International Marketing: McDonalds Corporation - Case Study Example

? International Marketing – McDonald’s Corporation ID: Batch: Table of Contents Table of Contents 2 Introduction 4 Rationale behind internationalization 5 Mode of entry in foreign countries 5 Marketing mix strategies 6 Products 7 Price 7 Place 8 Promotion 8 Brand positioning & advertising strategy 8 Marketing plan and marketing strategies of McDonald’s Corporation in the UK 9 Marketing Research 9 Marketing Strategies 10 Impact of social and cultural factors on target market 10 Factors influencing international distribution channel 11 Consumer tastes and preferences 11 Cost considerations 12 Market size and business potential 12 Extent of influence 12 Findings of framework analysis 12 Conclusion 13 Reference List 14 Introduction McDonald’s Corporation is a fast food restaurant chain headquartered in Oak Brook, Illinois, USA. It is the world’s largest food service retailer with an operating income of $8.6 billion and has served 69 million customers daily in 2012. It was started in 1940 by Dick and Mac McDonald as the drive-in McDonald’s Bar-B-Q restaurant in California, with the current restaurant format debuting in 1948 at the same location. In 1949, it introduced its legendary French Fries and Triple Thick Milkshakes. In 1954, the company franchised for the first time through Ray Kroc, which marked the beginning of rapid expansion of its business. In just four years, it expanded from 100 outlets in 1959 to 500 outlets in 1963. It went public in 1965 and began international operations in Canada in 1967. By 1983, McDonald’s operated 7778 outlets and as of 2011, it operates 34000 outlets in 118 countries around the world, of which 80% are franchised (McDonald’s, 2013a; McDonald’s, 2013b). It has 1.8 million employees and is listed in all major stock exchanges such as, NYSE and LSE (NYSE Euronext, 2012; London Stock Exchange plc, 2013). McDonald’s offers a variety of products in its home country of U.S such as, hamburgers, sandwiches, wraps, fried chicken items, salads, oatmeal breakfast, burritos, hotcakes, French fries, coffee, smoothies, yogurt, milkshakes, juices, ice cream, pies and cookies. Most of the products are available worldwide, with a few exceptions. On the other hand, it offers regional products in various countries that are not available in the U.S. Some of the country-specific products include McArabia wrap in the Middle East, McSpicy Paneer burger in India and Bubur Ayam chicken porridge in Indonesia (McDonald’s, 2013c; McDonald’s, 2013d; McDonald's™ India, 2013a; McDonald's Indonesia, 2013). Rationale behind internationalization Since its inception, profit maximization was one of the prime motives of the business model, besides gaining maximum market share and attaining a vast service network. Throughout its history, McDonald’s Corporation received a hugely positive reception and enjoyed a virtually competition-free environment during its growth, with the only direct competitor being White Castle that operated since 1921. The global influence of U.S. and the American culture being perceived as the right way of life also triggered a positive brand image of the company outside U.S., even before it began international operations. Thus, the rationale behind internationalization of McDonald’s Corporation can be summarized as profit maximization, market share maximization, making good use of the positive brand image created internationally and gaining first mover’s advantage in foreign countries. Today, the company operates in 118 countries and is considered as a symbol of American culture (McDonald’s, 2013a; White Castle Management Co., 2013). Mode of entry in foreign countries The different modes of entry that are available to a company are exporting products and distributing through a regional outlet, contracting another company to set up the complete business infrastructure for the entering company in exchange for a fee (known as a turn-key project), teaming up with a local partner to jointly share investments and profits (known as joint venturing), setting up a local business unit that operates independently but reports to the parent company (known as a subsidiary), selling rights to local companies to use the entering company’s trademarks, business models and products (known as licensing) and selling rights to local agents to operate the entering company’s outlets as per the company’s business model and sharing profits between agents and the company (known as franchising). The principal difference between licensing and franchising is that in franchising, the parent company has significant influence over use of its trademarks and business operations (West Virginia University, 2008). The mode of entry adopted by McDonald’s Corporation is franchising. Franchising is the process by which a willing individual or organization (referred to as a franchisee) buys the rights over a definite geographic area to run outlets that use the franchisor company’s trademarks, business models and products portfolio. The advantage of the franchising business model is that it enables a company to expand rapidly internationally without incurring cost overruns. This is because in this model, it is the franchises that provide initial capital and even absorb the risks of poor business performance. Under this arrangement, a franchisee pays an up-front fee to McDonald’s Corporation for using its intellectual property such as, name, design, trademarks and livery. Besides, the franchisee pledges to abide by the business model of McDonald’s Corporation such as, restaurant layout, floor space and design; products, preparation style and quality of ingredients; and organizational practices regarding the quality and quantity of human resource. In addition to the up-front fee, McDonald’s Corporation also receives a share of the annual revenues of the franchisee (McDonald’s, 2013e). Marketing mix strategies Since 2003, McDonald’s Corporation has been following the “Plan to Win” framework, a collection of strategies and initiatives centered on the five marketing mixes: People, Products, Place, Price and Promotion. The ‘Plan to Win’ framework requires the company, its suppliers and franchisee agents