s relies on its suppliers, who are the focal point in its value chain. ‘McDonaldizing’ the company’s suppliers involves their close coordination with the food processing and preparation that is conducted in McDonald’s processing plants. It was the supplier technological expertise which had enabled the firm to structure its operations such that a greater part of the food preparation is done in the processing plant, and only the final steps are performed in the store. By involving its suppliers as an integral part of its value chain, the company is assured of the delivery of the right quantity and quality of raw materials and foodstuffs, at the right time. McDonald’s maintains a geographically diverse group of suppliers for specific types of ingredients, in order to ensure stringent quality standards. McDonald’s Corporation has the distinction of being the pioneer in the fast food industry as we know it today. The company has revolutionised the nature of food service and food processing, honing its production processes by adopting the principles of scientific management as espoused by Frederick Taylor and Henry Ford. The scientific management method enabled McDonald’s to develop standardized food processing techniques, resulting in consistency in the quality of the end product, at low cost. McDonald’s marketing mix strategy is a combination of global standardization and local adaptation. Its marketing philosophy is “Brand globally and act locally.” McDonald’s is legendary for its penchant for localization, but occasionally grievous errors are made, such as the attempt to translate the slogan ‘Coffee gets you up, breakfast gets you going,’ in Hmong. Not only was the translation so bad that it was entirely unintelligible, but the Hmong drink tea, not coffee (Beninatto, 2012). In the final assessment, McDonald’s had used the “think global, act local” philosophy to its great advantage, such that the brand is not among the most widely known and accepted in the world. Customers worldwide have embraced the brand as their own, testament to their adaptation, but the same customers will seek out a McDonald’s elsewhere in the world and will receive the same quality of service as they are accustomed to at home because of their standardization. The table following shows the pace of global expansion of McDonald’s food chain. Source: Tschoegl, 2007 2.0 Theory that governed McDonald’s globalization Discuss which Internationalisation Process Theory (IPT) ‘best’ describes the internationalisation process that your chosen global brand has undertaken. Again, remember to support your answer. 2.1 Eclectic theory The eclectic theory identifies three types of factors, referred to as OLI, that account for international production, namely Location-specific endowments, Ownership-specific endowments, and Internalization advantages. The first refers to relevant aspects of a locality (natural resources, labor, distance to markets, environment). The second type refers to the inputs which and enterprise creates itself and owns, such as technology and organization. The third includes those advantages that a firm realizes if it internalizes it ownership-specific endowments instead of selling them, e.g. through licensing (Dunning, 1980). Unfortunately, Dunning’s paradigm is ‘too eclectic,’ that is, Ownership endowments is overdetermined, while Location endowments is too broadly defined (Rugman, 2010). This does not appear to be relevant to McDonald’s. This fast food chain fluorishes worldwide whatever the location-specific, ownership-specific, and internalization aspects. There are no particular elements that would differentiate McDonald’s general strategy among different host countries; the store’s standardization remains the same. 2.2 I.O. (Industrial Organisation) theory Industrial organization theory builds on the theory of the firm in the course of analysing the structure of firms and markets and the boundaries that exist between them. The firm is viewed as a profit-maximizing entity, and in the course of pursuing this goal, it is influenced by the market structure and the implications on demand and supply. The theory includes implications of competitive market structures (e.g., perfect competition, monopoly, etc.) on pricing behaviour, cost distortions, etc.(Tirole, 1988). While the industrial organization model is ideal to use in understanding a firm’s behaviour in domestic markets, it is wieldy to use when examining a global company with a presence in several markets. This model does not apply to McDonald’s. It’s globalization was not propelled by any market structure, and certainly not by monopoly because food is a very prolific product. McDonald’s operates in a very fragmented market, because there are so many alternatives in retail food. 2.3 Innovation-related internationalization In academic literature, the relationship between innovation and internationalization has been arrived at through the stages approach. This theory is similar to the diffusion of innovation model discussed by Rogers (1962). The stages in the innovation decision process include knowledge, persuasion, decision, implementation, and confirmation. The relevance of this to the model is that internationalization is viewed from the perspective of an innovation that a firm is adopting (Rees, 2010). The model appears relevant in the early stages of internationalization; however, when the product is mature or the internationalization has been in place for some time, then the relationship between the two become confused because firms that are innovative are also more competitive internationally, while companies exposed to international environments are led to greater innovation (Filippetti, Frenz &Ietto-Gillies, 2009). Innovation-related internationalization may arguably be applied in the case of McDonald’s. The company’s systematic use of scientific management methods in mechanizing and standardizing food processing methods is process innovation, and McDonald’s was the innovating company. It was precisely the McDonald’s fast food model that had shaped the fast food industry as it is known today. Looking closely, however, it does not appear that this type of innovation was the driver of the company’s internationalization. The establishment of restaurants in other countries may still be successful without McDonald’s automation and systematization – that is, the dining experience is not by nature intrinsically related to the innovation mentioned. 2.4 Cluster theory The cluster theory states that when viewing the economic landscape, it will be observed that there are geographic concentrations of industries or trades in so-called ‘industrial districts’. These may also be referred to as ‘critical masses, in one place, of unusual competitive success in particular fields’ (Porter, 1998 in Stewart, Skinner & Edwards, 2005, p. 9). Economic policy makers saw in the clustering phenomenon a means by which regional and urban economic growth may be promoted. It is believed that where regional economies may sufficiently nurture industry clusters, competitiveness may be sustained and the threat of global competition be sufficiently met by the regional and national economies (Bekele & Jackson, 2006). In the case of McDonald’s, to suggest that the cluster theory model governed the company’s globalization does not quite hold water. McDonald’s entry into foreign markets was a largely pioneering venture, at a time when fast foods was not yet heard in these host countries, thus clustering is not the model applicable for McDonald’s. The company defined the fast-food eatery, and became the standard against which the market measured all other fastfoods. 