How Well Does the Company Create Value for Its Market Segments - Assignment Example

Pricing strategy How well does the company create value for its market segments? Explain. McDonalds Corp, world’s number one fast food chain, has a leading share in the globally branded quick service restaurant segment in virtually every country. They have succeeded in the fast food sector due to their strategy of franchising. Globalization urges companies to standardize their products, promotional campaigns, pricing as well as the distribution channels for all markets. Globalization requires total commitment to international marketing. While standardization may have cost savings, McDonalds has realized that it is essential to adapt to specific environment. ‘Good value for money’ does not just mean simply good food for the consumers, but it implies that ‘you can get what you want’ (Jones, Hillier, Shears & Clarke-Hill, 2002). To the US consumer low food prices are important in their evaluation of the fast-food establishment due to which prices are low in the US. To the Korean consumers factors other reliability and empathy are more important than low prices. In the fast paced US culture ‘time is money’ and hence they truly value ‘fast-food’ (Lee & Ulgado, 1997). Since they do not spend too much time they do not expect too much value for money. For the Koreans, the burger price may even be expensive for them. McDonalds base their strategy as per the requirement in each country. Does the company use different price offerings for different market segments? Describe these and evaluate how effective they are. Pricing is one of the most difficult decision variables that marketers face. The prices charged for the product or service send clear messages to the consumers about customer value and the company objectives (Pitt, Berthon & Morris, 1997). Pricing is not merely to cover costs and obtain return on investments. Pricing can be at premium, at minimum or pricing can even be at zero and this would depend on several factors such as segmentation, location, demand and competition. McDonalds have a rigorous pricing process for each country that determines the price for that particular market. The overall pricing objective is to increase the market share for which they have to consider the demands, the costs, the competition products and prices on offer and then finally decide upon the price. They have a value-based approach to pricing as they want to give the best value to the customers for what they pay. The pricing objective is to increase the market share. Thus based, on the demand for the product they set the price. To deliver value to the customer, they base their pricing on how the customer in that region would perceive the price. They also link it to the local earnings and see how the products would be appreciated (Vignali, 2001). For instance, in the USA the Big Mac with fries would be equivalent to 14 minutes of a worker’s earnings but in areas where Big Mac is a luxury product, it would be priced much higher. In Nigeria the same meal would represent 11 hours 23 minutes of work. Hence, McDonalds creates value for its products depending upon the perception of the price by the consumer. However, this strategy may also have to be altered when the demand reduces. In Japan and the US they had to reduce the prices to increase revenue. Explain how the company communicates both value and price. Consumers today want both healthy and indulgent food and they decide at the last moment what they want (Garber, 2005). The fast food service providers have to be equipped to cater to both these segments. Pricing power is a crucial element of the category sales momentum. McDonalds uses a value-based approach to pricing thereby ensuring that consumers get value for money. Thus, on items where McDonalds has no competition, it charges premium price, like their “specials” such as the two dollar burger (Monash, 2006). Through its promotional strategy, McDonalds communicates both value and price. For instance, in India, the catch line for their promotions is “Aap ke zamane mein, baap ke zamane ke daam” (Ghost et al, 2010). This literally means that even in this era you pay the price relevant to your father’s era. This demonstrates their principle of value for money for the consumers. Even the differential pricing for the US market and Nigerian market is based on the perceived value of the product by the local consumers. Give examples of how the company develops policies for price objections, price increases, economic downturns, or promotions. McDonalds also keeps in touch with competitor prices as it allows them to price their products properly while providing quality and value (Vignali, 2001). They compare the competitor prices in every market before setting their own price. In India they based their pricing on the prices of Nirula’s – a local food chain, to estimate what the Indian market would accept (Vignali, 2001). In addition, the life cycle of the product also determines the prices. In the US market the Big Mac is in the declining stage and hence priced lower than it is priced in Japan, where it is in the maturity stage. When McDonalds receive price objections in China, they abandoned their cost leadership. The Chinese customers are price sensitive but they seek quality, convenience and branded products and are willing to pay a little extra for it (Ojiako, Maguire & Guo, 2009). In addition, they want “the clean environment, pleasant ambience, and polite staff” (Baack & Boggs, 2008), and hence McDonalds had to alter its strategy in China. Another determinant of pricing strategy by McDonalds is the location of its competitors. Prices for McDonalds are low when Burger King outlets are located close to McDonalds but when the two units are located 2-2.5 miles apart, McDonalds prices are above the monopoly price (Thomadsen, 2007). McDonalds has created a price war but price wars only result in reduced income for franchisees that start running in losses (Garber, 2005). Price wars create a false demand and while the sales grow for some time, the profits reduce. Moreover, as people all over the world have become health conscious, they are willing to pay higher prices for quality product. The price war strategy can attract customers only for a short period and when the company is forced to increase the prices, they lose the newly created market share. Price war indicates that they cater to the lower and middle income group and this adversely impacts the brand image of the company. Price wars have been abandoned and discount meals are no more on offer. References: Baack, D.W., & Boggs, D.J. (2008). The difficulties in using a cost leadership strategy in emerging markets. International Journal of Emerging Markets. 3 (2), 125-139 Monash. (2006). Briohnys report, retrieved 30 October 2010 from http://www.monash.edu.au/lls/llonline/writing/business-economics/marketing/3.3.2.xml Ghosh, R., Balaji, D., Shah, J., Sherlekar, N., & Sidana, D. (2010). McDonalds: Behind the Golden Arches. retrieved 30 October 2010 from http://www.scribd.com/doc/11520753/Marketing-Strategies-of-McDonalds Garber, A. (2005). Sandwich segment lifted by new products, discount truce. Nations Restaurant News, 39 (26), 98-100 Jones, P., Hillier, D., Shears, P., & Clarke-Hill, C. (2002). Customer Perceptions of Services Brands: A Case Study of the Three Major Fast Food Retailers in the UK. Management Research News, 25 (6/7), 41-49 Lee, M., & Ulgado, F.M. (1997). Consumer evaluations of fastfood services: a cross-national comparison. THE JOURNAL OF SERVICES MARKETING, 11 (1), 39-52 Ojiako, U., Maguire, S., & Guo, S. 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