to cooperate together and take steps that are aimed at increasing the performance of the company and improving customer satisfaction. Products McDonald’s Corporation offers a huge variety of products that include standard products available globally and country-specific products. Examples of country-specific products are Big Tasty sandwich in U.K. and McGriddles sandwiches in U.S. It has also expanded its product line beyond its hamburgers and now offers a range of breakfast cereals, pies, coffee, beverages and ice-creams. Recently, it has introduced products for the health-conscious consumers in the form of sugar-free fruit juices, salads and yogurt. Price The pricing strategy of the company can be summarized as a combination of market-oriented pricing, where price is decided after extensive market research about prevalent buyer perceptions and prices of competitors; and penetration pricing, where prices are lower than direct competitors with an intention to gaining maximum market share. The prime elements that affect the pricing of McDonald’s Corporation are to regain the cost incurred to produce, earn an additional margin over and above the costs, live up to the perceived price in the minds of the consumers regarding products, possess competitive pricing advantage over competitors and retain high market share and market leader status. Finding out the cost incurred per unit of product is easier for businesses that simply manufacture and deliver goods. However, since McDonald’s Corporation products and a service experience, it has to look beyond fixed and overhead costs and also consider other expenditures like training costs and staff expenses. Since these costs cannot be expressed in cost per unit, it makes pricing the most challenging task. A constant focus of McDonald’s Corporation is to offer products at competitive prices such as, the Dollar Menu in the U.S., McDeals Menu in Germany and the Pound Saver Menu in U.K. Place McDonald’s Corporation constantly aims at reinventing its outlets and refurbishing them to enhance their utility and appeal to customers. It has also introduced different restaurant layouts such as, drive-through, single-seating arrangement and family dining. Recently, it has started introducing free internet facilities at several of its locations. Promotion McDonald’s Corporation’s slogan is “I’m lovin’ it”. It has recently implemented a new packaging format that is simple yet attractive. It broadcasts advertisements on the television during prime time hours as well as other times (McDonald’s, 2003). Brand positioning & advertising strategy McDonald’s Corporation has positioned its brand as a place where people can avail high quality meal from a wide palate of offerings with great convenience such as, sit-and-eat or takeaway at an economic price. It is also positioned as a place where children can enjoy their meals with accompanying toys in special meal packages, exclusively for kids. It is also positioned as a place that is ideal for small parties for children. Lastly, it is positioned as a place where parents and children can bond and enjoy a meal together. Of late, it is increasingly being positioned as a place where people can avail healthy food and drinks without worrying about the high prices tied with health foods. It has constantly tried to stay away from being a hamburger chain and be much more than that (Google Sites, n.d.). For advertisement, McDonald’s Corporation has prominently featured its world famous double arches logo on all its advertisement campaigns. It has also primarily portrayed happy customers that are satisfied for choosing meals at the restaurant. It has a trademark slogan “I’m lovin’ it” that only complements its advertisement campaign intentions and has also used a trademark jingle that distinguishes itself from competitors. Lastly, its advertisements are also centered on enjoying high quality meals in a good setting at an affordable price. Marketing plan and marketing strategies of McDonald’s Corporation in the UK McDonald’s Corporation UK strives to offer a wide variety of products at competitive prices that kids, teenagers and elder family members can buy and enjoy in a good environmental setting. This philosophy also reflects in the marketing plan and marketing strategies the company has adopted in the UK. Marketing Research The company collects a host of data about the market such as, the socio-economic status of consumers, popular products among the target market and the products which do not enjoy widespread popularity; the perceived price level of different products in the consumers’ minds; the kind of media that consumers are exposed to such as, television, newspapers, radio and websites; and types of food joints that the consumers prefer to visit. Some of McDonald’s Corporation’s direct competitors in the UK are KFC, Pizza Hut, Burger King and Wendy’s. It collects a host of data about its direct and indirect competitors such as, size of the target market, market share of competitors, SWOT Analysis of competitors and SWOT Analysis of itself. Once analysis of different interacting factors is complete from secondary data, McDonald’s Corporation focuses on marketing research and collection of primary data. Data collected involves changes in the living standards of consumers, products and prices of competitors, changes in laws and regulations that may affect operations, advancement of technology over a period of time and changes in dining habits of the consumers as well as consumer experiences and feedback. These data are analyzed to find out if the company’s business model and products are efficient at meeting present and future expectations, if it has strategic and competitive advantages over its competitors and if it is able to garner consistent customer satisfaction. Marketing Strategies The findings of marketing research and analysis are used in formulating marketing strategies that address concerns and challenges. It primarily focuses on the traditional 4Ps of marketing: Product, Price, Place and Promotion. It consistently introduces new products and discontinues unpopular products. It also introduces products such as breakfast cereals, pies, salads and yogurt. The prime focus