2.5 Born global Businesses which are termed ‘born global’ are those firms that can quickly expand into markets across borders. They are also called ‘international new ventures’ or ‘rapid internationalisers’ (Rees, 2010). In contrast to organizations which begin by working domestically and then undergo a strategic change in focus prior to becoming global, there are firms that are global from birth. These “born globals’ tend to rapidly internationalise into markets that ready to adopt their technology (Freeman, Hutchings & Chetty, 2012). It appears that age is a factor in the chances that a firm would become a born global, with older firms being less predisposed to such rapid expansion. Certain factors have been found to drive born globals to internationalise rapidly, such as the need to quickly establish a revenue stream or cash flow; for this reason, born globals seek out larger advances economies that are culturally proximate and are capable of affording economies of scale. Born globals are more adept at moving from culturally proximate market to non-proximate market, more than older firms. While McDonald was not exactly established immediately global (because in 1937 there were no global firms yet in the way we understand them now), today it is probably the corporation in the world which has a natural ability to adapt to any country worldwide, and the ability to ‘think global, act local’ (Vignali, 2001, p. 99). 2.6 Internationalisation Process Theory (IPT) The study of internationalisation of firms began towards the end of the 1960s, and focused on the attitudes and behaviour of firms which were undergoing the process of going international. The interest at the time was to determine the rate of internationalisation, whether the evolution into an international organisation was incremental or gradual. Majority of the firms experienced a gradual and sequential process, beginning with tentative exportation and slowly increasing in their degree of commitment as the firms grew in size and their volume of exportation grew. This framework followed an ‘establishment chain’ which described the entry mode decision as a time-dependent process. On the other extreme, businesses were able to leapfrog certain stages in their internationalisation through a more random (as against sequential) process (Karlsen, 2000). McDonald’s chain of stores appears not to have been sequential or gradual, mainly because most of its stores outside of the United States followed the franchise business model. Franchising is a type of entry mode wherein two parties come to an agreement wherein one party (the franchisee) is granted by the other party (the franchisor, in this case McDonald’s) the privilege to sell a product or service as an individual business owner, but with the requirement to operate according to specific terms and methods specified by the franchisor (Longenecker, Moore, Petty & Palich, 2006, p.73). This is closer to the random approach because risk to McDonald’s is greatly mitigated by the franchisee’s participation. It is the franchisee who puts up the franchise fee, provides the location, and puts up the financing. The franchisee is a more effective entrepreneur because of his knowledge and familiarity with the host country’s regulations and the local business environment. The success of McDonald’s internationalisation is best viewed in the context of the competitive environment. Below is a perceptual mapping of the major global players in the fast food industry, situating McDonald’s vis-a-vis some of its main competitors. Source: Ghosh, et al., 2007, p.15 3.0 McDonald’s Country of Origin Effect Analyse the extent that you believe Country of origin effect (COO) influences consumer perception of your chosen global brand. Justify your answer. The country of origin effect is anchored on the institutions and culture of the home country of a multinational enterprise. It is manifested in the preference of the MNE to hire home-country nationals, and these managers once in place tend to exercise their administrative authority reflecting home country preferences in the organizational structure, processes and procedures of the multinational enterprise (Noorderhaven & Harzing, 2003). Another way of explaining COO effect is that no matter how seemingly ‘nationless’ a global organization may be, its culture and values will in many ways be rooted in its home country. In the case of McDonald’s, the country has taken great efforts in adapting to the host country in its menu choices, its advertising, and the promotional activities it pursues, among other things. Notwithstanding these efforts to adapt, McDonald’s as a brand remains associated with the heritage of its country of origin, the United States (Doole & Lowe, 2005, p. 214). Despite the fact that in some countries where beef is taboo the local McDonald’s stores don’t sell beef burgers, the association of the McDonald’s brand with the all-American hamburger remains inviolate. Johnson (2009) observed that in Poland, McDonald’s never sought to disguise it Americanness, because of the positive perception of the Poles of Americans (p. 13). The country of origin effect has both positive and negative implications, and it is unavoidable that COO effects necessarily attach to multinational corporations’ brands. The perceptions of foreign brands are favourable in some countries, and unfavourable in others. The manner in which COO effects tend to convey home country culture and values should therefore be carefully managed, with a sensitivity towards the inferences that may be drawn by host country citizens. In the case of McDonald’s there have been errors in the course of adaptation, but while these are few, they are striking. One was the poor translation of McDonald’s slogan to the Hmong language. Instead of endearing the brand to the people, the repercussion was confusion and embarrassment, instead contrasting McDonald’s as a foreign entity. On the whole however, McDonald’s COO effect has been generally accepted without adverse effects. Conclusion The McDonald’s brand has received numerous citations as being among the best, if not the best, global brand, both in the food category and overall (McDonald’s website, 2012). The golden arches can be seen in nearly every region of the world, and it is remarkable that the reception accorded this very American company is characterised by the familiarity usually reserved for local entities. That is because the company has struck upon the ideal marketing mix that combined service and product quality standardization, with adaptation to local tastes and preferences. 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