of the company is to offer products at competitive prices that are not only dependant on the consumer demand, but also on the prevalent prices charged by the local competitors. It constantly introduces new restaurant layouts such as, drive-through, single-seating arrangement and family dining. It also updates old restaurants to enhance visual appeal. It broadcasts advertisements on the television during prime time hours as well as other times and also, uses sales promotions such as, telemarketing and home delivery services (McDonald’s Corporation, 2008). Impact of social and cultural factors on target market Socio-economic factors play a large role in McDonald’s Corporation’s formulation of strategies on target market. Although the marketing mix of the company is the same internationally, it does take certain customer-centric approaches in each market it operates in. For example, to cater to the needs of the increasingly health-conscious younger population of many countries, it has started offering low-calorie alternatives such as sugar-free fruit juices, salads and yogurt. It has also introduced hot coffee, cereals and pies keeping in mind urban single individuals and overnight travelers who are looking for a traditional breakfast on the go. Keeping in mind the preteen customers, it offers a Happy Meal consisting of a meal and toys. It also offers milkshakes, ice cream cones and a host of other desserts primarily targeting children. For the large Hispanic population of the US, it offers products such as burritos. McDonald’s Corporation’s products are priced lower in emerging economies compared to developed ones. For example, in 2012, the price of a Big Mac was $4.20 in the US, $3.82 in UK, $2.44 in China and $1.62 in India (The Economist, 2012). Cultural factors also influence McDonald’s Corporation’s strategies in the target market. For example, it does not offer beef and pork items in India, where there is a large population of Hindus and Muslims who detest beef and pork, respectively. In Israel, it offers kosher products whereas in the Islamic countries, it offers halal products that do not include pork. Moreover, in India, it maintains separate vegetarian and non-vegetarian kitchens (H.R.P.L., 2012). Factors influencing international distribution channel The various factors which influence the decision of McDonald’s Corporation in developing distribution channel internationally are: Consumer tastes and preferences For example, consumption of beef is a taboo among Hindus in India, while consumption of pork is a taboo in Islamic countries. Similarly, consumption of Genetically Modified (GM) products is increasingly being detested in developed countries like, U.S. and U.K. Cost considerations Since McDonald’s Corporation’s focus is on value for money products, it competes even with local competitors who often operate on low margin and have a very small business footprint. Thus, setting-up a distribution channel must have minimum cost-bearings. McDonald’s Corporation has handled this by operating 80% of its distribution channel, thereby putting the cost factor on the franchisees. Market size and business potential McDonald’s Corporation has 300 outlets in India and 27 outlets in Pakistan, compared to 14157 outlets in the U.S. Therefore, the market size and business potential directly influences international distribution channel (McDonald's™ India, 2013b; McDonald's Pakistan Limited, n.d.; TheHuffingtonPost.com, Inc., 2013). Extent of influence Since McDonald’s Corporation exercises a considerable extent of authority over the operation of franchised outlets, the willingness of franchisees in different countries to oblige by the rules plays a big role. Findings of framework analysis Allowing a lot of freedom to franchisees often jeopardizes a parent company’s brand value and product quality. McDonald’s Corporation has been uncompromising in terms of eatery formats, human resource policies and product catalog and quality, which it has standardized for all its owned and franchised outlets around the world. McDonald’s Corporation always shown tremendous responsibility in respecting local socio-economic situations, cultures and taboos across the world and has incorporated subtle changes in its product portfolio and business operations that address these issues. Its successful business model, responsiveness towards the market, systematic marketing research, efficient marketing strategies, constant upgrading of products and facilities and a growth-oriented management board, make McDonald’s a very successful international company. Conclusion McDonald’s Corporation is a dynamic company that constantly reinvents itself and its operations to keep up with time, since it was formed more than half a century ago. Over the years, it has promptly responded to business requirements and practices such as, product portfolio, sustainable development, health and hygiene regulations and competition management. It has adopted the very efficient business model of franchising with which it has been able to rapidly spread internationally, without spending a single penny (since it is the franchises that pay McDonald’s Corporation for using their rights). Since it inception McDonald’s has been on the fast track for success and has done so by responsible social behavior coupled with the ability to meet up with ever changing business environment. Reference List Google Sites, No Date. 2. McDonald's Positioning. [online] Available at: [Accessed 19 December 2013]. H.R.P.L., 2012. McDonald's India Profile. [online] Available at: [Accessed 19 December 2013]. London Stock Exchange plc, 2013. MCDONALD'S CORPORATION. [online] Available at: [Accessed 19 December 2013]. McDonald’s Corporation, 2008. Marketing at McDonald’s. [pdf] McDonald’s Corporation. Available at: [Accessed 19 December 2013]. McDonald’s, 2003. McDonald’s 2003 Summary Annual Report. [pdf] McDonald’s. Available at: [Accessed 19 December 2013]. McDonald’s, 2013a. McDonald's History. [online] Available at: [Accessed 19 December 2013]. McDonald’s, 2013b. Getting to Know Us. [online] Available at: [Accessed 19 December 2013]. McDonald’s, 2013c. Full Menu Explorer. 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